-----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, HR9Hhm83Nci1rTvQAQG2ZPp4XtTuZHMmkHQWYI5saAwPBSaTebqlN8i0aRNS018P 4SGYnBTztVAziJGBiPtNZg== 0000950131-96-001251.txt : 19960328 0000950131-96-001251.hdr.sgml : 19960328 ACCESSION NUMBER: 0000950131-96-001251 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CHICAGO NBD CORP CENTRAL INDEX KEY: 0000070040 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 381984850 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07127 FILM NUMBER: 96538831 BUSINESS ADDRESS: STREET 1: ONE FIRST NATIONAL PLAZA CITY: CHICAGO STATE: IL ZIP: 60670 BUSINESS PHONE: 3127324000 MAIL ADDRESS: STREET 1: ONE FIRST NATIONAL PLAZA CITY: CHICAGO STATE: IL ZIP: 60670 FORMER COMPANY: FORMER CONFORMED NAME: NBD BANCORP INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL DETROIT CORP DATE OF NAME CHANGE: 19810522 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-7127 FIRST CHICAGO NBD CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 36-1984850 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) Registrant's telephone number, including area code: (312) 732-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- ----------------------- Common Stock, $1.00 par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, Series B ($100 stated value), no par value New York Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, Series C ($100 stated value), no par value New York Stock Exchange Depositary Shares, each representing one-twenty-fifth of a share of 8.45% Cumulative Preferred Stock, Series E ($625 stated value), no par value New York Stock Exchange Depositary Shares, each representing one-hundredth of a share of 5 3/4% Cumulative Convertible Preferred Stock, Series B ($5,000 stated value), no par value New York Stock Exchange 7 1/2% Preferred Purchase Units New York Stock Exchange 7 1/4% Subordinated Debentures Due 2004 New York Stock Exchange 8.10% Subordinated Notes Due 2002 New York Stock Exchange 8 1/2% Notes Due June 1, 1998 New York Stock Exchange 5 1/2% Exchangeable Notes Due February 15, 1997 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF CLASS - -------------- 8.45% Cumulative Preferred Stock, Series E ($625 stated value) 5 3/4% Cumulative Convertible Preferred Stock, Series B ($5,000 stated value)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the Corporation as of December 31, 1995, was approximately $11,268,000,000. At December 31, 1995, the Corporation had 315,241,109 shares of its Common Stock, $1.00 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE CORPORATION'S DEFINITIVE PROXY STATEMENT DATED APRIL 5, 1996, ARE INCORPORATED BY REFERENCE INTO PART III HEREOF. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FIRST CHICAGO NBD CORPORATION FORM 10-K INDEX
PAGE ---- PART I Item 1. Business..................................................... 2 Description of Business...................................... 2 Employees.................................................... 6 Competition.................................................. 6 Monetary Policy and Economic Controls........................ 6 Supervision and Regulation................................... 6 Financial Review............................................. 12 Item 2. Properties................................................... 86 Item 3. Legal Proceedings............................................ 87 Item 4. Submission of Matters to a Vote of Security Holders.......... 87 Executive Officers of the Registrant..................................... 87 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................................... 88 Item 6. Selected Financial Data...................................... 88 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 88 Item 8. Financial Statements and Supplementary Data.................. 88 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 88 PART III Item 10. Directors and Executive Officers of the Registrant........... 88 Item 11. Executive Compensation....................................... 88 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 88 Item 13. Certain Relationships and Related Transactions............... 88 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 89
1 PART I ITEM 1. BUSINESS DESCRIPTION OF BUSINESS General First Chicago NBD Corporation (the "Corporation"), incorporated in Delaware in 1972, is a multibank holding company registered under the Bank Holding Company Act of 1956 (the "BHC Act"). The Corporation is the surviving corporation resulting from the merger (the "Merger"), effective December 1, 1995, of First Chicago Corporation ("FCC"), a Delaware corporation and registered bank holding company, with and into NBD Bancorp, Inc. ("NBD"), also a Delaware corporation and registered bank holding company. Through its bank subsidiaries, the Corporation provides consumer and corporate banking products and services. The Corporation's lead bank subsidiary is The First National Bank of Chicago ("FNBC"). The Corporation also is the parent corporation of NBD Bank (Michigan) ("NBD Michigan"), American National Bank and Trust Company of Chicago ("ANB"), FCC National Bank ("FCCNB"), NBD Bank, N.A. (Indiana) ("NBD Indiana"), NBD Bank (Illinois) ("NBD Illinois"), NBD Bank (Florida) ("NBD Florida"), and several other bank subsidiaries. In addition, the Corporation directly or indirectly owns the stock of various nonbank companies engaged in businesses related to banking and finance. The Corporation also directly or indirectly raises funds principally to finance the operations of its nonbank subsidiaries. A substantial portion of the Corporation's annual income typically has been derived from dividends from its subsidiaries and from interest on loans, some of which are subordinated, to its subsidiaries. The Corporation, on an ongoing basis, evaluates its existing business operations and organizational structures, and routinely explores opportunities for additional acquisitions of financial institutions and other financial services-related businesses and assets. In addition, the Corporation occasionally sells assets, or exits businesses or markets determined not to be consistent with the Corporation's overall business strategy. During 1995, the Corporation consummated its previously announced acquisitions of Deerbank Corporation and AmeriFed Financial Corp., and the related thrift subsidiary mergers into NBD Illinois. On January 25, 1996, the Corporation executed a definitive agreement to acquire Barrington Bancorp, Inc. ("Barrington"), a one-thrift holding company with assets of approximately $68 million; the transaction, which is subject to the approval of Barrington's stockholders and various regulatory authorities, is expected to close in mid-1996, at which time the thrift subsidiary will merge into FNBC. On February 23, 1996, the Corporation sold substantially all of the assets and deposits of NBD Bank (Ohio). During 1996, the Corporation intends to merge NBD Illinois with and into FNBC and consolidate NBD Illinois' retail and middle market banking operations with those of FNBC and ANB. The Corporation engages primarily in four lines of business--Credit Card; Regional Banking, which includes retail banking and middle market banking; Corporate and Institutional Banking; and Corporate Investments. Each of these businesses is conducted through the Corporation's bank and nonbank subsidiaries, as described below. Credit Card Credit Card has primary responsibility for developing and marketing credit card products and related services to individuals nationwide using direct response, telemarketing and other techniques that do not require a local physical presence. While the Corporation's proprietary First Card line of VISA and MasterCard accounts are the primary Credit Card products, other products include check-accessed lines of credit and certificates of deposit. The majority of the Corporation's credit card accounts are owned and administered by FCCNB, a Delaware-based national banking association. FCCNB ranks among the largest issuers of bank credit cards in the United States. The Corporation's Credit Card operations centers are located in Wilmington, Delaware; Elgin, Illinois; Indianapolis, Indiana; Troy, Michigan; and Uniondale (Long Island), New York. At December 31, 1995, Credit Card managed approximately $17.5 billion in card-related receivables. 2 Regional Banking Retail Banking Retail banking is conducted primarily through FNBC, NBD Michigan, NBD Indiana, NBD Illinois and NBD Florida by providing traditional retail banking products and services to consumers. Products and services offered include demand, savings and time deposit accounts; installment loans and related services; lines of credit and other open-end credit products; mortgage banking; electronic banking; safekeeping; nondeposit investment products and related services including mutual funds, annuities and discount brokerage services; and trust and investment services. Trust and investment services include financial planning, estate planning, retirement planning, tax counseling, custody services, and fiduciary services including acting as executor, administrator and personal representative of estates. Retail banking offers an array of additional financial services, including property and casualty insurance, and credit life and other life insurance products. The Corporation also manages two proprietary mutual fund families, the Woodward and Prairie Funds, that comprise a variety of mutual funds covering a wide range of investment objectives. These fund families will be combined during 1996. As of December 31, 1995, the combined funds ranked among the largest bank-managed fund families in the country, with approximately $11 billion in assets. The Corporation's primary retail banking markets are metropolitan Chicago and the states of Michigan and Indiana. The Corporation enjoys a leading market share in each of these geographic markets, serving in the aggregate approximately 3,000,000 households through over 700 bank branches, more than 1,300 automatic teller machines ("ATMs"), 24-hour telephone support, and online banking services available through personal computers. Additionally, retail banking is available and marketed nationally through "direct banking," which offers 24-hour telephone support, nationwide debit card access to ATMs and merchants, and online banking services. ATM services are provided to retail banking clients through two regional shared networks in which the Corporation has an ownership interest, CASH STATION and Magic Line, and through the CIRRUS system, a national shared ATM network. The Corporation, pursuant to a contract with MasterCard, operates the computerized transaction routing switch for CIRRUS. The Corporation also operates a similar routing switch for Magic Line. Middle Market Banking Middle market banking is conducted primarily through ANB, NBD Michigan, NBD Indiana and NBD Illinois, serving companies and other middle market customers located predominantly in the Midwest. Commercial banking products and services offered include commercial loans, demand, savings and time deposit accounts, and cash management services. In addition, middle market banking offers a wide array of ancillary products and services targeted principally to the commercial middle market customer base. Corporate finance products and services offered include merger and acquisition advisory services, financial advisory services, interest rate protection products and, through ANB Mezzanine Corporation, mezzanine debt capabilities. Lease financing is available to companies seeking an alternative to loan products. International trade banking services and foreign exchange capabilities are offered to customers involved in both import and export activities. Treasury and investment products and services offered include short-term investment management and employee benefit plans. Personal banking, trust, insurance, investment, loan, deposit, estate planning, fiduciary management and portfolio management services are offered to business owners, executives and other individuals. Corporate trust services, 3 including land trust services and indenture trustee services, are offered to companies, municipalities and institutions that issue public or privately placed debt. Specialized banking services are also offered and include asset- based financing and commercial real estate financing. Corporate and Institutional Banking Corporate and Institutional Banking encompasses the broad range of commercial and investment banking products and services that FNBC, NBD Michigan and NBD Indiana, along with the subsidiaries referenced below, provide to domestic and foreign customers. Corporate and Institutional Banking's principal focus is the delivery of corporate financial services, including the extension of credit, to commercial, financial and governmental customers. Corporate and Institutional Banking serves the manufacturing, wholesaling, retailing, commodities, banking, finance, insurance, transportation, securities, real estate, mortgage banking, communications, utilities, and petroleum and mining industries, as well as municipalities and health, education and service organizations. Customers include both large corporations and upper-end middle market companies. In the global financial marketplace, Corporate and Institutional Banking is responsible for the Corporation's investment and trading activities in: U.S. government, municipal, corporate fixed-income, and federal agency securities; and the foreign exchange and futures markets. Corporate and Institutional Banking also provides a wide range of risk management products such as foreign exchange options, interest rate options, and interest rate and currency swaps. First Chicago Capital Markets, Inc. ("FCCM"), one of the Corporation's subsidiaries, is a primary government bond dealer and is principally responsible for activities in the securities of states, municipalities, other governmental entities and certain corporate entities, including trading, sales, underwriting, research, and maintenance of an active secondary market with national sales distribution. Corporate and Institutional Banking also offers capital raising products such as loans, private placements of debt securities, merger and acquisition advisory services, highly leveraged transaction financing, asset sales and distributions, and loan syndications. In addition, Corporate and Institutional Banking develops, markets and delivers cash management, operating, clearing and other noncredit products and services, both overseas and domestically. These include money transfer, collection, disbursement, documentary, remittance, trade finance and international securities clearing services. Corporate and Institutional Banking offers a wide range of administrative and trust and investment advisory services to corporations, municipalities and charitable organizations, including defined contribution plans and defined benefit plans. Each of FNBC, NBD Michigan, NBD Indiana, and certain of the Corporation's other bank subsidiaries act as trustee of corporate, pension, profit-sharing and other employee-benefit trusts, provide custody services, and act as registrar, fiscal and paying agent for business entities. Corporate and Institutional Banking includes the operations of three subsidiaries of the Corporation: First Chicago National Processing Corporation, which provides noncredit clearing services, including lock box processing, on a nationwide basis; First Chicago International, which provides clearing and documentary services; and First Chicago Trust Company of New York, a New York state-chartered trust company ranking among the largest stock transfer agents in the United States, which provides custody, special agency, stock transfer, and securities issuing, paying and clearance services. In addition, the First Chicago Clearing Center in London is that city's principal depository for certificates of deposit and other short-term securities. 4 Corporate Investments Corporate Investments encompasses mostly noncustomer-oriented activities that are conducted primarily through the Corporation's nonbank subsidiaries, including First Chicago Investment Corporation, First Chicago Equity Corporation, First Chicago Leasing Corporation, First Chicago Capital Corporation and First Chicago Financial Corporation, which raises funds to help finance these activities. The activities of Corporate Investments comprise growth equity investments, tax-advantaged investments, value-oriented investments, and funding and liquidity investments. Growth equity investment activities include various forms of equity funding for acquisitions, management buyouts and growing businesses; funding for these activities is provided by First Chicago Investment Corporation. First Chicago Equity Corporation, a small business investment company licensed under the Small Business Investment Act of 1958, offers equity funding for small business ventures. Tax-advantaged investment activities include advising on and investing in leases for commercial aircraft and major industrial facilities and equipment. Investments are also made in alternative energy programs and affordable housing projects qualifying for tax credits under Section 29 and Section 42, respectively, of the Internal Revenue Code of 1986. Primary support for these activities is provided by First Chicago Leasing Corporation. Value-oriented investment activities include positions in the distressed and value investment markets, such as: loans, letters of credit, trade claims and securities of distressed companies; securities of companies whose debt trades below full face value of the claim; below-investment-grade tranches of commercial mortgage-backed securities; and fixed-income securities, publicly traded debt (including subordinated debt), equities, options and other securities. Support for the majority of these activities is provided by First Chicago Capital Corporation. Funding and liquidity investment activities provide funding to meet the incremental financing needs of the Corporation's bank subsidiaries through placing deposits and making investments in the wholesale money markets to provide a diversified funding base. These liquid investments include Fed funds and interest-bearing deposits. In addition, investments are generally made in short- to medium-term municipal, government, and agency securities that provide increased liquidity and satisfy various collateral requirements. Financial and Risk Policy The Corporation's Risk Management Committee determines the desired risk profile of the Corporation, allocates resources, including risk capacity against expected return, to the lines of business, approves major investment programs that are consistent with strategic priorities and risk appetite, and makes capital management decisions to appropriately fund the Corporation's portfolio of investments. The Risk Management Committee includes, among others, the Chairman, the Chief Executive Officer, the Vice Chairmen, the Chief Risk Management Officer and the Chief Financial Officer. The Risk Management Committee is supported by: the Credit Risk Committees, which are responsible for approving credit exposures within authorities granted; the Investment Risk Management Committee, which is responsible for approving trading and investment/sale decisions for the Corporation's own account, managing the Corporation's liquidity, monitoring and adjusting structural interest rate risk, and overseeing market-related trading activities; the Fiduciary Risk Committee, which is responsible for approving the processes and mechanisms designed to mitigate fiduciary risks; the Operating Risk Committee, which is responsible for approving the processes and mechanisms designed to mitigate operating risks; and the Review Committee, which is responsible for providing strategic direction and senior management oversight for the risk management process. 5 EMPLOYEES As of December 31, 1995, the Corporation and its subsidiaries had 35,328 employees on a full-time-equivalent basis. COMPETITION All of the Corporation's principal business activities are highly competitive. The Corporation's subsidiaries, including the bank subsidiaries (the "Banks"), compete actively with other financial services providers offering a wide array of financial products and services. The Corporation's competitors include other national and state banks, savings banks, savings and loan associations, finance companies, credit unions, mutual funds, securities brokers, mortgage bankers, leasing companies, insurance companies, other domestic and foreign financial institutions and various nonfinancial intermediaries. MONETARY POLICY AND ECONOMIC CONTROLS The earnings of the Banks, and therefore the earnings of the Corporation, are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). An important function of the Federal Reserve Board is to promote orderly economic growth by influencing interest rates and the supply of money and credit. Among the methods that have been used to achieve this objective are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, interest rates on loans and securities, and rates paid for deposits. The Federal Reserve Board's monetary policies strongly influence the behavior of interest rates and can have a significant effect on the operating results of commercial banks. Recently, economic growth has been moderate, and wage and price inflation stable. Given such circumstances, the Federal Reserve Board has begun a gradual easing of credit conditions, nudging down interest rates. The effects of the various Federal Reserve Board policies on the future business and earnings of the Corporation cannot be predicted. Other economic controls also have affected the Corporation's operations in the past. The management of the Corporation cannot predict the nature or extent of any effects that possible future governmental controls or legislation may have on its business and earnings. SUPERVISION AND REGULATION General Bank holding companies, banks and financial institutions generally are highly regulated, with numerous federal and state laws and regulations governing their activities. As a bank holding company, the Corporation is subject to regulation under the BHC Act and is subject to examination and supervision by the Federal Reserve Board. Under the BHC Act, the Corporation is prohibited, with certain exceptions, from acquiring or retaining direct or indirect ownership or control of voting shares of any company that is not a bank or bank holding company, and from engaging in activities other than those of banking or of managing or controlling banks, other than subsidiary companies engaged in activities that the Federal Reserve Board determines to be so closely related to the business of banking as to be a proper incident thereto. The acquisition of direct or indirect ownership or control of a bank or bank holding company by the Corporation is also subject to certain restrictions under the BHC Act and applicable state laws. The Corporation is a legal entity separate and distinct from the Banks and the Corporation's other affiliates. The Banks are subject to certain restrictions imposed by the laws of the United States on any extensions of credit to the Corporation or, with certain exceptions, other affiliates; on investments in stock or other securities thereof; on the taking of such securities as collateral for loans; and on the terms of transactions between the Banks and other subsidiaries. The Corporation and its subsidiaries are also subject to certain restrictions with respect to engaging in the issuance, flotation, underwriting, public sale or distribution of securities. 6 The national bank subsidiaries of the Corporation, including FNBC, ANB, FCCNB and NBD Indiana, are supervised, examined and regulated by the Office of the Comptroller of the Currency (the "Comptroller") under the National Bank Act. Since national banks are also members of the Federal Reserve System and their deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"), they are also subject to the applicable provisions of the Federal Reserve Act, the Federal Deposit Insurance Act, and, in certain respects, to state laws applicable to financial institutions. NBD Michigan, NBD Illinois and the other state-chartered bank subsidiaries of the Corporation are, in general, subject to the same or similar restrictions and regulations, but with more extensive regulation and examination by state banking departments, the Federal Reserve Board for state banks that are members of the Federal Reserve System, and the FDIC for state banks that are not members of the Federal Reserve System. In addition, the Banks' operations in other countries are subject to various restrictions imposed by the laws of such countries. Federal law prohibits the Corporation and certain of its affiliates from borrowing from the Banks without the prior approval of the respective Bank's Board of Directors and unless such loans are secured by United States Treasury securities or other specified obligations. Further, such secured loans and investments by any of the Banks are limited in amount as to the Corporation or any other such affiliate to 10% of the respective Bank's capital and surplus and as to the Corporation and all such affiliates to an aggregate 20% of the respective Bank's capital and surplus. Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to each Bank and to commit resources to support such Bank in circumstances where it might not do so absent such policy. In addition, any capital loans by the Corporation to any of the Banks would be subordinate in right of payment to deposits and to certain other indebtedness of such Bank. Additionally, there are certain federal and state regulatory limitations on the payment of dividends to the Corporation by the Banks. Dividend payments by national banks are limited to the lesser of (i) the level of "undivided profits then on hand" less the amount of bad debts, as defined, in excess of the allowance for credit losses and (ii) absent regulatory approval, an amount not in excess of "net profits" for the current year combined with "retained net profits" for the preceding two years. As of January 1, 1996, the Banks could have declared additional dividends of approximately $1.2 billion without the approval of banking regulatory agencies. The payment of dividends by any Bank may also be affected by other factors, such as the maintenance of adequate capital for such Bank. Banking regulatory agencies have the authority to prohibit the banking organizations they supervise from paying dividends if, in the banking regulator's opinion, the payment of dividends would, in light of the financial condition of such bank, constitute an unsafe or unsound practice. As a bank holding company, the Corporation, along with its subsidiaries, is prohibited from engaging in certain tie-in arrangements in connection with extensions of credit or providing property or services. Legislation may be enacted or regulation imposed in the United States or its political subdivisions, or in any other jurisdiction in which the Corporation does business, to further regulate banking and financial services. There can be no assurance whether any such legislation or regulation will place additional limitations on the Corporation's operations. A number of lawsuits and administrative actions have been filed in several states against credit card issuing banks challenging various fees and charges assessed against residents of the states in which such suits were filed. Two state supreme courts and two federal appeals courts have affirmed dismissal of these cases on the ground that individual state prohibitions on assessing these fees or charges are preempted by federal laws. In 1995, the New Jersey Supreme Court ruled that state prohibitions on late fees are not preempted by federal laws, and the issue is now before the U.S. Supreme Court. If the Supreme Court resolves this case adversely to credit card issuing banks, the decision could have the effect of limiting certain fees and charges that could be assessed on credit card accounts and could subject card issuing banks to the payment of refunds or civil penalties. It is not practicable to determine the amount of such refunds or penalties FCCNB, the Corporation's primary issuer of bank credit cards, might have to pay in such event, but any such payment could have an adverse impact on the Corporation's Credit Card business. 7 Capital Adequacy The Federal Reserve Board has adopted risk-based capital guidelines that require bank holding companies to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) of 8%. At least half of total capital must be composed of common stockholders' equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less disallowed intangibles and other adjustments ("Tier I capital"). The remainder ("Tier II capital") may consist of subordinated debt, other preferred stock, certain other instruments and a limited amount of loan loss reserves. At December 31, 1995, the Corporation's consolidated Tier I capital and total capital ratios were 7.8% and 11.8%, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier I capital to total average assets (the "leverage ratio") of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The Corporation's leverage ratio at December 31, 1995, was 6.9%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "tangible Tier I capital leverage ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities. Each of the Banks is subject to similar risk-based and leverage capital requirements adopted by its applicable federal banking agency. Each of the Corporation's Banks was in compliance with the applicable minimum capital requirements as of December 31, 1995. Neither the Corporation nor any of the Banks has been advised by any federal banking regulatory agency of any specific minimum leverage ratio requirement applicable to it. Failure to meet capital requirements could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described below under "FDICIA and FIRREA." Banking regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, the management of the Corporation is unable to predict whether higher capital requirements will be imposed and, if so, at what levels and on what schedule. FDICIA and FIRREA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") significantly expanded the regulatory and enforcement powers of federal banking regulators, in particular the FDIC, and has important consequences for the Corporation, the Banks and other depository institutions located in the United States. A major feature of FDICIA is the comprehensive directions it gives to federal banking regulators to promptly direct or require the correction of problems at inadequately capitalized banks in the manner that is least costly to the federal deposit insurance funds. The degree of corrective regulatory involvement in the operations and management of banks and their holding companies is, under FDICIA, largely determined by the actual or anticipated capital positions of the subject institutions. FDICIA established five tiers of capital measurement for regulatory purposes ranging from "well-capitalized" to "critically undercapitalized." Under regulations adopted by the federal banking agencies, a depository institution is well-capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below such measure and critically undercapitalized if its tangible equity is not greater than 2% of total tangible assets. A depository institution may 8 be deemed to be in a capitalization category lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. FDICIA requires banking regulators to take increasingly strong corrective steps, based on the capital tier of any subject bank, to cause such bank to achieve and maintain capital adequacy. Even if a bank is adequately capitalized, however, the banking regulators are authorized to apply corrective measures if the bank is determined to be in an unsafe or unsound condition or engaging in an unsafe or unsound activity. Depending on the level of capital of an insured depository institution, the banking regulatory agencies' corrective powers can include: requiring a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to reduce total assets; requiring the institution to issue additional stock (including voting stock) or to be acquired; placing restrictions on transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election for the institution's board of directors; requiring that certain senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; prohibiting the institution's parent holding company from making capital distributions without prior regulatory approval; and, ultimately, appointing a receiver for the institution. If the insured depository institution is undercapitalized, the parent holding company is required to guarantee that the institution will comply with any capital restoration plan submitted to, and approved by, the appropriate federal banking agency in an amount equal to the lesser of (i) 5% of the institution's total assets at the time the institution became undercapitalized or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with the capital restoration plan. If such parent holding company guarantee is not obtained, the capital restoration plan may not be accepted by the banking regulators. As a result, such institution would be subject to the more severe restrictions imposed on significantly undercapitalized institutions. Further, the failure of such a depository institution to submit an acceptable capital plan is grounds for the appointment of a conservator or receiver. FDICIA also contains a number of other provisions affecting depository institutions, including additional reporting and independent auditing requirements, the establishment of safety and soundness standards, the system of risk-based assessments described below under "FDIC Insurance," a review of accounting standards, and supplemental disclosures and limits on the ability of all but well-capitalized depository institutions to acquire brokered deposits. The Riegle Community Development and Regulatory Improvement Act of 1994, however, among other things, contains a number of specific provisions easing the regulatory burden on banks and bank holding companies, including some imposed by FDICIA, and making the bank regulatory system more efficient. Federal banking regulators are taking actions to implement these provisions. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), among other things, provides generally that, upon the default of any bank of a multi-unit holding company, the FDIC may assess an affiliated insured depository institution for the estimated losses incurred by the FDIC. Specifically, FIRREA provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of a default. "Default" is defined generally as the appointment of a conservator or receiver. "In danger of a default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. All of the Banks are FDIC-insured depository institutions. FDIC Insurance The Banks are subject to FDIC deposit insurance assessments. Under the FDIC's risk-based assessment system, the assessment rate is based on classification of a depository institution in one of nine risk assessment categories. Such classification is based upon the institution's capital level and upon certain supervisory evaluations of the institution by its primary regulator. 9 The assessment rate schedule, effective January 1, 1996, creates a spread in assessment rates ranging from 0.27% per annum on the amount of domestic deposits for banks classified as weakest by the FDIC down to the statutory annual minimum of $2,000 for banks classified as strongest by the FDIC. Interstate Banking and Branching The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") significantly revised prior laws applicable to interstate acquisitions of banks and bank holding companies and the branching powers of national banks. Prior to the Riegle-Neal Act, the Federal Reserve Board was not permitted to approve an application to acquire shares of a bank located outside the state in which the operations of the applicant's bank subsidiaries were principally conducted unless the acquisition was specifically authorized by a statute of the acquired bank's state. Effective September 29, 1995, the Federal Reserve Board is now authorized to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of a bank located in another state without regard to whether such transaction is prohibited under the laws of such state. The Federal Reserve Board may not, however, approve such an application if, following the acquisition, the applicant would control either (l) more than 10% of all insured depository institution deposits in the United States or (2) under certain circumstances, 30% or more of all insured depository institution deposits in any state where either the applicant or the acquired bank is located. The 30% limit on aggregate deposits that may be controlled by an applicant can be adjusted by the states on a non-discriminatory basis. The Riegle-Neal Act also revises the laws applicable to mergers between insured banks located in different states. Before passage of the Riegle-Neal Act, such mergers generally were not authorized. Commencing June l, 1997, however, adequately capitalized and adequately managed insured banks in different states may merge without regard to whether the merger is authorized under the laws of any state. States may elect to prohibit interstate bank mergers or may elect to permit early interstate bank mergers by adopting, prior to June 1, 1997, legislation that expressly so provides, and that applies on equal terms to all out-of-state banks. The Riegle-Neal Act provides that an interstate merger involving the acquisition of a branch (as distinguished from an entire bank) or the de novo establishment of a national bank branch in another state may be approved only if the law of the host state expressly permits such action. An interstate merger may not be approved if, following the merger, the resulting bank would control (1) more than 10% of all insured depository institution deposits in the United States or (2) under certain circumstances, 30% or more of all insured depository institution deposits in any state where the resulting bank will be located. The 30% limit on aggregate deposits that may be controlled by the resulting bank can be adjusted by the states on a non-discriminatory basis. The laws of the host state regarding community reinvestment, consumer protection, fair lending and the establishment of intrastate branches will apply to any out-of-state branch of a national bank unless preempted by federal law or the Comptroller determines that application of such laws would have a discriminatory effect on the national bank. The Riegle-Neal Act contains a number of other provisions related to banks and bank holding companies, including: authorization of interstate branching by foreign banks; additional branch closing notice requirements for interstate banks proposing to close a branch in a low- or moderate-income area; amendments to the Community Reinvestment Act of 1977 to require separate written evaluations of an insured depository institution for each state in which it maintains branches; a prohibition on interstate banks maintaining out-of-state deposit production offices; and authorization for a bank subsidiary of a bank holding company to receive deposits, renew time deposits, close and service loans, and receive payments on loans as agent for a depository institution affiliate of such bank. The extent to and terms on which full interstate branching and certain other actions authorized under the Riegle-Neal Act are implemented will depend on the actions of entities other than the Corporation and the Banks, including the legislatures of the various states. Further developments by state and federal authorities, including legislation, with respect to matters covered by the Riegle-Neal Act reasonably can be anticipated to occur in the future. In addition, there may be new, significant banking legislation enacted or introduced in the current Congress related to bank holding companies and their powers; the likelihood of passage and effect, if any, of such legislation on the Corporation and the Banks cannot be predicted. 10 Other FNBC, NBD Michigan and ANB are registered with the Comptroller or the Securities and Exchange Commission (the "Commission") as transfer agents and are subject to the rules and regulations of the Commission and/or the Comptroller with respect to their activities as transfer agents. Certain organizational units within FNBC, NBD Michigan, ANB and NBD Indiana are registered with the Commission as municipal securities dealers. These units are subject to the applicable rules and regulations of the Commission and the Municipal Securities Rulemaking Board with respect to transactions in municipal securities performed in a municipal securities dealer capacity. FNBC, NBD Michigan and NBD Indiana also are regulated government securities brokers and dealers under the Government Securities Act, and are subject to regulations issued thereunder in connection with the conduct of their United States government securities business. In addition, First NBD Investment Services, Inc. ("FNIS"), a brokerage subsidiary of FNBC, and NBD Brokerage Services, Inc. ("NBD Brokerage"), an indirect brokerage subsidiary of the Corporation, are registered as broker- dealers with the Commission and are members of the National Association of Securities Dealers ("NASD"). The brokerage activities of FNIS and NBD Brokerage are subject to the applicable rules and regulations of the Commission and the NASD. It is anticipated that NBD Brokerage will merge with and into FNIS during 1996. FCCM is also registered as a broker-dealer with the Commission and is a member of the NASD. The securities distribution and trading activities of FCCM are subject to the applicable rules and regulations of the Federal Reserve Board, the Commission and the NASD. First Chicago Futures, Inc. ("FCFI"), a subsidiary of FNBC that conducts a commodities brokerage business and is a market maker in foreign currency options, is registered with the Commission as a broker-dealer and with the Commodity Futures Trading Commission ("CFTC") as a futures commission merchant, and is a member of the National Futures Association ("NFA"). FCFI is subject to the applicable rules and regulations of the Commission, the CFTC, the NFA, and certain commodities and securities exchanges of which FCFI is a member with respect to its activities as a foreign currency market maker and a futures commission merchant. First Chicago Investment Management Company ("FCIMC"), a subsidiary of FNBC, and ANB Investment Management and Trust Company ("ANB IMC"), a subsidiary of FCIMC, provide investment advisory, management and administrative services to a variety of clients. FCIMC and ANB IMC are registered with the Commission as investment advisers and, as such, are subject to the Investment Advisers Act of 1940. In addition, as advisers to regulated investment companies, FCIMC and NBD Michigan also may be subject to certain provisions of the Investment Company Act of 1940. The Corporation's insurance services and products are marketed through various bank and nonbank subsidiaries, each of which is licensed and regulated by applicable state insurance regulatory agencies. Similarly, certain of the Corporation's mortgage banking activities are subject to various federal and state licensing and/or regulatory requirements. 11 FINANCIAL REVIEW INDEX TO FINANCIAL REVIEW
PAGE ---- Selected Financial Data.................................................... 13 Business Segments.......................................................... 14 Earnings Analysis.......................................................... 18 Risk Management............................................................ 23 Liquidity Risk Management.................................................. 24 Market Risk Management..................................................... 25 Credit Risk Management..................................................... 29 Derivative Financial Instruments........................................... 34 Capital Management......................................................... 36 Consolidated Financial Statements.......................................... 40 Notes to Consolidated Financial Statements................................. 44 Report of Management on Responsibility for Financial Reporting............. 71 Report of Independent Public Accountants................................... 73 Selected Statistical Information........................................... 74
12 Selected Financial Data
(DOLLARS IN MILLIONS, EXCEPT PER 1995 1994 1993 1992 1991 SHARE DATA) -------- -------- ------- ------- ------- SUMMARY OF INCOME Net interest income............. $3,208 $2,956 $2,784 $2,692 $2,418 Provision for credit losses..... 510 276 390 653 606 Provision for assets held for accelerated disposition (1).... -- -- -- 625 -- Noninterest income.............. 2,591 2,393 2,769 2,018 1,703 Merger-related charges.......... 267 -- -- 76 -- Other noninterest expense....... 3,268 3,220 3,161 3,084 2,867 Income before cumulative effect of changes in accounting principles..................... 1,150 1,221 1,290 224 478 Net income...................... 1,150 1,221 1,290 394 478 EARNINGS PER SHARE Primary Income before cumulative effect of changes in accounting principles........ $3.45 $3.62 $3.91 $0.60 $1.56 Net income.................... 3.45 3.62 3.91 1.17 1.56 Fully diluted Income before cumulative effect of changes in accounting principles........ 3.41 3.58 3.79 0.60 1.55 Net income.................... 3.41 3.58 3.79 1.17 1.55 PERIOD-END BALANCES Total assets.................... $122,002 $112,763 $93,140 $90,011 $87,573 Long-term debt.................. 8,163 7,246 5,250 4,175 3,822 Total stockholders' equity...... 8,450 7,809 7,499 6,323 5,660 COMMON SHARE DATA Dividends declared.............. $ 1.35 $ 1.23 $ 1.08 $ 1.04 $ 0.95 Book value, year-end............ 25.25 22.60 21.25 18.27 18.06 Market price, year-end.......... 39 1/2 27 3/8 29 3/4 32 3/4 29 3/4 CAPITAL RATIOS (2) Common equity-to-assets ratio... 6.9% 6.8% 7.6% 6.5% 6.0% Regulatory leverage ratio....... 6.9 7.3 7.8 6.6 6.5 Risk-based capital Tier 1 ratio.................. 7.8 8.6 9.0 7.4 6.5 Total capital ratio........... 11.8 13.0 13.6 11.3 9.8
- -------- (1) Of the total provision, $491 million relates to loans and $134 million relates to other real estate held for accelerated disposition. (2) Net of investment in FCCM. 13 Business Segments OVERVIEW Financial results are reported by major business lines, principally structured around the customer segments served. These major business segments are: Credit Card, Regional Banking (retail and middle market), Corporate and Institutional Banking, and Corporate Investments. Investment management activities, while managed separately, serve customers in both the Regional and Corporate and Institutional Banking segments and, therefore, investment management's financial results are captured within those businesses. EARNINGS CONTRIBUTION BY BUSINESS LINES [PIE CHART] [PIE CHART] 1995* 1994 Credit Card = 23% Credit Card = 27% Retail = 17% Retail = 15% Middle Market = 21% Middle Market = 18% Corporate and Institutional = 21% Corporate and Institutional = 18% Corporate Investments = 17% Corporate Investments = 17% Other = 1% Other = 5% *Operating Earnings Certain corporate revenues and expenses, generally unusual or one time in nature, are included in Other Activities. Information for 1994 has been restated to reflect the management of activities consistent with the major business segments. Information for 1993 is not available to present a meaningful analysis of such results. Results are derived from the internal profitability reporting systems and reflect full allocation of all institutional and overhead items. These systems use a detailed funds transfer methodology and a common equity allocation based on risk elements. Credit Card results are presented before the securitization of credit card receivables ("presecuritized") to facilitate analysis of trends. See the discussion of net interest income on page 19 and a reconciliation of reported to presecuritized results on page 75. CREDIT CARD
(PRESECURITIZED) 1995 1994(1) (DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ----- Net interest income--tax-equivalent basis................. $1,175 $987 Provision for credit losses............................... 708 477 Noninterest income........................................ 560 491 Noninterest expense....................................... 541 459 Net income................................................ 302 336 Return on equity.......................................... 36% 52% Efficiency ratio(2)....................................... 31% 31% Average loans (in billions)............................... $14.3 $11.4 Average common equity (in billions)....................... 0.8 0.6
------- (1) For comparison purposes, 1994 noninterest income and noninterest expense have been adjusted to reflect the terms of the current Mileage Plus affinity agreement; see the discussion of this agreement on page 21. (2) Noninterest expense as a percentage of total revenue. 14 Among the four largest bankcard issuers in the United States, Credit Card is a prominent business for the Corporation. For the year, Credit Card posted a superior return on equity of 36%, with net income of $302 million, or 23% of total operating earnings. Earnings in 1994 were $336 million. During 1995, a record 3.4 million new credit card accounts were added, and managed credit card receivables grew 34% to $17.5 billion at year-end 1995. Net interest income rose $188 million, or nearly 20%, in 1995 as higher credit card volume more than offset the effect of reduced spreads from competitive pricing pressures. Expenses also increased significantly, reflecting the costs of soliciting new accounts. Credit Card's operating efficiency remained excellent in 1995, at 31%. The Credit Card business experienced some deterioration in credit quality in 1995, as reflected in the substantial increase in provision. The net charge- off rate for managed credit card receivables rose to 4.0% for the year from 3.5% in 1994. The Corporation, however, maintains a high level of reserves related to this business. At December 31, 1995, the allowance for credit losses related to Credit Card was $303 million. In addition, the reserve for securitized credit card receivables totaled $302 million. Although the rate of growth in receivables may decline in 1996 from 1995's very high level, Credit Card should continue to provide attractive returns. REGIONAL BANKING
MIDDLE RETAIL MARKET -------------- ------------ 1995 1994 1995 1994 (DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ------ ----- ----- Net interest income--tax-equivalent basis......... $1,174 $1,088 $ 834 $ 719 Provision for credit losses....................... 47 27 50 49 Noninterest income................................ 493 440 156 154 Noninterest expense............................... 1,237 1,216 488 461 Net income........................................ 234 183 280 221 Return on equity.................................. 17% 17% 16% 15% Efficiency ratio(1)............................... 74% 80% 49% 53% Average loans (in billions)....................... $15.9 $13.2 $15.3 $13.2 Average assets (in billions)...................... 18.3 14.4 17.7 15.6 Average common equity (in billions)............... 1.3 1.1 1.7 1.4
- -------- (1) Noninterest expense as a percentage of total revenue. Regional Banking is conducted through the branch and electronic networks of NBD Banks in Michigan, Indiana, Illinois and Florida, and FNBC. Additionally, ANB provides banking services specifically tailored to middle market businesses in Chicagoland. Close to 40% of the Corporation's operating earnings in 1995 were generated from these retail and middle market businesses, where the Corporation is the leading banking company in the three-state region of Michigan, Indiana and Illinois. Combined loans in Regional Banking averaged $31.2 billion in 1995, representing 53% of the Corporation's total loans and up 18% from 1994. Retail banking produced net income of $234 million, for a return on equity of 17%. Earnings for retail banking were $183 million in 1994. The significant improvement in profitability was driven by all key areas. A 20% increase in loan volume contributed to higher spread income, while the results of a deposit fee restructuring program boosted noninterest income. Careful noninterest expense management (less than 2% growth) helped improve the efficiency ratio for retail banking from 80% in 1994 to 74% in 1995. Middle market earnings in 1995 were $280 million, up from $221 million in 1994. Return on equity was 16%. The growth in net interest income was due to favorable interest rate spreads and higher average loan volumes (up 16%). Provision expense remained fairly stable in 1995 and operating efficiency continued to be excellent. The growth dynamics for Regional Banking present opportunities for further profit improvement. The potential for cost savings is especially high as the full integration of NBD Illinois into FNBC and ANB takes place in 1996. 15 CORPORATE AND INSTITUTIONAL BANKING
1995 1994 (DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ----- ----- Net interest income--tax-equivalent basis......................... $ 700 $ 613 Provision for credit losses....................................... 41 (21) Noninterest income................................................ 718 597 Noninterest expense............................................... 930 875 Net income........................................................ 278 217 Return on equity.................................................. 9% 7% Efficiency ratio(1)............................................... 66% 72% Average loans (in billions)....................................... $19.3 $16.7 Average assets (in billions)...................................... 54.7 44.2 Average common equity (in billions)............................... 2.9 2.8
- -------- (1) Noninterest expense as a percentage of total revenue. Through its Corporate and Institutional Banking business, the Corporation is the leading provider of banking services to large corporations, governments, institutions and investors in Chicago and the Midwest. It is also among the top U.S. banking companies serving national and international customers. Corporate and Institutional Banking earned $278 million in 1995, up from $217 million in 1994. This segment received the largest allocation of equity among all business lines and generated a return of 9% in 1995. Revenues from the major product sets within this large business line are presented in the following table. TOTAL REVENUE
1995 1994 (IN MILLIONS) ------ ------ Trading........................................................... $ 210 $ 91 Servicing......................................................... 539 502 Lending........................................................... 411 389 Financing......................................................... 118 119 Other............................................................. 140 109 ------ ------ Total......................................................... $1,418 $1,210 ====== ======
Revenue from trading activities (trading profits and related net interest income) was $210 million in 1995, up from $91 million in 1994. This substantial improvement was primarily in emerging markets and derivatives trading. The emerging markets segment had modest gains in 1995 compared with a loss of $49 million in 1994. In the third quarter of 1995, the Corporation announced its exit from trading in emerging markets securities. Servicing revenue was higher year to year, largely due to cash management operations. Lending revenue was also up as average loans grew over 15% in 1995 to $19.3 billion. The 1995 growth in expenses was due in part to higher incentive compensation resulting from the improved trading performance as well as initiatives to expand cash management and risk management capabilities. In 1996, cost savings are expected from the integration of Corporate and Institutional Banking's international network. Furthermore, the Merger offers cross-selling opportunities in this business, which should result in revenue growth. Rigorous management of capital and expenses will continue in order to improve profitability further. 16 CORPORATE INVESTMENTS
1995 1994 (DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ----- ----- Net interest income--tax-equivalent basis......................... $ 117 $ 135 Provision for credit losses....................................... -- -- Noninterest income................................................ 297 254 Noninterest expense............................................... 62 58 Net income........................................................ 232 207 Return on equity.................................................. 32% 24% Average assets (in billions)...................................... $24.2 $27.6 Average common equity (in billions)............................... 0.7 0.8
Many of the Corporation's business activities that are not specifically oriented to its customers are combined in Corporate Investments. Included in this segment are the venture capital portfolio, leveraged leasing, funding and arbitrage, the investment account and assorted other investment and trading activities. In 1995, Corporate Investments was a significant contributor to earnings, generating $232 million, or 17%, of consolidated operating net income. Strong equity securities gains--$253 million--were the driver of this performance. The nature of Corporate Investments implies that it will be a more variable component of earnings going forward than the other business lines. However, because of the Corporation's experience in this high-return area, continued significant earnings contributions are expected. OTHER ACTIVITIES
1995 1994 (DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ----- ---- Total revenue...................................................... $ 14 $141 Noninterest expense................................................ 277 79 Net income (loss).................................................. (176) 57 Average assets (in billions)....................................... 0.4 0.1
Merger-related charges totaled $267 million in 1995, of which $225 million was related to direct merger and restructuring costs. The implementation of these restructuring efforts will contribute to estimated annualized cost savings of $200 million by 1997. The remaining one-time charges of $42 million were for the conformance of accounting practices between the merged companies. (See Note 4 beginning on page 48 for more details.) Investment securities losses of $19 million are included in Other Activities. These losses were produced from the sale of approximately $1.5 billion in investment securities, where the returns were not commensurate with the securities' risks and volatilities. These sales were part of the merger- related program to reduce assets by $25 billion by 1997. Net gains from the disposition of assets held in the accelerated disposition portfolio totaled $37 million in 1995, compared with $46 million in 1994. Also included in 1994 results is a $35 million gain from the sale of an interest in an investment management business. Noninterest expense in 1994 included a charge of $25 million related to the depreciation of personal computer equipment and other expenses of $19 million related to general corporate activities. 17 STAFFING LEVELS The following table lists average staff levels for each business segment and for corporate staff and other functions. The corporate staff costs are included in the major business lines.
1995 1994 AVERAGE FULL-TIME-EQUIVALENT STAFF ------ ------ Credit Card.................................................... 3,562 3,020 Retail......................................................... 14,481 14,985 Middle Market.................................................. 3,367 3,383 Corporate and Institutional Banking............................ 6,961 7,138 Corporate Investments.......................................... 220 222 Corporate Staff/Other.......................................... 6,761 6,894 ------ ------ Total First Chicago NBD Corporation........................ 35,352 35,642 ====== ======
Earnings Analysis SUMMARY Net income for 1995 was $1.150 billion, or $3.41 per share, compared with $1.221 billion, or $3.58 per share, in 1994 and $1.290 billion, or $3.79 per share, in 1993. Operating earnings, which exclude the after-tax effect of merger-related charges and fourth quarter 1995 investment securities losses, were $1.341 billion, or $3.99 per share in 1995.
1995 1994 1993 (IN MILLIONS, EXCEPT PER SHARE DATA) ------ ------ ------ Reported Net income.............................................. $1,150 $1,221 $1,290 Fully diluted earnings per share........................ 3.41 3.58 3.79 Operating Net income.............................................. $1,341 $1,221 $1,290 Fully diluted earnings per share........................ 3.99 3.58 3.79
The Corporation's 1995 results continued to reflect excellent performance in its core businesses. Highlights of the year were: . The Credit Card business posted earnings of $302 million. Average managed credit card receivables increased 24% and managed receivables reached $17.5 billion at year-end 1995. . Combined trading profits were $210 million, reflecting significant improvement from $86 million generated in 1994. . Loan growth of 18% in the Regional Banking businesses contributed to the increase in net interest income. . Equity securities gains rose substantially to $253 million. . Noninterest expense growth in 1995, excluding merger-related charges of $267 million and adjusted for the Mileage Plus reclassification, was limited to 4%. . Commercial credit quality remained strong. Commercial nonperforming assets totaled $397 million at year-end 1995, contributing to an overall nonperforming asset ratio of 0.6% and resulting in a commercial coverage ratio of 272%. . A strong capital position was maintained during 1995 with key ratios in excess of regulatory guidelines. On an operating earnings basis, return on common equity was 16.8% for 1995, compared with 16.6% for 1994 and 19.9% for 1993. 18 NET INTEREST INCOME Net interest income includes fundamental spreads on earning assets as well as such items as loan fees, cash interest collections on problem loans, dividend income, interest reversals, and income or expense on interest rate derivatives used to manage interest rate risk. Net interest margin measures the efficiency of the use of the Corporation's earning assets and its underlying capital. In order to analyze fundamental trends in net interest margin, it is useful to adjust for securitization of credit card receivables and the activities of FCCM.
1995 1994 1993 (DOLLARS IN MILLIONS) -------- ------- ------- Reported Net interest income--tax-equivalent basis......... $ 3,311 $ 3,043 $ 2,893 Average earning assets............................ 105,306 92,598 84,891 Net interest margin............................... 3.14% 3.29% 3.41% Adjusted Net interest income--tax-equivalent basis......... $ 3,956 $ 3,579 $ 3,353 Average earning assets............................ 101,793 88,969 82,984 Net interest margin............................... 3.89% 4.02% 4.04%
When credit card receivables are sold in securitization transactions, the Corporation's earnings are unchanged. However, the net interest income related to these high-yield assets is replaced by increased servicing fees, net of related credit losses. The average levels of securitized receivables were $7.2 billion in 1995, $5.5 billion in 1994 and $4.8 billion in 1993. FCCM is the Corporation's wholly owned subsidiary engaged in permissible investment banking activities. Because capital requirements for FCCM are risk- exposure driven rather than based on asset levels, FCCM can generate substantial volumes of relatively riskless, thin-spread earning assets that require little additional capital. The Corporation's net interest margin trends can be better analyzed if these earning assets and related margins are excluded. Adjusted net interest income increased 11% to $4.0 billion in 1995. In 1994, adjusted net interest income was $3.6 billion, up 7% over 1993 levels. In both periods, the increases were driven primarily by growth in average earning assets. The following charts show the composition of both adjusted average earning assets and adjusted average loans over the last two years. ADJUSTED AVERAGE EARNING ASSETS ADJUSTED AVERAGE LOANS [BAR GRAPH] [BAR GRAPH] $ Billions $ Billions 1994 1995 1994 1995 Loans = 56 66 Corporate & Institutional = 17 19 Securities = 15 13 Middle Market = 13 15 Trading Assets = 7 11 Retail = 13 16 Other Short-term Credit Card = 11 14 Investments = 11 12 Corporate Investments/Other = 2 2 19 Adjusted net interest margin in 1995 was 3.89%, down slightly from 4.02% in 1994. The decline was primarily attributable to a less profitable earning asset mix, reflecting the growth in thinly priced assets, principally trading assets and loans to large corporate customers. NONINTEREST INCOME
PERCENT INCREASE (DECREASE) ------------------- 1995 1994 1993 1994-1995 1993-1994 (DOLLARS IN MILLIONS) ------ ------ ------ --------- --------- Combined trading profits............ $ 210 $ 86 $ 305 144% (72)% Equity securities gains............. 253 229 488 10 (53) Investment securities gains (losses)........................... (16) (1) 2 N/M N/M ------ ------ ------ Market-driven revenue............. 447 314 795 42 (61) Credit card fee revenue............. 901 871 730 3 19 Fiduciary and investment management fees............................... 404 377 374 7 1 Service charges on deposits......... 382 372 377 3 (1) Other service charges and commissions........................ 353 316 327 12 (3) Gain on sale of loans............... 7 6 50 17 (88) Accelerated disposition portfolio gains.............................. 37 46 60 (20) (23) Gain on sale of investment advisory business........................... -- 35 -- N/M N/M Other............................... 60 56 56 7 -- ------ ------ ------ Total........................... $2,591 $2,393 $2,769 8 (14) ====== ====== ======
- -------- N/M--Not Meaningful Noninterest income increased by $198 million in 1995, following a decrease of $376 million, or 14%, in 1994. Much of the change in both years reflected the volatility in market-driven revenue, principally the level of trading profits and equity securities gains. The following table provides additional details on revenue from the Corporation's various trading businesses, including both trading profits and net interest income generated from these activities. TRADING REVENUE
1995 1994 1993 (IN MILLIONS) ---- ---- ---- Foreign exchange and derivatives............................... $ 83 $ 56 $113 Fixed income and derivatives................................... 106 74 121 Emerging markets............................................... 6 (49) 57 Other trading.................................................. 97 79 126 ---- ---- ---- Total...................................................... $292 $160 $417 ==== ==== ====
Revenue from trading activities (trading profits and related net interest income) totaled $292 million in 1995, versus $160 million in 1994. The marked improvement from 1994 was concentrated in the foreign exchange and derivatives segment, where increased customer demand and market volatility provided additional profit opportunities. The Corporation decided to exit the emerging markets trading business in the third quarter of 1995 and liquidated substantially all of its positions by year-end 1995. Equity securities gains, principally from Corporate Investment activities, were $253 million during 1995, compared with $229 million in 1994 and a record $488 million in 1993. Investment securities losses totaled $16 million in 1995, compared with losses of $1 million in 1994 and gains of $2 million in 1993. During the fourth quarter of 1995, the Corporation sold $1.5 billion of investment securities, which produced losses of $19 million. These sales were consistent with the Corporation's asset 20 reduction goal of $25 billion. From June 30, 1995, to December 31, 1995, investment securities were reduced by $4.2 billion. In 1995, the Corporation renewed its agreement with United Airlines, extending the successful Mileage Plus credit card program into the next century. As a result, beginning in 1995 payments to United Airlines reduce credit card fee revenue rather than increase operating expense. Adjusted for the effects of credit card securitizations and the change in the classification of Mileage Plus payments, credit card fee revenue grew 15% in 1995. Increased transaction volume due in part to a growing cardholder base was the primary reason for the revenue growth. Fiduciary and investment management fees include revenue generated by the Corporation's traditional trust products and services, investment management activities, and the shareholder services business. Total fees generated from these activities increased modestly in 1995 and in 1994. More transaction activity contributed to the 1995 increase. Revenues from the shareholder services business remained steady at $82 million in 1995 and $81 million in both 1994 and 1993. Revenue growth in this business was negatively affected by industry consolidation and price competition. Net gains from the active management of assets held in the accelerated disposition portfolio totaled $37 million in 1995, compared with $46 million in 1994 and $60 million in 1993. Other noninterest income in 1994 included a $35 million gain related to the sale of the Corporation's remaining interest in Brinson Holdings, Inc. to Brinson's management. PROVISION FOR CREDIT LOSSES Details of the Corporation's credit risk management and performance are presented in the Credit Risk Management section, beginning on page 29. NONINTEREST EXPENSE Operating expense in 1995 was $3.268 billion, compared with $3.220 billion in 1994 and $3.161 billion in 1993. Overall operating expense growth, adjusted for the reclassification of Mileage Plus payments, was limited to 4% despite higher employee costs, increased equipment costs, and investments in selected businesses. SALARIES AND BENEFITS
PERCENT INCREASE (DECREASE) ------------------- 1995 1994 1993 1994-1995 1993-1994 (DOLLARS IN MILLIONS) ------ ------ ------ --------- --------- Salaries.............................. $1,420 $1,325 $1,324 7% --% Employee benefits..................... 272 277 234 (2) 18 ------ ------ ------ Total............................. $1,692 $1,602 $1,558 6 3 ====== ====== ====== Average full-time-equivalent employees............................ 35,352 35,642 35,795 (1)% --% ====== ====== ======
Employee costs grew by $90 million, or 6%, in 1995, following an increase of $44 million, or 3%, between 1993 and 1994. In 1995, the increase reflected staff increases in certain business units as well as higher performance-based incentive accruals tied to corporate results. The 1994 cost increase primarily reflects the higher cost of pension and medical benefit programs. 21 OTHER NONINTEREST EXPENSE
PERCENT INCREASE (DECREASE) ------------------- 1995 1994 1993 1994-1995 1993-1994 (DOLLARS IN MILLIONS) ------ ------ ------ --------- --------- Occupancy expense of premises, net.... $ 252 $ 244 $ 256 3% (5)% Equipment rentals, depreciation and maintenance.......................... 225 245 194 (8) 26 Marketing and public relations........ 161 128 108 26 19 FDIC insurance expense................ 58 105 116 (45) (9) Amortization of intangible assets..... 88 93 123 (5) (24) Telephone............................. 80 67 64 19 5 Freight and postage................... 78 68 65 15 5 Travel and entertainment.............. 50 47 46 6 2 Stationery and supplies............... 45 39 46 15 (15) Operating and other taxes............. 29 31 29 (6) 7 Provision for other real estate....... 1 3 13 (67) (77) Other................................. 509 548 543 (7) 1 ------ ------ ------ Other operating expense............. 1,576 1,618 1,603 (3) 1 Merger-related charges................ 267 -- -- N/M N/M ------ ------ ------ Total............................. $1,843 $1,618 $1,603 14 1 ====== ====== ======
Occupancy expense increased by 3% in 1995 to $252 million. Occupancy expense in 1993 included the incremental costs associated with both the relocation of the shareholder services business and a reduction in other occupancy requirements. Equipment expense decreased 8% in 1995 to $225 million. A special charge of $25 million was taken in 1994 to reflect the reduction in the estimated useful life of existing personal computer equipment. Operating expense associated with the Credit Card business (adjusted to reflect the terms of the current Mileage Plus affinity agreement) increased $82 million, or 18%, in 1995, reflecting both higher market solicitation costs that supported portfolio growth and increased volume-driven expenses related to servicing the larger customer base. The reduction in the insurance rate for bank deposits from 23 basis points to 4 basis points resulted in a significant decline in FDIC insurance expense in 1995. Beginning January 1, 1996, the FDIC insurance rate was effectively reduced to zero for Bank Insurance Fund deposits (approximately 94% of the Corporation's insurable deposit base). A good portion of this expense savings, however, is passed on to business customers in the form of fee reductions. Intangible amortization expense decreased $5 million in 1995 as certain core deposit intangibles became fully amortized. The 1993 results included a $12 million charge for the accelerated amortization of certain acquired intangibles. Special corporate expenses totaled $19 million in 1994 and $14 million in 1993. Excluding these items, other operating expense increased 1% in 1994. Merger-related charges in 1995 totaled $267 million, of which $225 million was related to direct merger and related restructuring costs. Other charges of $42 million were related to the one-time conformance of accounting practices. (See Note 4 beginning on page 48 for more details.) 22 APPLICABLE INCOME TAXES The following table shows the Corporation's income before income taxes, applicable income taxes, and effective tax rate for each of the past three years.
1995 1994 1993 (DOLLARS IN MILLIONS) ------ ------ ------ Income before income taxes.............................. $1,754 $1,853 $2,002 Applicable income taxes................................. 604 632 712 Effective tax rates..................................... 34.4% 34.1% 35.6%
Tax expense for 1995 included benefits from general business tax credits offset by the effect of nondeductible expenses, including goodwill. Tax expense in 1994 included a one-time tax benefit related to the implementation of final Internal Revenue Service ("IRS") bad debt recapture regulations as well as the effects of several favorable tax rulings. The effective tax rate for 1993 reflects the write-off of an intangible asset that was not deductible for tax purposes. Risk Management The Corporation's various business activities generate liquidity, market and credit risks: . Liquidity risk is the possibility of being unable to meet all present and future financial obligations in a timely manner. . Market risk is the possibility that changes in future market rates or prices will make the Corporation's positions less valuable. . Credit risk is the possibility of loss from the failure of a customer to perform according to the terms of a transaction. The Corporation is compensated by customers for assuming these risks; this compensation is reflected in interest income, combined trading profits and fee income. In addition, these risks are factored into the allocation of capital to support various business activities, as discussed in the Capital Management section, beginning on page 36. The Corporation is a party to transactions involving financial instruments that create risks that may or may not be reflected on a traditional balance sheet. These financial instruments can be subdivided into three categories: . Cash financial instruments, generally characterized as on-balance-sheet transactions, include loans, bonds, stocks and deposits. . Credit-related financial instruments include such instruments as commitments to extend credit and standby letters of credit. . Derivative financial instruments include such instruments as interest rate, foreign exchange, commodity price and equity price contracts, including forwards, swaps and options. The Corporation's risk management policies are intended to monitor and limit exposure to liquidity, market and credit risks that arise from all these financial instruments. Credit-related and derivative financial instruments are generally characterized as off-balance-sheet transactions; however, the carrying values of derivative financial instruments are reflected on the balance sheet. 23 Liquidity Risk Management Liquidity risk is the possibility of being unable to meet all present and future financial obligations in a timely manner. The Corporation considers strong capital ratios, credit quality and core earnings as essential to retaining high credit ratings and, thereby, cost-effective access to market liquidity. The Corporation believes its prudent management policies and guidelines will ensure adequate levels of liquidity to fund anticipated needs based on its assessment of on- and off-balance-sheet items. In addition, a contingency funding plan identifies actions to be taken in response to a liquidity event. Liquidity management policies include the following: . maintain strong credit ratings and capital ratios; . maintain liability diversification among markets, instruments, maturities and customers; . maintain a continuously strong market presence and customer funding base; . maintain adequate liquid assets; and . monitor the level of liquidity mismatch in the timing of cash flows. The Statement of Cash Flows, on page 43, presents data on cash and cash equivalents provided by and used in operating, investing and financing activities. The Corporation's ability to attract wholesale funds on a regular basis and at a competitive cost is fostered by strong ratings from the major credit rating agencies. The Corporation's principal Banks (referred to collectively as the "Principal Banks"), comprising ANB, FNBC, FCCNB, NBD Indiana, NBD Illinois and NBD Michigan, all have identical ratings. As of December 31, 1995, the parent company and the Principal Banks had the following long- and short-term debt ratings. The short-term debt ratings for the parent cover commercial paper issuances. The long- and short-term debt ratings for the Principal Banks cover bank note issuances.
LONG-TERM SHORT-TERM DEBT DEBT ----------- ------------ S&P MOODY'S S&P MOODY'S --- ------- ---- ------- First Chicago NBD Corporation (parent)................. A+ A1 A-1 P-1 The Principal Banks.................................... AA- Aa3 A-1+ P-1
The Corporation maintains liquid assets in the form of federal funds sold, deposit placements and selected investment securities to meet any immediate cash flow obligations. Note 7, beginning on page 51, provides a detailed breakdown of the investment portfolio. In addition, as part of the normal liquidity management process, assets are securitized and sold. Securitization of credit card receivables is an important funding vehicle that both diversifies funding sources and accesses large amounts of term funding in a cost-effective manner. Access to a variety of funding markets and customers in the retail and wholesale sectors is vital both to liquidity management and to cost minimization. Through its various banking entities, the Corporation maintains direct access to the local retail deposit market and uses a network of brokers for gathering retail deposits on a national basis. A large customer deposit base is one of the significant strengths of the Corporation's liquidity position. As part of the monthly liquidity measurement process, the extent to which core assets are funded by core liabilities is monitored. Core assets and liabilities consist primarily of customer-driven lending and deposit-taking activities. Core liabilities also include long-term debt and equity. The Corporation has established a 35% limit for the use of wholesale funds for funding core assets. As of December 31, 1995, collectively, the Banks funded 80% of core assets with core liabilities, accessing the wholesale market for only 20% of core asset funding. By limiting dependence on the wholesale market, the risk of a disruption to the Corporation's lending business from a liquidity event is minimized. 24 In addition to this strong core funding base, a reliable, diversified mix of funding from the wholesale market is created by active participation in global capital markets. Internal guidelines are used to monitor the product mix and customer concentration of the wholesale funding. The following table shows the funding source mix for the past five years. DEPOSITS AND OTHER PURCHASED FUNDS
1995 1994 1993 1992 1991 DECEMBER 31 (IN MILLIONS) -------- ------- ------- ------- ------- Domestic offices Demand............................... $ 15,234 $14,378 $14,852 $14,247 $11,409 Savings.............................. 20,180 20,088 21,154 20,929 18,102 Time Under $100,000..................... 9,972 8,720 8,310 9,779 12,426 $100,000 and over.................. 5,947 4,484 4,089 5,688 8,787 Foreign offices........................ 17,773 17,225 9,602 10,098 10,869 -------- ------- ------- ------- ------- Total deposits................... 69,106 64,895 58,007 60,741 61,593 Federal funds purchased and securities under repurchase agreements........... 15,711 16,919 11,038 10,591 8,611 Commercial paper....................... 288 206 323 357 364 Other short-term borrowings............ 9,514 8,216 6,506 3,808 2,609 Long-term debt......................... 8,163 7,246 5,250 4,175 3,822 -------- ------- ------- ------- ------- Total other purchased funds...... 33,676 32,587 23,117 18,931 15,406 -------- ------- ------- ------- ------- Total............................ $102,782 $97,482 $81,124 $79,672 $76,999 ======== ======= ======= ======= =======
Market Risk Management OVERVIEW Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Corporation maintains risk management policies to monitor and limit exposure to market risk. Through its trading activities, the Corporation strives to take advantage of profit opportunities available in interest and exchange rate movements. In asset and liability management activities, policies are in place to minimize structural interest rate and foreign exchange rate risk. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 18, beginning on page 64. TRADING ACTIVITIES The Corporation maintains active trading positions in a variety of markets and instruments, including U.S. government, municipal and money market securities. It also maintains positions in derivative products associated with these markets and instruments, such as interest rate and currency swaps, and commodity and equity index options. Revenue related to trading activities was $292 million in 1995, up from $160 million in 1994. Most of the improvement was in the foreign exchange and derivatives category. The Corporation's trading activities are primarily customer-oriented, and trading positions are established as necessary for customers. In order to accommodate customer demand for such transactions, an inventory in capital markets instruments is carried, and access to market liquidity is maintained by making bid-offer prices to other market makers. Although these two activities constitute proprietary trading business, they are essential to providing customers with capital markets products at competitive prices. 25 Many trading positions are kept open for brief periods of time, often less than one day. Other trading positions are maintained for longer periods, and these positions are valued at prevailing market rates on a present value basis. Realized and unrealized gains and losses on these trading positions are included in noninterest income as combined trading profits. The overall market risk that any business can assume is approved by the Risk Management Committee of the Board of Directors, which utilizes a risk point system. Risk points measure the market risk (potential overnight loss) in a capital markets product. Products that have more inherent price volatility incur more risk points. The risk point system, therefore, is the means by which the Corporation manages its value at risk. Value at risk is monitored in each significant trading portfolio on a daily basis. The following charts show the average, maximum and minimum daily value at risk, for 1994 and 1995, and the actual trading revenue for each year. Daily Value at Risk Trading Revenue* [BAR GRAPH] [BAR GRAPH] $ Millions $ Millions 1994 1995 Average = $45 Average = $32 1994 = $160 Maximum = $66 Maximum = $45 Minimum = $34 Minimum = $24 1995 = $292 *Includes trading profits and net interest income Value at risk is estimated using statistical models calibrated at a three- standard-deviation confidence interval. The Corporation has made significant progress in recognizing offsets and correlations across different trading portfolios. This has contributed to a decline in daily value at risk from 1994 to 1995. However, the reported value at risk remains somewhat overstated because all offsets and correlations are not fully considered in the calculation. The Corporation is continuing its progress toward a fully consolidated view of market risk. STRUCTURAL INTEREST RATE RISK MANAGEMENT Movements in interest rates can create fluctuations in the Corporation's net interest income and economic value due to an imbalance in the repricing or maturity of assets and liabilities. Asset and liability positions are actively managed with the goal of minimizing the impact of interest rate volatility on current earnings and on the market value of equity. Whenever possible, assets are matched with liabilities of similar repricing characteristics. However, the loans and deposits generated through ordinary business activity do not naturally create offsetting positions with respect to repricing or maturity. Asset and liability positions that are not appropriately offset with either specific on-balance-sheet transactions or with asset or liability pools are offset through the use of off-balance-sheet derivatives positions (asset and liability management or "ALM" derivatives). Traditional gap analysis is one of a variety of measurement tools used to monitor and control the interest rate risk position. To measure the gap, asset, liability, equity and off-balance-sheet positions are distributed to 26 future calendar periods based primarily on contractual interest rate repricing dates and contractual maturity (including principal amortization) dates. Maturity distributions are modified to reflect historical differences between contractual and actual payment flows and management's assumptions regarding the effect current interest rate levels may have on principal prepayments. Additionally, assumptions are made as to the repricing frequency and balance behavior of indeterminate maturity liabilities. Finally, credit card securitizations, which subject credit card servicing fee revenue to interest rate risk, are included in the gap analysis measure. The net difference between the amount of assets and funding sources repricing within a cumulative calendar period is typically referred to as the "rate sensitivity position." Its magnitude in the various calendar periods provides a general indication of the extent to which future earnings may be affected by interest rate changes. A positive cumulative one-year gap position indicates more assets than liabilities are anticipated to reprice over the next 12-month period. Such a position implies that, assuming no management action, the Corporation's net interest income would be positively affected by rising interest rates and negatively affected by falling rates. The gap position does not reflect the potential impact of embedded options on income sensitivity. The following table details the Corporation's interest rate gap analysis as of December 31, 1995. Interest rate risks in trading and overseas asset and liability positions are assumed to be matched and are managed principally as trading risks. INTEREST RATE SENSITIVITY
181- 0-90 91-180 365 1-5 BEYOND DECEMBER 31, 1995 (DOLLARS DAYS DAYS DAYS YEARS 5 YEARS TOTAL IN MILLIONS) ------- ------- ------ ------- ------- -------- Loans..................... $43,506 $ 3,820 $4,339 $12,962 $ 2,459 $ 67,086 Investment securities..... 1,192 783 1,020 4,489 2,452 9,936 Other earning assets...... 36,686 101 -- -- -- 36,787 Nonearning assets......... 12,183 107 213 1,708 1,861 16,072 ------- ------- ------ ------- ------- -------- Total assets.......... $93,567 $ 4,811 $5,572 $19,159 $ 6,772 $129,881 ======= ======= ====== ======= ======= ======== Deposits.................. $28,875 $ 3,582 $4,103 $14,105 $ 865 $ 51,530 Other interest-bearing liabilities.............. 51,978 2,655 1,757 3,814 2,309 62,513 Noninterest-bearing liabilities.............. 5,279 175 46 543 1,345 7,388 Equity.................... 389 199 398 3,284 4,180 8,450 ------- ------- ------ ------- ------- -------- Total liabilities and equity............... $86,521 $ 6,611 $6,304 $21,746 $ 8,699 $129,881 ======= ======= ====== ======= ======= ======== Balance sheet sensitivity gap...................... $ 7,046 $(1,800) $ (732) $(2,587) $(1,927) -- Cumulative gap as a % of total assets............. 5.4% 4.0% 3.5% 1.5% -- -- Effect of off-balance- sheet ALM derivative transactions: Specific transactions... $(2,349) $ 277 $ 814 $ (202) $ 1,460 -- Specific asset or liability pools........ (3,782) 247 452 3,010 73 -- ------- ------- ------ ------- ------- -------- Interest rate sensitivity gap...................... $ 915 $(1,276) $ 534 $ 221 $ (394) -- ======= ======= ====== ======= ======= ======== Cumulative gap............ 915 (361) 173 394 -- -- Cumulative gap as a % of total assets............. 0.7% (0.3)% 0.1% 0.3% -- --
The Corporation's policy is to limit the cumulative one-year gap position, including ALM derivatives, to within 4% of total assets. As of December 31, 1995, the cumulative one-year gap position was 0.1% of total assets. The Corporation uses off-balance-sheet transactions, principally interest rate swaps, to adjust the interest rate sensitivity of specific transactions, as well as pools of assets or liabilities, to remain structurally neutral to interest rate changes. As shown in the table above, the net result of ALM derivatives was to reduce the cumulative one-year gap position from 3.5% to 0.1% of total assets. In addition to static gap analysis, an earnings simulation analysis and a value-at-risk measure are performed to identify more dynamic interest rate risk exposures of the businesses, including embedded option positions. 27 The earnings simulation analysis estimates the effect that specific interest rate changes would have on pretax earnings. The Corporation's policy is to limit the change in annual pretax earnings to $100 million from an immediate parallel change in interest rates of 200 basis points. As of December 31, 1995, the Corporation had the following estimated earnings sensitivity profile.
IMMEDIATE CHANGE IN RATES --------------- +200 BP -200 BP (IN MILLIONS) ------- ------- Pretax earnings change.......................................... $(38) $10
Access to the derivatives market is an important element in maintaining the interest rate risk position within policy guidelines. At year-end 1995, ALM interest rate swaps totaled $9.7 billion, including $3.8 billion against specific transactions and $5.9 billion against specific pools of assets or liabilities. Swaps used to adjust the interest rate sensitivity of specific transactions will not need to be replaced as they mature since the corresponding asset or liability will mature along with the swap. However, swaps against the asset and liability pools will have an impact on the overall risk position as they mature and, assuming no change to the underlying pool's characteristics, will need to be reissued to maintain the same interest rate risk profile. These swaps could create modest earnings sensitivity to changes in interest rates. The following table summarizes the interest rate swaps used for asset and liability management purposes. ASSET AND LIABILITY MANAGEMENT SWAPS--NOTIONAL PRINCIPAL
PAY FIXED RECEIVE FIXED RECEIVE BASIS PAY FLOATING FLOATING SWAPS TOTAL DECEMBER 31, 1995 --------------- ------------- ----- ------ SPECIFIC POOL SPECIFIC POOL POOL (IN MILLIONS) -------- ------ -------- ---- ----- Swaps associated with: Loans............................. $ -- $1,097 $ 131 $ -- $-- $1,228 Investment securities............. -- -- 300 -- -- 300 Securitized credit card receivables...................... -- 825 -- -- -- 825 Deposits.......................... 5 3,228 -- -- -- 3,233 Funds borrowed (including long- term debt)....................... 2,787 -- 600 725 50 4,162 ------ ------ ------ ---- --- ------ Total........................... $2,792 $5,150 $1,031 $725 $50 $9,748 ====== ====== ====== ==== === ======
28 Substantially all ALM interest rate swaps are standard swap contracts. The table that follows summarizes the contractual maturities and weighted average pay and receive rates for the ALM swap position at December 31, 1995. The variable interest rates, which generally are the one-month, three-month and six-month LIBOR rates in effect on the date of repricing, are assumed to remain constant. However, the variable interest rates will change and would affect the related weighted average information presented in the table.
1996 1997 1998 1999 2000 THEREAFTER TOTAL (DOLLARS IN MILLIONS) ------ ------ ---- ---- ---- ---------- ------ Receive fixed/pay floating swaps Notional amount......... $3,127 $2,016 $865 $222 $116 $1,596 $7,942 Weighted average Receive rate........... 6.58% 6.21% 6.33% 7.05% 6.23% 7.33% 6.62% Pay rate............... 6.02% 6.15% 6.04% 6.18% 6.21% 6.01% 6.06% Pay fixed/receive floating swaps Notional amount......... $1,319 $ 95 $ 80 $ 81 $118 $ 63 $1,756 Weighted average Receive rate........... 5.95% 5.88% 5.88% 5.88% 5.89% 5.89% 5.93% Pay rate............... 6.22% 7.20% 8.11% 7.99% 7.56% 8.01% 6.59% Basis swaps Notional amount......... $ 50 -- -- -- -- -- $ 50 Weighted average Receive rate........... 6.15% -- -- -- -- -- 6.15% Pay rate............... 5.89% -- -- -- -- -- 5.89% ------ ------ ---- ---- ---- ------ ------ Total notional amount.............. $4,496 $2,111 $945 $303 $234 $1,659 $9,748 ====== ====== ==== ==== ==== ====== ======
FOREIGN EXCHANGE RISK MANAGEMENT Wherever possible, foreign currency-denominated assets are funded with liability instruments denominated in the same currency. If a liability denominated in the same currency is not immediately available or desired, a forward foreign exchange contract is used to fully hedge the risk due to cross-currency funding. To minimize the earnings and capital impact of translation gains or losses measured on an after-tax basis, the Corporation uses forward foreign exchange contracts on a selective basis to hedge the exposure created by investments in overseas branches and subsidiaries. Credit Risk Management The Corporation has developed policies and procedures to manage the level and composition of risk in its credit portfolio. The objective of this credit risk management process is to quantify and manage credit risk on a portfolio basis as well as reduce the risk of a loss resulting from a customer's failure to perform according to the terms of a transaction. Customer transactions create credit exposure that is reported both on and off the balance sheet. On-balance-sheet credit exposure includes such items as loans and derivative financial instruments. Off-balance-sheet credit exposure includes credit-related and derivative financial instruments. 29 The following discussion and related tables do not include those assets in the accelerated asset disposition portfolio since their transfer in the third quarter of 1992. SELECTED STATISTICAL INFORMATION
1995 1994 1993 1992 1991 (DOLLARS IN MILLIONS) ------- ------- ------- ------- ------- At year-end Loans outstanding............... $64,434 $55,176 $48,654 $47,836 $49,434 Nonperforming loans............. 363 294 485 717 1,209 Other real estate, net.......... 34 57 87 81 517 Nonperforming assets............ 397 351 572 798 1,726 Allowance for credit losses..... 1,338 1,158 1,106 1,041 1,136 Nonperforming assets/loans outstanding and other real estate, net.................... 0.6% 0.6% 1.2% 1.7% 3.5% Allowance for credit losses/loans outstanding....... 2.1 2.1 2.3 2.2 2.3 Allowance for credit losses/nonperforming loans..... 369 394 228 145 94 For the year Average loans................... $58,944 $50,083 $47,110 $49,042 $50,571 Net charge-offs................. 264 192 296 572 702 Net charge-offs/average loans... 0.4% 0.4% 0.6% 1.2% 1.4%
For analytical purposes, the Corporation's portfolio is divided into commercial (domestic and foreign) and consumer (credit card and other consumer) segments. LOAN COMPOSITION
1995 1994 1993 1992 DECEMBER 31 (IN MILLIONS) ------- ------- ------- ------- Commercial risk Domestic Commercial.................................... $25,551 $22,546 $19,310 $19,944 Real estate Construction................................. 1,151 1,074 1,105 1,323 Other........................................ 6,103 5,903 5,613 5,869 Lease financing............................... 1,588 1,381 1,295 1,312 Foreign........................................ 3,726 3,305 3,083 3,176 ------- ------- ------- ------- Total commercial............................ 38,119 34,209 30,406 31,624 ------- ------- ------- ------- Consumer risk Credit cards................................... 9,649 6,980 6,393 4,829 Secured by real estate Mortgage...................................... 6,669 4,963 4,285 4,257 Home equity................................... 2,264 2,062 1,803 1,906 Automotive..................................... 4,477 3,994 3,241 2,911 Other.......................................... 3,256 2,968 2,526 2,309 ------- ------- ------- ------- Total consumer.............................. 26,315 20,967 18,248 16,212 ------- ------- ------- ------- Total....................................... $64,434 $55,176 $48,654 $47,836 ======= ======= ======= =======
At December 31, 1991, total loans were $49.434 billion, which included $34.666 billion of commercial loans and $14.768 billion of consumer loans. Further category breakdowns for 1991 are not available. ALLOWANCE FOR CREDIT LOSSES Although the allowance for credit losses is available to absorb potential losses inherent in the Corporation's total credit portfolio, its composition reflects an internal allocation to the commercial, credit card and other consumer segments. 30 ALLOWANCE FOR CREDIT LOSSES
1995 --------------------------------- CREDIT OTHER COMMERCIAL CARD CONSUMER TOTAL (DOLLARS IN MILLIONS) ---------- ------ -------- ------ Balance, beginning of period................ $907 $215 $36 $1,158 Provision for credit losses................. 91 371 48 510 Charge-offs................................. (98) (241) (70) (409) Recoveries.................................. 86 33 26 145 ---- ---- --- ------ Net charge-offs............................. (12) (208) (44) (264) Acquisitions and dispositions, net.......... -- -- 9 9 Other, transferred to other assets related to securitized receivables................. -- (75) -- (75) ---- ---- --- ------ Balance, end of period...................... $986 $303 $49 $1,338 ==== ==== === ====== Allowance as a percentage of: loans outstanding......................... 2.6% 3.1% 0.3% 2.1% nonperforming loans....................... 272 -- -- 369 1994 --------------------------------- CREDIT OTHER COMMERCIAL CARD CONSUMER TOTAL (DOLLARS IN MILLIONS) ---------- ------ -------- ------ Balance, beginning of period................ $870 $201 $35 $1,106 Provision for credit losses................. 26 224 26 276 Charge-offs................................. (121) (193) (50) (364) Recoveries.................................. 115 32 25 172 ---- ---- --- ------ Net charge-offs............................. (6) (161) (25) (192) Acquisitions and dispositions, net.......... 17 -- -- 17 Other, transferred to other assets related to securitized receivables................. -- (49) -- (49) ---- ---- --- ------ Balance, end of period...................... $907 $215 $36 $1,158 ==== ==== === ====== Allowance as a percentage of: loans outstanding......................... 2.7% 3.1% 0.3% 2.1% nonperforming loans....................... 309 -- -- 394
The allowance for credit losses is maintained at a level that in management's judgment is adequate to provide for inherent credit losses resulting from on-balance-sheet credit exposure for financial instruments such as loans and derivatives, and off-balance-sheet credit exposure for credit- related and derivative financial instruments. The level of the allowance reflects management's formal review and analysis of potential credit losses, as well as prevailing economic conditions. Each quarter, the adequacy of the allowance for credit losses is evaluated and reported to a committee of the Board of Directors. In addition, a separate reserve is maintained for securitized credit card receivables, included in the other assets category. This reserve totaled $302 million at December 31, 1995, compared with $255 million at December 31, 1994. NONPERFORMING ASSETS Nonperforming assets, which consist of nonperforming loans and other real estate, increased from $351 million at December 31, 1994, to $397 million at December 31, 1995. Nonperforming assets as a percentage of total loans and other real estate were 0.6% at December 31, 1995, unchanged from a year ago. 31 NONPERFORMING ASSETS
1995 1994 1993 1992 1991 DECEMBER 31 (DOLLARS IN MILLIONS) ---- ---- ---- ---- ------ Nonperforming loans Commercial real estate....................... $ 91 $129 $203 $203 $ 463 Other........................................ 272 165 282 514 746 ---- ---- ---- ---- ------ Total nonperforming loans.................. 363 294 485 717 1,209 Other real estate, net......................... 34 57 87 81 517 ---- ---- ---- ---- ------ Total nonperforming assets................. $397 $351 $572 $798 $1,726 ==== ==== ==== ==== ====== Nonperforming assets/loans outstanding and other real estate, net........................ 0.6% 0.6% 1.2% 1.7% 3.5%
CONSUMER RISK MANAGEMENT Consumer loans consist of credit card receivables as well as home mortgage loans, home equity loans, automobile financing and other forms of consumer installment credit. The consumer loan portfolio increased $5.3 billion during the year to $26.3 billion at year-end 1995. Including securitized credit card receivables, the consumer portfolio increased $7.1 billion, or 26%, to $34.2 billion at December 31, 1995. CONSUMER LOANS
1995 1994 1993 1992 DECEMBER 31 (IN MILLIONS) ------- ------- ------- ------- Credit card loans............................... $ 9,649 $ 6,980 $ 6,393 $ 4,829 Securitized credit card receivables............. 7,877 6,117 4,958 4,500 ------- ------- ------- ------- Total managed credit card receivables....... 17,526 13,097 11,351 9,329 Other consumer loans Secured by real estate Mortgage.................................... 6,669 4,963 4,285 4,257 Home equity................................. 2,264 2,062 1,803 1,906 Automotive.................................... 4,477 3,994 3,241 2,911 Other......................................... 3,256 2,968 2,526 2,309 ------- ------- ------- ------- Other consumer loans........................ 16,666 13,987 11,855 11,383 ------- ------- ------- ------- Total..................................... $34,192 $27,084 $23,206 $20,712 ======= ======= ======= =======
The consumer risk management process focuses on the credit card segment separately from other parts of the portfolio. For both the on-balance-sheet and the securitized credit card portfolios, loss potential is tested using statistically expected levels of losses based on the source, age and other risk characteristics of each portfolio. For the other segments of the consumer portfolio, reserve factors are based on historical loss rates, vintage, and other relevant risk factors, including forecasted regional delinquency levels and trends. 32 Total managed credit card receivables (i.e. those held in the portfolio and those sold to investors through securitization) were $17.5 billion at December 31, 1995, up 34% from 1994. Average managed credit card receivables grew to $14.2 billion in 1995, up 24% from 1994. AVERAGE CREDIT CARD RECEIVABLES
1995 1994 1993 1992 1991 (DOLLARS IN MILLIONS) ------- ------- ------ ------ ------ Credit card loans.................... $ 7,006 $ 5,904 $4,772 $4,155 $4,127 Securitized credit card receivables.. 7,179 5,538 4,839 3,918 3,320 ------- ------- ------ ------ ------ Total managed credit card receivables....................... $14,185 $11,442 $9,611 $8,073 $7,447 ======= ======= ====== ====== ====== Total net charge-offs (including securitizations).................... $572 $403 $342 $333 $328 ======= ======= ====== ====== ====== Net charge-offs/average total receivables......................... 4.0% 3.5% 3.6% 4.1% 4.4%
The net charge-off rate for the total average managed credit card portfolio was 4.0% in 1995, compared with 3.5% in 1994. Current levels of unemployment and personal bankruptcy filings make reductions in the charge-off rate unlikely in the near term. Consumer debt service burden and defaults have increased as a result of the growing consumer debt levels coupled with stagnant real wage growth. In response to these trends, credit management policies and practices have been tightened. COMMERCIAL RISK MANAGEMENT The commercial risk portfolio includes all domestic and foreign commercial credit exposure. Credit exposure includes the credit risks associated with both on- and off-balance-sheet financial instruments. Credit risks from off-balance- sheet instruments arise from credit-related and derivative financial instruments. See Note 16, beginning on page 61, for information on the credit exposure associated with these off-balance-sheet instruments. Commercial loans increased 11% from $34.2 billion at December 31, 1994, to $38.1 billion at December 31, 1995. The increase reflects growth in both the large corporate and middle market portfolios. In the commercial portfolio, credit quality is rated according to defined levels of credit risk. The lower categories of credit risk are equivalent to the four bank regulatory classifications: Special Mention, Substandard, Doubtful and Loss. These categories define levels of credit deterioration at which it may be increasingly difficult for the Corporation to be fully repaid without restructuring the credit. Each quarter, the Corporation conducts an asset-by-asset review of significant lower-rated credit or country exposure. Potential losses are identified during this review, and reserves are adjusted accordingly. Allowance for Commercial Credit Losses as % of Nonperforming Commercial Loans* [BAR GRAPH] 1993 = 179% 1994 = 309% 1995 = 272% *At year-end Nonperforming Assets as % of Loans and Other Real Estate* [BAR GRAPH] 1991 = 3.5% 1992 = 1.7% 1993 = 1.2% 1994 = 0.6% 1995 = 0.6% *At year-end 33 Commercial credit quality remained favorable in 1995, as net charge-offs were $12 million, compared with $6 million in 1994. The provision for commercial credit losses increased to $91 million in 1995 from $26 million in 1994, reflecting growth in the loan portfolio. The commercial reserve of $986 million represented 2.6% of total commercial loans at December 31, 1995, compared with $907 million, or 2.7%, at December 31, 1994. COMMERCIAL REAL ESTATE Commercial real estate consists primarily of loans secured by real estate as well as certain loans that are real estate-related. A loan is categorized as real estate-related when 80% or more of the borrower's revenues are derived from real estate activities and the loan is not collateralized by cash or marketable securities. At December 31, 1995, commercial real estate loans totaled $7.3 billion, or 19% of commercial loans, compared with $7.0 billion, or 20% of commercial loans, at December 31, 1994. During 1995, net charge-offs in the commercial real estate portfolio segment were $9 million, compared with $26 million in 1994. Nonperforming commercial real estate assets, including other real estate, totaled $125 million, or 1.7% of related assets, at December 31, 1995, compared with $186 million, or 2.6% of related assets, at December 31, 1994. Derivative Financial Instruments The Corporation uses a variety of derivative financial instruments in its trading, asset and liability management, and Corporate Investment activities. These instruments include interest rate, currency, commodity and equity swaps, forwards, futures, options, caps, floors, forward rate agreements, and other conditional or exchange contracts, and include both exchange-traded and over- the-counter contracts. See Note 16, on pages 62 and 63, for a discussion of the nature and terms of derivative financial instruments. NOTIONAL PRINCIPAL OR CONTRACTUAL AMOUNTS OF DERIVATIVE FINANCIAL INSTRUMENTS The following tables represent the gross notional principal or contractual amounts of outstanding derivative financial instruments used in certain activities. These amounts do not represent the market or credit risk associated with these instruments, but instead indicate the volume of the transactions. The amounts greatly exceed the credit risk associated with these instruments and do not reflect the netting of offsetting transactions.
ASSET AND LIABILITY CORPORATE DECEMBER 31, 1995 TRADING MANAGEMENT INVESTMENTS TOTAL (IN BILLIONS) ------- ---------- ----------- ------ Foreign exchange contracts................ $378.8 $ 1.8 $ -- $380.6 Interest rate contracts................... 415.4 9.7 -- 425.1 Commodity contracts....................... 1.0 -- -- 1.0 Equity contracts.......................... 7.9 -- 0.1 8.0 ------ ----- ---- ------ Total................................. $803.1 $11.5 $0.1 $814.7 ====== ===== ==== ====== ASSET AND LIABILITY CORPORATE DECEMBER 31, 1994 TRADING MANAGEMENT INVESTMENTS TOTAL (IN BILLIONS) ------- ---------- ----------- ------ Foreign exchange contracts................ $295.1 $ 1.2 $ -- $296.3 Interest rate contracts................... 320.4 10.4 -- 330.8 Commodity contracts....................... 0.1 -- -- 0.1 Equity contracts.......................... 2.7 -- 0.3 3.0 ------ ----- ---- ------ Total................................. $618.3 $11.6 $0.3 $630.2 ====== ===== ==== ======
34 ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments used in trading activities are valued at prevailing market rates on a present-value basis. Realized and unrealized gains and losses are included in noninterest income as combined trading profits. Where appropriate, compensation for credit risk and ongoing servicing is deferred and taken into income over the term of the derivative financial instrument. Income or expense on most derivative financial instruments used to manage interest rate exposure is recorded on the balance sheet on an accrual basis and on the income statement as an adjustment to the yield of the related exposures over the periods covered by the contracts. The income recognition treatment on the related exposure, generally assets or liabilities carried at historical cost, is recorded on an accrual basis. If an interest rate swap is terminated early, any resulting gain or loss is deferred and amortized as an adjustment of the yield on the underlying interest rate exposure position over the remaining periods originally covered by the terminated swap. If all or part of an underlying position is terminated, e.g., an underlying asset is sold or prepaid, the related pro rata portion of any unrecognized gain or loss on the swap is recognized in income at that time, as part of the gain or loss on the termination, sale or prepayment. In general, purchased option, cap and floor contracts are reported in derivative product assets, and written option, cap and floor contracts are reported in derivative product liabilities. For other derivative financial instruments, an unrealized gain is reported in derivative product assets and an unrealized loss is reported in derivative product liabilities. Derivative financial instruments executed with the same counterparty under a legally enforceable master netting arrangement are reported on a net basis. Cash flows from derivative financial instruments are reported net as operating activities. INCOME RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS A discussion of the Corporation's income from derivatives used in trading activities is presented on page 20. The Corporation uses interest rate derivative financial instruments to reduce structural interest rate risk and the volatility of net interest margin. The consistency of the Corporation's net interest margin reflects the effective use of these derivatives. Without their use, net interest income would have been higher by $12 million in 1995, lower by $48 million in 1994, and lower by $110 million in 1993. The sale of fixed- and floating-rate credit card receivables as securities to investors subjects servicing revenue to interest rate risk. Therefore, interest rate derivatives, whose terms match those of the credit card securitizations, are used to reduce this volatility. Without the use of these instruments, credit card fee revenue would have been reduced by $6 million in 1995, $39 million in 1994 and $67 million in 1993. Deferred gains and losses on the early termination of interest rate swaps totaled a net deferred gain of $9 million as of December 31, 1995, and a net deferred gain of $46 million as of December 31, 1994. A significant portion of these deferred gains was related to securitized credit card receivables. The amount at December 31, 1995, is scheduled to be amortized into income in the following periods: $16 million in 1996, $(1) million in 1997, and $(6) million in 1998 and thereafter. CREDIT EXPOSURE RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS The Corporation maintains risk management policies that monitor and limit exposure to credit risks. For a further discussion of credit risks, see the Credit Risk Management section, beginning on page 29. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts, increased by an estimate of potential adverse position exposure. The incremental amount of credit exposure for potential adverse movement is calculated using a statistical model that estimates changes over time in exchange rates, interest rates and other relevant factors. Credit exposure amounts fluctuate as a function of maturity, interest rates, foreign exchange rates, commodity prices and equity prices. Gross credit exposure may be overstated because it does not consider collateral and other security, or the offsetting of losses with the same 35 counterparties based on legally enforceable termination and netting rights. A reconciliation between gross credit exposure and balance sheet exposure is presented in the following table.
DECEMBER 31, 1995 (IN BILLIONS) Gross credit exposure.................................................... $19.8 Less additional exposure based on estimate of potential adverse position exposure................................................................ 6.8 ----- Gross fair value exposure................................................ $13.0 ===== Gross fair value exposure by type of contract Interest rate contracts................................................ $ 6.4 Foreign exchange contracts............................................. 6.4 Equity contracts....................................................... 0.2 ----- Gross fair value exposure............................................ 13.0 Less netting adjustments due to master netting agreements................ 6.2 Less unrecognized net gain due to nontrading activities.................. 0.1 ----- Balance sheet exposure................................................... $ 6.7 =====
Capital Management SELECTED CAPITAL RATIOS
CORPORATE 1995 1994 1993 1992 1991 GUIDELINE DECEMBER 31 ---- ---- ---- ---- ---- ------------- Common equity/total assets(1)............ 6.9% 6.8% 7.6% 6.5% 6.0% N/A Tangible common equity ratio(1).......... 6.4 6.3 6.9 5.7 5.1 N/A Stockholders' equity/total assets........ 6.9 6.9 8.1 7.0 6.5 N/A Risk-based capital ratios(1)(2) Tier 1 ................................ 7.8 8.6 9.0 7.4 6.5 7-8% Total ................................. 11.8 13.0 13.6 11.3 9.8 11-12% Leverage ratio(1)(2)..................... 6.9 7.3 7.8 6.6 6.5 5.5-7.0% Double leverage ratio.................... 115 113 108 112 111 less than or equal to 120% Dividend payout ratio.................... 39 34 28 89 61 30-40%
- -------- (1) Net of investment in FCCM. (2) Under 1992 risk-based capital rules. N/A--Not Applicable. Capital represents the stockholders' investment on which the Corporation strives to generate attractive returns. It supports business growth and provides protection to depositors and creditors. Management believes that capital is the foundation of a cohesive risk management framework because it links return with risk. Capital adequacy objectives have been developed for the Corporation and the Principal Banks to meet these needs and also to maintain a well-capitalized regulatory position. Management believes that a strong capital base coupled with attractive returns is instrumental in enhancing long-term stockholder value. To that end, key capital management objectives are to: . generate attractive returns to enhance shareholder value; . maintain a capital base commensurate with overall risk profile; . maintain strong capital ratios relative to peers; and . meet or exceed all regulatory guidelines. In conjunction with the annual planning process, a capital plan is established to guide management in the achievement of these objectives. This plan is intended to ensure that the Corporation and each of its subsidiaries have capital structures consistent with prudent management principles and regulatory requirements. 36 ECONOMIC CAPITAL In the normal course of business, the Corporation assumes several types of risk: credit, liquidity, structural interest rate, market and operating/fiduciary. As discussed in the Risk Management section, frameworks have been developed to independently monitor and control many of these exposures. To integrate these processes, an economic capital framework has been constructed to allocate capital to business segments, products and customers based on the amount and type of risk inherent in the activity. Once economic capital is assigned, returns can be computed to determine if the activity earns an adequate return on risk. This process forms a key decision- making tool for managing risk-taking activities, as well as for ensuring that capital is profitably employed. A financial instrument or business activity attracts economic capital based on its potential for loss of value over a particular time period. Capital is designed to cover unexpected losses to a desired level of statistical significance. Losses may result from adverse price movements for market and interest rate risk, failure of a counterparty to perform according to the terms of an agreement for credit risk, and operating errors and negligence for operating/fiduciary risk. Credit and operating loss experiences form the basis for assessing the volatility of these risks. Volatility of interest and exchange rates and commodity and equity prices is used to determine the capital for market risk. Although capital is allocated to specific activities and instruments, a diverse portfolio of activities requires less capital than the sum of the individual components due to the unlikelihood that all activities will experience large value declines at the same time. Consequently, the Corporation's total capital level will be less than the sum of the individual requirements. The Corporation intends to maintain capital commensurate with its risk profile and intermediary requirements, and to deploy its capital resources in activities that earn attractive returns for stockholders. Total economic capital will vary proportionately with the level and riskiness of its businesses and products. During 1995, credit risk consumed the largest amount of economic capital. The Corporation has also established a capital level that it believes is necessary to provide management flexibility while maintaining an adequate base for its risk profile and in relation to its peers. This target, or intermediary capital, is expressed in terms of Tier 1 capital and ranges from 7% to 8%. As the following chart shows, average common equity during 1995 exceeded economic capital (that needed for current business risks) and was more than sufficient to meet intermediary capital goals. AVERAGE ECONOMIC CAPITAL [BAR GRAPH] $ Billions 1994 1995 Economic Capital = $5.6 $5.7 Required for Targeted Intermediary Capital = $1.1 $1.7 Excess Capital = $0.3 $0.3 37 Excess capital, defined as common equity above the intermediary capital target, is available for core business investment and acquisitions, and averaged about $327 million during 1995. At year-end 1995, the Corporation had no excess capital primarily due to merger-related charges. If attractive long- term opportunities are not available over time in core businesses, management intends to return to stockholders any excess capital, typically by way of stock repurchase programs and/or dividend increases. Integral to any successful capital management program is the ability to generate acceptable returns on stockholders' capital. Even with excess capital, the Corporation has been able to earn attractive returns on equity. For the past three years, before merger-related charges, the return on average common stockholders' equity has been greater than 15%--the Corporation's minimum goal. REGULATORY CAPITAL The Corporation endeavors to maintain regulatory capital ratios, including those of its principal banking subsidiaries, in excess of the well-capitalized guidelines. To ensure this goal is met, target ranges of 7% to 8% have been established for Tier 1 capital and 11% to 12% for total risk-based capital. Both targets exceed the respective well-capitalized guidelines of 6% and 10%. As shown in the following chart, these ratios for the past three years have reached or exceeded the upper end of the target ranges. Lower year-end 1995 ratios primarily reflect the impact of merger-related charges. TIER 1 AND TOTAL CAPITAL RATIOS* [BAR GRAPH] 1993 1994 1995 ---- ---- ---- Tier 1 = 9.0% 8.6% 7.8% Total = 13.6% 13.0% 11.8% Regulatory Guideline Tier 1 = 6.0% 6.0% 6.0% Total = 10.0% 10.0% 10.0% *At year-end The following table shows the components of regulatory risk-based capital and risk-weighted assets.
1995 1994 1993 DECEMBER 31 (IN MILLIONS) ------- ------- ------- Regulatory Risk-Based Capital Tier 1 capital.......................................... $ 7,750 $ 7,489 $ 7,051 Tier 2 capital.......................................... 4,017 3,806 3,649 ------- ------- ------- Total capital....................................... $11,767 $11,295 $10,700 ======= ======= ======= Regulatory Risk-Weighted Assets Balance sheet risk-weighted assets...................... $71,040 $62,778 $56,600 Off-balance-sheet risk-weighted assets.................. 28,403 23,852 22,041 ------- ------- ------- Total risk-weighted assets.......................... $99,443 $86,630 $78,641 ======= ======= =======
38 The Principal Banks have exceeded the well-capitalized guidelines for the past three years, as shown in the following tables.
NBD NBD NBD FNBC FCCNB ANB MICHIGAN INDIANA ILLINOIS DECEMBER 31, 1995 ---- ----- ---- -------- ------- -------- Risk-Based Capital Ratios Tier 1 capital.................... 7.6% 10.0% 9.2% 7.6% 10.3% 9.9% Total capital..................... 11.3 12.1 11.5 10.9 11.5 11.2 Leverage ratio...................... 5.9 11.7 9.2 7.4 7.9 8.3 NBD NBD NBD FNBC FCCNB ANB MICHIGAN INDIANA ILLINOIS DECEMBER 31, 1994 ---- ----- ---- -------- ------- -------- Risk-Based Capital Ratios Tier 1 capital.................... 8.1% 12.1% 9.5% 7.5% 12.4% 10.3% Total capital..................... 12.5 15.0 12.0 11.1 13.7 11.5 Leverage ratio...................... 6.3 14.4 9.1 6.1 8.9 7.9 NBD NBD NBD FNBC FCCNB ANB MICHIGAN INDIANA ILLINOIS DECEMBER 31, 1993 ---- ----- ---- -------- ------- -------- Risk-Based Capital Ratios Tier 1 capital.................... 7.7% 10.0% 10.1% 8.1% 12.5% 11.8% Total capital..................... 11.8 12.9 11.8 11.3 13.8 13.0 Leverage ratio...................... 6.7 12.3 8.7 6.7 8.9 9.1
It is important to note that by maintaining regulatory well-capitalized status, these banks benefit from lower FDIC deposit premiums. DIVIDENDS Dividends are an integral part of the capital management and stockholder value program. The Corporation's common dividend policy reflects its earnings outlook, desired payout ratios, peer comparisons, the need to maintain an adequate capital level and alternative investment opportunities. Given these factors, the Corporation is currently targeting a common dividend payout ratio in the range of 30% to 40% of operating earnings over time. On December 8, 1995, the Corporation increased its quarterly common dividend to $0.36 per share. This represented a 9% increase from the previous $0.33 per share common dividend rate. STOCK REPURCHASE PROGRAM AND OTHER CAPITAL ACTIVITIES The repurchase of shares is used to manage excess capital and enhance stockholder value. The Corporation's stock repurchase program, which combines FCC's and NBD's pre-Merger programs, authorizes the repurchase of up to 28.7 million shares of common stock. At December 31, 1995, 9.4 million shares remain available for repurchase under this program. During 1995 and prior to the Merger, the Corporation repurchased 15 million shares of common stock at an average price of $34.08 per share. On August 1, 1995, the Corporation's $120.5 million issue of Preferred Stock, Series A, was redeemed, reducing annual dividend requirements by $8.4 million. Regulatory total capital was increased in May 1995 through the issuance of $200 million of subordinated debt. DOUBLE LEVERAGE Double leverage is the extent to which parent debt is used to finance equity investments in subsidiaries. Presently, the Corporation intends to limit its double leverage ratio to no more than 120% at any time. On December 31, 1995, double leverage was 115%, compared with 113% at year-end 1994. 39 CONSOLIDATED BALANCE SHEET FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
1995 1994 DECEMBER 31 (DOLLARS IN MILLIONS) -------- -------- ASSETS Cash and due from banks................................. $ 7,297 $ 6,852 Interest-bearing due from banks......................... 10,241 8,697 Federal funds sold and securities under resale agreements............................................. 11,698 13,702 Trading assets.......................................... 8,150 5,089 Derivative product assets............................... 6,713 4,447 Investment securities (fair values--$9,449 in 1995 and $14,784 in 1994)....................................... 9,449 15,015 Loans (net of unearned income--$610 in 1995 and $469 in 1994).................................................. 64,434 55,176 Allowance for credit losses............................. (1,338) (1,158) Premises and equipment.................................. 1,423 1,295 Customers' acceptance liability......................... 729 717 Other assets............................................ 3,206 2,931 -------- -------- Total assets........................................ $122,002 $112,763 ======== ======== LIABILITIES Deposits Demand................................................ $ 15,234 $ 14,378 Savings............................................... 20,180 20,088 Time.................................................. 15,919 13,204 Foreign offices....................................... 17,773 17,225 -------- -------- Total deposits...................................... 69,106 64,895 Federal funds purchased and securities under repurchase agreements............................................. 15,711 16,919 Other short-term borrowings............................. 9,802 8,422 Long-term debt.......................................... 8,163 7,246 Acceptances outstanding................................. 729 717 Derivative product liabilities.......................... 6,723 4,172 Other liabilities....................................... 3,318 2,583 -------- -------- Total liabilities................................... 113,552 104,954 STOCKHOLDERS' EQUITY Preferred stock--without par value, authorized 10,000,000 shares SHARES OUTSTANDING: 1995 1994 - ------------------- ----------- ----------- Series A ($50 stated value)..... -- 2,410,000 -- 121 Series B ($100 stated value).... 1,191,000 1,191,000 119 119 Series C ($100 stated value).... 713,800 713,800 71 71 Series E ($625 stated value).... 160,000 160,000 100 100 Convertible Series B ($5,000 stated value).................. 39,774 40,000 199 200 1995 1994 ----------- ----------- Common stock--$1 par value.............................. 319 329 Number of shares authorized... 750,000,000 500,000,000 Number of shares issued....... 318,535,798 329,474,942 Number of shares outstanding.. 315,241,109 318,554,906 Surplus................................................. 2,185 2,555 Retained earnings....................................... 5,497 4,808 Fair value adjustment on investment securities available-for-sale..................................... 112 (158) Deferred compensation................................... (39) (33) Accumulated translation adjustment...................... 8 7 Treasury stock at cost, 3,294,689 shares in 1995 and 10,920,036 shares in 1994.............................. (121) (310) -------- -------- Stockholders' equity................................ 8,450 7,809 -------- -------- Total liabilities and stockholders' equity.......... $122,002 $112,763 ======== ========
The accompanying notes are an integral part of this balance sheet. 40 CONSOLIDATED INCOME STATEMENT FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
1995 1994 1993 FOR THE YEAR (IN MILLIONS, EXCEPT PER SHARE DATA) ------ ------ ------ INTEREST INCOME Loans, including fees..................................... $5,260 $4,000 $3,612 Bank balances............................................. 620 395 332 Federal funds sold and securities under resale agreements. 922 624 350 Trading assets............................................ 467 284 227 Investment securities--taxable............................ 694 716 598 Investment securities--tax-exempt......................... 127 117 128 ------ ------ ------ Total................................................. 8,090 6,136 5,247 INTEREST EXPENSE Deposits.................................................. 2,581 1,653 1,472 Federal funds purchased and securities under repurchase agreements............................................... 1,192 704 404 Other short-term borrowings............................... 538 378 253 Long-term debt............................................ 571 445 334 ------ ------ ------ Total................................................. 4,882 3,180 2,463 ------ ------ ------ NET INTEREST INCOME....................................... 3,208 2,956 2,784 Provision for credit losses............................... 510 276 390 ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES..... 2,698 2,680 2,394 NONINTEREST INCOME Combined trading profits.................................. 210 86 305 Equity securities gains................................... 253 229 488 Investment securities gains (losses)...................... (16) (1) 2 ------ ------ ------ Market-driven revenue................................... 447 314 795 Credit card fee revenue................................... 901 871 730 Fiduciary and investment management fees.................. 404 377 374 Service charges and commissions........................... 735 688 704 Other..................................................... 104 143 166 ------ ------ ------ Total................................................. 2,591 2,393 2,769 NONINTEREST EXPENSE Salaries and employee benefits............................ 1,692 1,602 1,558 Occupancy expense of premises, net........................ 252 244 256 Equipment rentals, depreciation and maintenance........... 225 245 194 FDIC insurance expense.................................... 58 105 116 Amortization of intangible assets......................... 88 93 123 Merger-related charges.................................... 267 -- -- Other..................................................... 953 931 914 ------ ------ ------ Total................................................. 3,535 3,220 3,161 ------ ------ ------ INCOME BEFORE INCOME TAXES................................ 1,754 1,853 2,002 Applicable income taxes................................... 604 632 712 ------ ------ ------ NET INCOME................................................ $1,150 $1,221 $1,290 ====== ====== ====== NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY.... $1,113 $1,169 $1,233 ====== ====== ====== EARNINGS PER SHARE NET INCOME--PRIMARY..................................... $3.45 $3.62 $3.91 NET INCOME--FULLY DILUTED............................... $3.41 $3.58 $3.79
The accompanying notes are an integral part of this statement. 41 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31 1995 1994 1993 (IN MILLIONS) ------ ------ ------ PREFERRED STOCK Balance, beginning of period............................. $ 611 $ 761 $ 669 Issuance of stock........................................ -- -- 200 Conversion of preferred stock............................ (1) -- -- Redemption of preferred stock............................ (121) (150) (108) ------ ------ ------ Balance, end of period................................... 489 611 761 ------ ------ ------ COMMON STOCK Balance, beginning of period............................. 329 318 309 Issuance of stock........................................ 1 -- 3 Redemption of preferred stock............................ -- -- 6 Acquisition of subsidiaries.............................. -- 11 -- Cancellation of shares held in treasury.................. (11) -- -- ------ ------ ------ Balance, end of period................................... 319 329 318 ------ ------ ------ CAPITAL SURPLUS Balance, beginning of period............................. 2,555 2,542 2,399 Issuance of common stock................................. 14 14 38 Issuance of treasury stock............................... (21) (39) (1) Issuance of preferred stock.............................. -- -- (4) Redemption of preferred stock............................ -- (5) 101 Acquisition of subsidiaries.............................. (3) 39 -- Cancellation of shares held in treasury.................. (369) -- -- Other.................................................... 9 4 9 ------ ------ ------ Balance, end of period................................... 2,185 2,555 2,542 ------ ------ ------ RETAINED EARNINGS Balance, beginning of period............................. 4,808 3,924 2,974 Net income............................................... 1,150 1,221 1,290 Cash dividends declared on common stock.................. (424) (367) (283) Cash dividends declared on preferred stock............... (37) (47) (57) Acquisition of subsidiaries.............................. -- 77 -- ------ ------ ------ Balance, end of period................................... 5,497 4,808 3,924 ------ ------ ------ FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES AVAILABLE- FOR-SALE Balance, beginning of period............................. (158) (6) -- Unrealized loss at December 31, 1993 (net of taxes of ($3))................................................... -- -- (6) Unrealized gain on securities transferred from held-to- maturity to available-for-sale on November 17, 1995 (net of taxes of $55)................................... 101 -- -- Change in fair value (net of taxes of $99 in 1995 and $(87) in 1994).......................................... 169 (148) -- Acquisition of subsidiaries.............................. -- (4) -- ------ ------ ------ Balance, end of period................................... 112 (158) (6) ------ ------ ------ DEFERRED COMPENSATION Balance, beginning of period............................. (33) (30) (34) Awards granted........................................... (18) (28) (17) Amortization of deferred compensation.................... 21 21 16 Other.................................................... (9) 4 5 ------ ------ ------ Balance, end of period................................... (39) (33) (30) ------ ------ ------ ACCUMULATED TRANSLATION ADJUSTMENT Balance, beginning of period............................. 7 3 7 Translation gain (loss), net of taxes.................... 1 4 (4) ------ ------ ------ Balance, end of period................................... 8 7 3 ------ ------ ------ TREASURY STOCK Balance, beginning of period............................. (310) (13) (1) Purchase of common stock................................. (538) (388) (21) Acquisition of subsidiaries.............................. 262 -- -- Cancellation of shares held in treasury.................. 380 -- -- Issuance of stock........................................ 85 91 9 ------ ------ ------ Balance, end of period................................... (121) (310) (13) ------ ------ ------ Total Stockholders' Equity, end of period.............. $8,450 $7,809 $7,499 ====== ====== ======
The accompanying notes are an integral part of this statement. 42 CONSOLIDATED STATEMENT OF CASH FLOWS FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
1995 1994 1993 FOR THE YEAR (IN MILLIONS) -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................... $ 1,150 $ 1,221 $ 1,290 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization................... 274 277 295 Provision for credit losses..................... 510 279 403 Equity securities gains......................... (253) (229) (488) Net (increase) decrease in net derivative product balances............................... 296 (62) -- Net gains from accelerated disposition portfolio activities..................................... (37) (46) (60) Net (increase) in trading assets................ (2,766) (427) (1,165) Net (increase) decrease in loans held for sale.. (243) 197 (111) Net (increase) in accrued income receivable..... (131) (143) (37) Net increase (decrease) in accrued expenses payable........................................ (153) 102 317 Net (increase) decrease in other assets......... 174 (212) 66 Interest income from Brazilian debt restructuring.................................. (2) (17) -- Merger-related charges.......................... 242 -- -- Other noncash adjustments....................... (67) 70 (421) -------- -------- ------- Total adjustments............................... (2,156) (211) (1,201) Net cash provided by (used in) operating activities...................................... (1,006) 1,010 89 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in federal funds sold and securities under resale agreements.............. 2,003 (4,623) (2,050) Purchase of investment securities................ -- -- (7,722) Purchase of investment securities--available-for- sale............................................ (4,340) (6,392) -- Purchase of debt investment securities--held-to- maturity........................................ (119) (3,081) -- Purchase of equity securities--fair value........ (385) (181) -- Proceeds from maturities of debt securities...... -- -- 8,265 Proceeds from maturities of debt securities-- available-for-sale.............................. 3,652 2,811 -- Proceeds from maturities of debt securities-- held-to-maturity................................ 1,042 2,052 -- Proceeds from sales of investment securities..... -- -- 679 Proceeds from sales of investment securities-- available-for-sale.............................. 5,564 2,164 -- Proceeds from sales of equity securities--fair value........................................... 1,051 333 -- Credit card receivables securitized.............. 2,286 2,000 1,700 Net (increase) in loans.......................... (10,815) (8,200) (2,830) Loan recoveries.................................. 142 155 189 Net proceeds from sales of assets held for accelerated disposition......................... 59 112 829 Purchases of premises and equipment.............. (382) (370) (347) Proceeds from sales of premises and equipment.... 74 107 137 Net cash and cash equivalents due to mergers and acquisitions.................................... 116 38 -- -------- -------- ------- Net cash (used in) investing activities.......... (52) (13,075) (1,150) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits.............. 2,616 5,776 (2,700) Net increase (decrease) in federal funds purchased and securities under repurchase agreements...................................... (1,208) 5,832 447 Net increase in other short-term borrowings...... 1,574 1,581 2,663 Proceeds from issuance of long-term debt......... 2,163 3,357 1,964 Repayment of long-term debt...................... (1,262) (1,231) (893) Net increase in other liabilities................ 103 2 285 Dividends paid................................... (447) (397) (331) Proceeds from issuance of common and treasury stock........................................... 48 52 47 Purchase of treasury stock....................... (538) (397) (26) Proceeds from issuance of preferred stock........ -- -- 196 Payment for redemption of preferred stock........ (121) (150) (1) -------- -------- ------- Net cash provided by financing activities........ 2,928 14,425 1,651 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS..................................... 119 109 (80) NET INCREASE IN CASH AND CASH EQUIVALENTS........ 1,989 2,469 510 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 15,549 13,080 12,570 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 17,538 $ 15,549 $13,080 ======== ======== ======= OTHER CASH FLOW DISCLOSURES: Interest paid................................... $4,666 $3,165 $2,451 State and federal income taxes paid............. 808 575 379
Loans transferred to other real estate were $18 million, $29 million and $57 million in 1995, 1994 and 1993, respectively. In 1993 the Corporation reclassified $89 million of United Mexican States obligations from loans to investment securities. The accompanying notes are an integral part of this statement. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements for the Corporation, including its subsidiaries, have been prepared in conformity with generally accepted accounting principles. Such preparation requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Prior years' financial statements have been reclassified to conform with the current financial statement presentation. (a) Principles of Consolidation The Corporation's consolidated financial statements include the accounts of the Corporation (the "Parent Company") and all subsidiaries more than 50% owned. All significant intercompany accounts and transactions have been eliminated in consolidation. (b) Trading Activities Trading assets and liabilities are carried at fair value. Realized and unrealized gains and losses related to trading activities are reflected in noninterest income as combined trading profits. Combined trading profits include interest rate, exchange rate, commodity price, and equity price trading results from both cash and derivative financial instruments. More information on the Corporation's trading revenue is shown in the "Trading Revenue" table on page 20. (c) Investment Securities Effective November 17, 1995, the Corporation reclassified all held-to- maturity debt securities to available-for-sale. Previously, these debt investment securities were carried at amortized cost. The decision to reclassify was made in conjunction with the Financial Accounting Standards Board's ("FASB") issuance of an implementation guide that allowed a one-time window period to reassess and reclassify investment securities. The reclassified debt investment securities were revalued at fair value, which resulted in a $156 million unrealized pretax gain being recorded in the fair value adjustment on investment securities available-for-sale in stockholders' equity. Realized gains and losses and other than temporary impairments related to debt and equity investment securities are determined using the specific identification method and are reported in noninterest income as investment securities gains (losses) or equity securities gains, as appropriate. The Corporation carries investments of its venture capital subsidiaries at fair value. Changes in the fair value of such investments are recognized in noninterest income as equity securities gains. The fair value of publicly traded investments takes into account their quoted market prices with adjustments made for market liquidity or sale restrictions. For investments that are not publicly traded, management has made estimates of fair value that consider the investees' financial results, conditions and prospects, and the values of comparable public companies. Because of the nature of these investments, the equity method of accounting is not used in situations where the Corporation has a greater than 20% ownership interest. Other debt and equity investment securities classified as available-for-sale are carried at fair value with unrealized gains and losses and applicable income taxes reported in the fair value adjustment on investment securities available-for-sale in stockholders' equity. 44 (d) Loans Loans are generally reported at the principal amount outstanding, net of unearned income. Loans held for sale are valued at the lower of cost or fair value. Unrealized losses as well as realized gains or losses are included in other noninterest income. Loan origination and commitment fees generally are deferred and amortized as interest income over the life of the related loan. Other credit-related fees, such as syndication management fees, commercial letters of credit fees, and fees on unused, available lines of credit, are recorded as service charges and commissions in noninterest income when earned. Loans, including lease financing receivables, are considered nonperforming when placed on nonaccrual status, or when renegotiated at terms that represent an economic concession to the borrower. A commercial loan is placed on nonaccrual status when the collection of contractual principal or interest is deemed doubtful by management or becomes 90 days or more past due, and the loan is not well-secured and in the process of collection. Accrued but uncollected interest is reversed and charged against interest income when the commercial loan is placed on nonaccrual status. Interest payments received on a nonaccrual loan, in which ultimate collection of the recorded investment amount is considered doubtful, are recorded as a reduction to principal until such doubt no longer exists; thereafter, interest payments received are recorded as a recovery, to the extent of prior charge-offs, and then as interest income. A charge-off on a commercial loan is recorded in the reporting period in which either an event occurs that confirms the existence of a loss or it is determined a loan or a portion of a loan is uncollectible. In general, a loan or portion of a loan is considered to be uncollectible when the likelihood of recovery is judged to be 25% or less. This does not suggest, however, that there is no possibility of a recovery of a portion or all of the loan in a subsequent period. Consumer loans are generally not placed on nonaccrual status but are charged off after reaching certain delinquency periods (120-180 days). The timing and amount of the charge-off will depend on the type of consumer loan and any related collateral. Accrued but uncollected interest on a consumer loan is reversed against interest income when the loan is charged off. An economic concession on a renegotiated loan may represent forgiveness of principal and/or interest or a below-market interest rate offered to the borrower to maximize recovery of the loan. Generally, this occurs when the borrower's cash flow is insufficient to service the loan under its original terms. Subject to the above nonaccrual policy, interest on these loans is accrued at the reduced rates. (e) Credit Card Securitization The Corporation actively packages and sells credit card receivables as securities to investors. At the time of securitization no gain or loss is recorded since the amount of proceeds received is equal to the par value of the receivables. Transaction costs are deferred and amortized ratably as a reduction of servicing fees over the terms of the related securitizations. The amount of credit card interest income and fee revenue in excess of interest paid to certificate holders, credit losses and other trust expenses is recognized on an accrual basis as servicing fees in credit card fee revenue. (f) Allowance for Credit Losses The allowance for credit losses is maintained at a level that in management's judgment is adequate to provide for estimated probable credit losses inherent in on- and off-balance-sheet credit exposure attributable to various financial instruments. The amount of the allowance is based on formal review and analysis of potential credit losses, as well as prevailing economic conditions. 45 (g) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is charged to noninterest expense over the estimated useful lives of the assets and is computed on either a straight-line or an accelerated depreciation method. Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Maintenance, repairs and minor alterations are expensed as incurred. Gains and losses on disposition are reflected in other noninterest income. (h) Other Real Estate Other real estate includes primarily assets that have been acquired in satisfaction of debt. Other real estate is initially recorded and subsequently carried at the lower of cost or fair value less estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance for credit losses. Operating results from other real estate are recorded in other noninterest expense. (i) Intangible Assets Intangible assets are included in other assets. Goodwill, representing the cost of investments in subsidiaries and affiliated companies in excess of the fair value of net assets acquired, is amortized on a straight-line basis over periods ranging from 10 to 25 years. Other intangible assets, such as purchased mortgage servicing rights, customer lists, core deposits and credit card relationships, are amortized using various methods over the periods benefited. (j) Derivative Financial Instruments For a discussion of the Corporation's accounting policies for derivative financial instruments, see page 35. (k) Foreign Currency Translation When the primary operating currency (functional currency) of a foreign installation is the U.S. dollar, its foreign currency-denominated monetary assets and liabilities carried in local currency are remeasured into U.S. dollars at current exchange rates. Its premises and equipment are remeasured at historical exchange rates. Remeasurement effects and the results of related hedging transactions are included in other noninterest income. If the foreign installation's functional currency is its local currency, all assets and liabilities are translated at current exchange rates. Translation adjustments, related hedging results and applicable income taxes are included in accumulated translation adjustment within stockholders' equity. (l) Employee Benefits The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1994. This statement requires the accrual of benefits provided to former or inactive employees after employment but before retirement. The Corporation's prior practice was to expense these benefits when paid. (m) Cash Flow Reporting The Corporation uses the indirect method to report cash flows from operating activities. Under this method, net income is adjusted to reconcile to net cash flows from operating activities. Net reporting of cash transactions has been used when the balance sheet items consist predominantly of maturities of three months or less, or where otherwise permitted. Other items are reported on a gross basis. Cash flows related to sales of debt investment securities within three months of the maturity date are classified as maturities in the consolidated statement of cash flows. Cash and cash equivalents consist of cash and due from banks, whether interest-bearing or not. Effective November 17, 1995, a noncash transfer of $7.2 billion attributable to reclassifying debt securities from held-to-maturity to available-for-sale was made. Please refer to section (c) of this note for more details. 46 Upon adopting FASB Interpretation No. 39 on January 1, 1994, a noncash transfer of balances attributable to derivative financial instruments on December 31, 1993, was made from other assets ($1.5 billion) and other liabilities ($1.3 billion) to net derivative product balances. (n) Recently Issued Accounting Standards In 1995 the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which requires the capitalization of servicing rights on mortgage loans when the loans are to be sold and the servicing retained, and SFAS No. 123, "Accounting for Stock-Based Compensation," which encourages the use of a fair value-based method of accounting for certain but not all employee stock compensation plans. Implementation of these statements is not expected to be material to the Corporation's business practices or results of operations. NOTE 2--EARNINGS PER SHARE Earnings per share are presented on both a primary and a fully diluted basis. Primary earnings per share were computed by dividing net income, after deducting dividends on preferred stock, by the average number of common and common-equivalent shares outstanding during the period. Common-equivalent shares consist of net shares issuable under the Employee Stock Purchase and Savings Plan and outstanding stock options. The fully diluted earnings per share calculation also includes common shares that would result from the conversion of convertible preferred stock and convertible notes. Accordingly, net income was not reduced by preferred stock dividend requirements related to convertible preferred stock or the interest expense on the convertible notes.
1995 1994 1993 (IN MILLIONS) ------ ------ ------ Primary Net income........................................... $1,150 $1,221 $1,290 Preferred stock dividends (1)........................ (37) (52) (57) ------ ------ ------ Net income attributable to common stockholders' equity.............................................. $1,113 $1,169 $1,233 ====== ====== ====== Fully diluted Net income........................................... $1,150 $1,221 $1,290 Preferred stock dividends, excluding convertible Series A and B, where applicable (1)................ (26) (40) (44) Interest on convertible notes, net of taxes.......... -- 2 10 ------ ------ ------ Fully diluted net income............................. $1,124 $1,183 $1,256 ====== ====== ======
1995 1994 1993 (IN THOUSANDS) ------- ------- ------- Average shares outstanding............................. 320,049 319,929 313,248 Common stock equivalents............................... 2,808 2,737 2,170 ------- ------- ------- Average number of common and common-equivalent shares (primary)............................................. 322,857 322,666 315,418 Incremental shares related to convertible preferred stock, debentures and other......................... 7,240 8,145 15,871 ------- ------- ------- Average number of shares, assuming full dilution....... 330,097 330,811 331,289 ======= ======= ======= 1995 1994 1993 ------- ------- ------- Earnings Per Share Net income--primary.................................. $3.45 $3.62 $3.91 ===== ===== ===== Net income--fully diluted............................ $3.41 $3.58 $3.79 ===== ===== =====
- -------- (1) 1994 preferred dividends include a $4.5 million, or 3%, premium paid on the redemption of the Corporation's Cumulative Preferred Stock, Series D. 47 NOTE 3--FIRST CHICAGO NBD CORPORATION MERGER On December 1, 1995 (the "Effective Time"), FCC merged with and into NBD, with the combined company renamed First Chicago NBD Corporation. At the Effective Time, each share of FCC common stock was converted into 1.81 shares of common stock of the Corporation. In aggregate, 87.1 million shares of FCC common stock were converted into 157.7 million shares of the Corporation's common stock. Each share of NBD common stock remained outstanding representing one share of the Corporation's common stock. Each share of FCC preferred stock outstanding immediately prior to the Merger was converted into one share of the Corporation's preferred stock with substantially similar terms. FCC treasury shares held at the Effective Time were canceled. The Merger was accounted for as a pooling of interests and, accordingly, the Financial Statements have been restated. The following presents financial information for FCC and NBD for the periods prior to December, 1995. To conform to consistent methods of accounting, certain reclassifications of historical data have been made. Among these were the reclassification of the 1994 extraordinary item (to other noninterest income), the 1994 cumulative effect of changes in accounting principles (to salaries and employee benefits), and the 1993 cumulative effect of changes in accounting principles (to applicable income taxes).
1995 1994 1993 ------------- ------------- ------------- FCC NBD FCC NBD FCC NBD (IN MILLIONS) ------ ------ ------ ------ ------ ------ Net interest income................. $1,350 $1,577 $1,331 $1,625 $1,226 $1,558 Noninterest income.................. 1,873 519 1,875 545 2,202 585 Noninterest expense................. 1,765 1,200 1,919 1,304 1,858 1,322 Income before income taxes.......... 1,114 814 1,063 814 1,300 702 Income before extraordinary item and cumulative effect of changes in accounting principles.............. 727 535 690 547 804 482 Extraordinary items................. -- -- -- (8) -- -- Cumulative effect of changes in accounting principles.............. -- -- -- (8) -- 4 Net income.......................... 727 535 690 531 804 486
NOTE 4--MERGER-RELATED CHARGES Merger-related charges were $267 million and included direct merger and restructuring-related charges totaling $225 million, as well as the effect of conforming a number of accounting practices between FCC and NBD, which totaled $42 million. The effect of conforming these practices is not material to the Corporation's financial statements. The following table provides details on merger-related charges associated with the business combination and restructuring plan (in millions). Personnel-related................................................... $ 93 Facilities and equipment............................................ 95 Other............................................................... 37 ---- $225 ====
48 The reserve associated with such charges as of December 31, 1995, was $200 million. Most of the actions incorporated in the established business plans will be implemented over a 12-15 month period following the Effective Time. Personnel-related costs reflect primarily the costs of the benefit package for separated employees. Facilities costs consist of lease termination costs and other facilities-related exit costs arising from the closing of duplicate branch facilities and from the consolidation of duplicate headquarters and operational facilities. Equipment costs consist of computer equipment and software write-offs due to duplication or incompatibility. Targeted staff reductions total 1,700, coming primarily from the overlap in the Chicago retail banking business, product synergies in the large corporate and middle market businesses, as well as redundant staff and administrative support functions. The benefit package for affected employees has been approved by management and communicated on a corporate-wide basis. Other merger-related charges include investment banking fees, securities registration and listing fees, filing fees, and various accounting, legal and other related costs. Investment banking fees of $12 million represent the largest component of such costs. NOTE 5--ACQUISITIONS In July 1995, the Corporation consummated its merger with Deerbank Corporation, a $766 million thrift holding company located in Deerfield, Illinois. The merger was accounted for as a purchase. The purchase price of $106 million was funded by the issuance of 3.3 million shares of the Corporation's common stock. Before the closing, the Corporation repurchased an amount of shares equivalent to the shares issued in the transaction. In January 1995, the Corporation consummated its merger with AmeriFed Financial Corp., a thrift holding company located in Joliet, Illinois, with total assets of $910 million. The purchase price of $148 million was funded by the issuance of 5.2 million shares of the Corporation's common stock. The merger was accounted for as a purchase. The Corporation had repurchased 5.0 million of the shares issued before the closing of the merger, and repurchased the remaining shares issued soon after the closing. On July 8, 1994, the Corporation issued approximately 11.6 million shares of its common stock for all of the common stock of Lake Shore Bancorp., Inc. of Chicago, Illinois, with total assets of $1.2 billion and capital of $123 million. The combination was accounted for on a pooling-of-interests basis; however, because the transaction was not considered significant from an accounting perspective, the Corporation did not restate either 1994 or prior- year financial data. 49 NOTE 6--BUSINESS SEGMENTS The Corporation is engaged primarily in the banking business, and with the continuing globalization of financial markets, the distinction between international and domestic activities has become less important. The following table shows approximate consolidated financial data for the three years ended December 31, 1995, attributable to domestic and foreign operations. No foreign geographic region accounted for more than 10% of consolidated results.
INCOME BEFORE INCOME NET TOTAL REVENUES(1) EXPENSES(2) TAXES INCOME ASSETS (IN MILLIONS) ----------- ----------- ------ ------ -------- 1995 Domestic operations............ $ 9,277 $7,590 $1,687 $1,099 $100,601 Foreign operations............. 1,404 1,337 67 51 21,401 ------- ------ ------ ------ -------- Consolidated................... $10,681 $8,927 $1,754 $1,150 $122,002 ======= ====== ====== ====== ======== 1994 Domestic operations............ $ 7,745 $5,926 $1,819 $1,204 $ 97,372 Foreign operations............. 784 750 34 17 15,391 ------- ------ ------ ------ -------- Consolidated................... $ 8,529 $6,676 $1,853 $1,221 $112,763 ======= ====== ====== ====== ======== 1993 Domestic operations............ $ 7,202 $5,375 $1,827 $1,172 $ 82,830 Foreign operations............. 814 639 175 118 10,310 ------- ------ ------ ------ -------- Consolidated................... $ 8,016 $6,014 $2,002 $1,290 $ 93,140 ======= ====== ====== ====== ========
- -------- (1) Includes interest income and noninterest income. (2) Includes interest expense, provision for credit losses and noninterest expense. Results from foreign operations include provisions for credit losses of $(11) million in 1995, $(42) million in 1994 and $(16) million in 1993. Recoveries, including those related to the Brazilian debt restructuring, contributed to the negative provisions in all three years. Because many of the resources employed by the Corporation are common to both its foreign and domestic activities, it is difficult to segregate assets, related revenues and expenses into their foreign and domestic components. The amounts in the preceding table are estimated on the basis of internally developed assignment and allocation procedures, which to some extent are subjective. The principal internal allocations used to prepare this information are described below. Corporate overhead is allocated based on individual activities. Expenses are generally allocated to the geographic area benefited. Assets and revenues are generally allocated based on the domicile of the customer. Capital, with the exception of that invested in foreign subsidiaries, is allocated to domestic operations. For information regarding the Corporation's line of business activities, see the Business Segments Overview section on page 14 as well as the tables on pages 14 to 18, which summarize financial results for the Corporation's major business segments and other activities. 50 NOTE 7--INVESTMENT SECURITIES The following is a summary of the Corporation's available-for-sale and held- to-maturity securities.
INVESTMENT SECURITIES--AVAILABLE-FOR-SALE ----------------------------------------------------------- AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE DECEMBER 31, 1995 (IN COST GAINS LOSSES (BOOK VALUE) MILLIONS) ------------ ---------------- ---------------- ------------ U.S. Treasury........... $1,416 $ 8 $ 1 $1,423 U.S. government agencies Mortgage-backed securities........... 4,855 119 20 4,954 Collateralized mortgage obligations. 5 -- -- 5 Other................. 457 1 -- 458 States and political subdivisions........... 1,383 81 2 1,462 Collateralized mortgage obligations (1)........ 1 -- -- 1 Other debt securities... 91 2 -- 93 Equity securities (2)(3)................. 986 152 85 1,053 ------ ---- ---- ------ Total............... $9,194 $363 $108 $9,449 ====== ==== ==== ====== INVESTMENT SECURITIES--AVAILABLE-FOR-SALE ----------------------------------------------------------- AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE DECEMBER 31, 1994 (IN COST GAINS LOSSES (BOOK VALUE) MILLIONS) ------------ ---------------- ---------------- ------------ U.S. Treasury........... $ 951 $ -- $ 7 $ 944 U.S. government agencies Mortgage-backed securities........... 2,658 -- 160 2,498 Collateralized mortgage obligations. 1,461 5 46 1,420 Other................. 47 1 -- 48 States and political subdivisions........... 77 -- 1 76 Collateralized mortgage obligations (1)........ 111 -- -- 111 Other debt securities... 206 -- 41 165 Equity securities (2)(3)................. 1,255 526 93 1,688 ------ ---- ---- ------ Total............... $6,766 $532 $348 $6,950 ====== ==== ==== ====== INVESTMENT SECURITIES--HELD-TO-MATURITY ----------------------------------------------------------- AMORTIZED COST GROSS UNREALIZED GROSS UNREALIZED (BOOK VALUE) GAINS LOSSES FAIR VALUE ------------ ---------------- ---------------- ------------ U.S. Treasury........... $ 785 $ -- $ 21 $ 764 U.S. government agencies Mortgage-backed securities........... 5,666 45 282 5,429 Other................. 18 -- -- 18 States and political subdivisions........... 1,591 53 26 1,618 Other debt securities... 5 -- -- 5 ------ ---- ---- ------ Total............... $8,065 $ 98 $329 $7,834 ====== ==== ==== ======
- -------- (1) All collateralized mortgage obligations of private issuers have underlying collateral consisting of obligations of U.S. government agencies. (2) The fair values of certain securities for which market quotations were not available were estimated. In addition, the fair values of certain securities reflect liquidity and other market-related factors. (3) Includes investments accounted for at fair value, in keeping with specialized industry practice. Proceeds from the sale of available-for-sale investment securities, excluding equity securities accounted for at fair value, during 1995 were $5.564 billion, resulting in gross realized gains of $45 million and gross realized losses of $62 million. 51 Proceeds from the sale of available-for-sale investment securities, excluding equity securities accounted for at fair value, during 1994 were $2.164 billion, resulting in gross realized gains of $14 million and gross realized losses of $15 million. Proceeds from the sale of debt investment securities during 1993 were $57 million, resulting in gross realized gains of $3 million and gross realized losses of $1 million. The maturity distribution of debt investment securities at December 31, 1995, is shown below. The distribution of mortgage-backed securities and collateralized mortgage obligations is based on average expected maturities. Actual maturities may differ because issuers may have the right to call or prepay obligations.
AMORTIZED FAIR COST VALUE (IN MILLIONS) --------- ------ Due in one year or less....................................... $1,720 $1,725 Due after one year through five years......................... 2,650 2,764 Due after five years through ten years........................ 3,466 3,515 Due after ten years........................................... 372 392 ------ ------ $8,208 $8,396 ====== ======
NOTE 8--LOANS Following is a breakdown of loans included in the consolidated balance sheet as of December 31, 1995 and 1994.
1995 1994 (IN MILLIONS) ------- ------- Commercial Domestic Commercial.................................................. $25,551 $22,546 Real estate Construction.............................................. 1,151 1,074 Other..................................................... 6,103 5,903 Lease financing............................................. 1,588 1,381 Foreign....................................................... 3,726 3,305 ------- ------- Total commercial........................................ 38,119 34,209 ------- ------- Consumer Credit cards.................................................. 9,649 6,980 Secured by real estate Mortgage.................................................... 6,669 4,963 Home equity................................................. 2,264 2,062 Automotive.................................................... 4,477 3,994 Other......................................................... 3,256 2,968 ------- ------- Total consumer.......................................... 26,315 20,967 ------- ------- Total................................................... $64,434 $55,176 ======= =======
The amount of interest shortfall (the difference between interest contractually due and interest actually recorded) related to nonperforming loans at year-end was $19 million in 1995 and $16 million in 1994. Credit card receivables are available for sale at par value through the Corporation's credit card securitization program. In addition, other loans available for sale at December 31, 1995 and 1994, totaled $556 million and $312 million, respectively. The Corporation has loans outstanding to certain of its directors and executive officers and to partnerships or companies in which a director or executive officer has at least a 10% beneficial interest. At December 31, 1995 and 1994, $271 million and $297 million, respectively, of such loans to related parties were outstanding. An analysis of the activity during 1995 with respect to such loans includes additions of $793 million, and reductions of $819 million. 52 NOTE 9--ALLOWANCE FOR CREDIT LOSSES Changes in the allowance for credit losses for the three years ended December 31, 1995, were as follows.
1995 1994 1993 (IN MILLIONS) ------ ------ ------ Balance, beginning of year.............................. $1,158 $1,106 $1,041 Additions (deductions) Charge-offs........................................... (409) (364) (485) Recoveries............................................ 145 172 189 ------ ------ ------ Net charge-offs....................................... (264) (192) (296) Provision for credit losses........................... 510 276 390 Other Acquisitions.......................................... 9 16 -- Transfers related to securitized receivables.......... (75) (49) (29) Other................................................. -- 1 -- ------ ------ ------ Balance, end of year.................................... $1,338 $1,158 $1,106 ====== ====== ======
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures." SFAS No. 114 addresses the accounting for a loan when it is probable that all principal and interest amounts due will not be collected in accordance with its contractual terms. Certain loans, such as loans carried at the lower of cost or market or small-balance homogeneous loans (e.g., credit card, installment credit), are exempt from SFAS No. 114 provisions. Nonperforming loans are generally identified as "impaired loans." On a quarterly basis, the Corporation identifies impaired loans, and impairment is recognized to the extent the recorded investment of an impaired loan or pool of loans exceeds the calculated present value. For non-collateral dependent loans, the calculated present value is measured using a discounted cash flow approach. Loans having a significant recorded investment are measured on an individual basis while loans not having a significant recorded investment are grouped and measured on a pool basis. Collateral-dependent loans, primarily real estate, are separately measured for impairment by determining the fair value of the collateral less estimated costs to sell. The allocated reserve associated with impaired loans is considered in management's determination of the allowance for credit losses. The adoption of this accounting standard did not have a significant effect on net income or allowance for credit losses. At December 31, 1995, the recorded investment in loans considered impaired was $363 million, which required a related allowance for credit losses of $36 million. Of the $363 million in impaired loans, $194 million required the establishment of an allocated reserve. The average recorded investment in impaired loans was approximately $302 million for the year ended December 31, 1995. The Corporation recognized interest income associated with impaired loans of $15 million during the year. NOTE 10--PLEDGED AND RESTRICTED ASSETS Assets carried at $22.3 billion in the consolidated balance sheet at December 31, 1995, were pledged to secure government deposits, trust deposits, and borrowings, and for other purposes required by law. The Banks are required to maintain noninterest-bearing cash balances with the Federal Reserve based on the types and amounts of deposits held. During 1995 and 1994, the average balances maintained to meet this requirement were $867 million and $928 million, respectively. 53 NOTE 11--LONG-TERM DEBT Long-term debt consists of borrowings having an original maturity of over one year. Original issue discount and deferred issuance costs are amortized over the terms of the related notes. Long-term debt at December 31, 1995 and 1994, was as follows.
1995 1994 (IN MILLIONS) ------ ------ PARENT COMPANY SUBORDINATED DEBT 9% notes due 1999............................................... $ 199 $ 199 9 7/8% notes due 2000........................................... 99 99 9 1/5% notes due 2001........................................... 5 5 9 1/4% notes due 2001........................................... 100 100 10 1/4% notes due 2001.......................................... 100 100 11 1/4% notes due 2001.......................................... 96 96 8 7/8% notes due 2002........................................... 100 100 8 1/10% notes due 2002.......................................... 200 200 8 1/4% notes due 2002........................................... 100 100 7 5/8% notes due 2003........................................... 199 199 6 7/8% notes due 2003........................................... 200 200 Floating rate notes due 2003.................................... 149 149 7 1/4% debentures due 2004...................................... 200 200 Floating rate notes due 2005.................................... 96 96 7 1/8% notes due 2007........................................... 199 -- 6 3/8% notes due 2009........................................... 198 198 7 1/2% preferred purchase units due 2023........................ 150 150 9 7/8% equity commitment notes due 1999......................... 200 200 Floating rate equity contract notes due 1996.................... 125 125 SENIOR DEBT 8 1/2% notes due 1998........................................... 100 100 Other Parent Company debt....................................... 1,624 1,385 ------ ------ Total Parent Company.......................................... 4,439 4,001 ------ ------ SUBSIDIARIES Bank notes, various rates and maturities........................ 2,944 2,434 Subordinated 6 1/4% notes due 2003.............................. 200 200 Subordinated 8 1/4% notes due 2024.............................. 250 250 8 3/4% notes due 1997-1999...................................... 10 10 Capitalized lease obligations, various rates and maturities..... 15 52 Other........................................................... 305 299 ------ ------ Total subsidiaries............................................ 3,724 3,245 ------ ------ Total long-term debt.......................................... $8,163 $7,246 ====== ======
(A) PARENT COMPANY LONG-TERM DEBT SUBORDINATED NOTES These notes are subordinated to other indebtedness of the Corporation. The fixed-rate notes have interest rates that range from 6 3/8% to 11 1/4% and maturities that range from 1999 to 2023. The floating rate notes due in 2003 have an interest rate priced at the greater of 4 1/4% or the three-month London interbank offered rate plus 1/8%. The interest rate on this issue on December 31, 1995, was 6 1/16%. The floating rate notes due 2005 may be redeemed, in whole or in part, on any interest payment date at par. Interest payment on the notes is at a rate of 1/4% above the average offered rate quoted in the London interbank market for three-month Eurodollar deposits but in no event may the rate be less than 5.25%. On December 31, 1995, the interest rate was 5 13/16%. 54 Each 7 1/2% preferred purchase unit consists of a 7.40% subordinated debenture due May 10, 2023, in a principal amount of $25 and a related purchase contract paying fees of 0.10% of the principal amount of the debenture per year. The contract requires the purchase on May 10, 2023 (or earlier at the Corporation's election), of one depositary share representing a one-fourth interest in a share of 7 1/2% cumulative preferred stock of the Corporation at a purchase price of $25 per depositary share. The equity commitment notes may not be redeemed prior to their stated maturity. The agreements under which these notes were issued require the Corporation, prior to maturity, to issue common stock, perpetual preferred stock or other forms of equity approved by the Federal Reserve Board in an amount equal to the original aggregate principal amount of the notes. As of December 31, 1995, all the equity securities required by the agreements had been issued. The interest rate on the floating rate equity contract notes is reset quarterly at 3/16% over the average offered rate quoted in the London interbank market for three-month Eurodollar deposits. The interest rate on this issue as of December 31, 1995, was 6.00%. SENIOR DEBT The 8 1/2% notes are unsecured obligations that are not subordinated to any other indebtedness of the Corporation and may not be redeemed prior to their stated maturity. Other Parent Company long-term debt of $1.624 billion includes various notes with a weighted average interest rate of 6.63% and remaining weighted average maturity of 25 months at December 31, 1995. (B) SUBSIDIARIES' LONG-TERM DEBT The bank notes are unsecured and unsubordinated debt obligations of the Banks. At December 31, 1995, the weighted average rate of the bank notes was 6.07% and remaining weighted average maturity was 12 months. The 6 1/4% subordinated notes due 2003 are unsecured, subordinated to the claims of depositors and other creditors of NBD Michigan, and are not redeemable prior to maturity. The 8 1/4% subordinated notes due 2024 are unsecured, subordinated to the claims of depositors and other creditors of NBD Michigan, and are not redeemable by the bank prior to maturity. Registered holders have a one-time right to redeem the notes at par, in whole or in part, on November 1, 2004. Other long-term debt at December 31, 1995, included $281 million related to the sale and lease-back of certain bank properties. The effective interest rate related to this transaction is 8.7%, with expected maturity in 2018. (C) MATURITY OF LONG-TERM DEBT Of the Corporation's $8.163 billion total long-term debt, $2.225 billion, $1.461 billion, $621 million, $653 million and $360 million is scheduled to mature in 1996, 1997, 1998, 1999 and 2000, respectively. NOTE 12--PREFERRED STOCK The Corporation is authorized to issue 10,000,000 shares of preferred stock, without par value. The Board of Directors is authorized to fix the particular designations, preferences, rights, qualifications and restrictions for each series of preferred stock issued. All preferred shares rank prior to common shares both as to dividends and liquidation, but have no general voting rights. The dividend rate on each of the cumulative adjustable rate series is based on stated value and adjusted quarterly, based on a formula that considers the interest rates for selected 55 short- and long-term U.S. Treasury securities prevailing at the time the rate is set. The minimum, maximum and current dividend rates as of December 31, 1995, are presented in the following table.
STATED ANNUAL DIVIDEND RATE EARLIEST SHARES VALUE PER ----------------------- REDEMPTION REDEMPTION PREFERRED STOCK SERIES OUTSTANDING SHARE MAXIMUM MINIMUM CURRENT DATE PRICE(1) - ---------------------- ----------- --------- ------- ------- ------- ---------- ---------- Cumulative Adjustable Rate Series B............... 1,191,000 $ 100.00 12.00% 6.00% 6.00% (2) $ 100.00 Series C............... 713,800 100.00 12.50 6.50 6.50 (2) 100.00 Cumulative Fixed Rate Series E (3)........... 160,000 625.00 8.45 8.45 8.45 11/16/97(4) 625.00 Cumulative Convertible Fixed Rate Series B (5)........... 39,774 5,000.00 5.75 5.75 5.75 4/1/97(6) 5,172.50
- -------- (1) Plus accrued and unpaid dividends. (2) Currently redeemable. (3) Represented by 4,000,000 depositary shares, with a corresponding annual dividend rate of $2.11 each and a $25 stated value. (4) The preferred shares are redeemable on or after November 16, 1997, at $625 per share (equivalent to $25 per depositary share). (5) Represented by 3,977,400 depositary shares, with a corresponding annual dividend rate of $2.875 each and a $50 stated value. (6) The preferred shares may be converted into shares of the Corporation's common stock at the option of the stockholders at any time at the conversion price of $29.6271 per common share, subject to adjustment under certain conditions. In the fourth quarter of 1995, 226 preferred shares were converted into 38,158 shares of the Corporation's common stock. Shares are redeemable beginning April 1, 1997, at the option of the Corporation, at a price of $5,172.50 ($51.725 per depositary share), with the redemption price decreasing annually until the shares are redeemable on or after April 1, 2003, at their stated value of $5,000 per share ($50 per depositary share). All shares of Cumulative Preferred Stock, Series A, were called for redemption in August 1995. The redemption price was $50 per share plus accrued and unpaid dividends. All shares of 10% Cumulative Preferred Stock, Series D, were called for redemption in July 1994. The redemption price of $25.75 per share plus accrued and unpaid dividends included a 3% premium, totaling $4.5 million. All shares of Cumulative Convertible Preferred Stock, Series A, were called for redemption on September 2, 1993. Each such share was convertible into 2.518 shares of the Corporation's common stock at the option of the stockholder, and approximately 2.1 million shares of the preferred stock were converted into approximately 5.4 million shares of common stock. Resultant fractional shares were paid in cash. On September 2, 1993, the Corporation redeemed the remaining shares of the Cumulative Convertible Preferred Stock, Series A, at the price of $51.50 per share plus accrued and unpaid dividends. NOTE 13--EMPLOYEE BENEFITS The Corporation is currently in the process of reviewing its pension, employee savings, postemployment, and postretirement benefit plans with the objective of establishing common plans for all employees of the combined Corporation. Such new plans are intended to become effective by January 1, 1997. (A)PENSION PLANS The Corporation sponsors pension plans covering substantially all salaried employees. The pension plans are noncontributory, defined benefit plans that provide benefits based on years of service and compensation level. The funding policy varies for each plan. Depending on the plan, consideration is given to net periodic pension cost for the year, the minimum required by the Employee Retirement Income Security Act of 1974 ("ERISA"), and the maximum tax deductible amount based on IRS limits. 56 Plan assets primarily include equity securities and debt securities issued by the U.S. government and its agencies or by corporations. Plan assets include common stock of the Corporation having a fair value of $15 million in 1995 and $20 million in 1994. Net periodic pension (credit) cost includes the following components for the years ended December 31.
1995 1994 1993 (IN MILLIONS) ----- ----- ----- Service cost--benefits earned during period............... $ 45 $ 53 $ 42 Interest cost on projected benefit obligation............. 100 93 84 Actual loss (return) on assets............................ (351) 13 (183) Net amortization and deferral............................. 206 (154) 49 ----- ----- ----- Net periodic pension (credit) cost........................ $ -- $ 5 $ (8) ===== ===== =====
The following table reconciles the aggregated funded status of the plans and amounts recognized in the consolidated balance sheet at December 31.
1995 1994 (IN MILLIONS) ------- ------- Actuarial present value of the projected benefit obligation, based on employment service to date, and current salary levels: Vested employees.......................................... $(1,105) $ (816) Nonvested employees....................................... (88) (80) ------- ------- Accumulated benefit obligation............................ (1,193) (896) Additional amounts related to projected salary increases.... (259) (230) ------- ------- Projected benefit obligation................................ (1,452) (1,126) Plan assets (at fair value)................................. 1,803 1,499 ------- ------- Plan assets in excess of projected benefit obligation....... 351 373 Unrecognized net gain due to experience different from assumptions................................................ (6) (54) Unrecognized transition asset............................... (55) (64) Unrecognized prior service cost............................. 97 107 ------- ------- Prepaid pension cost included in the consolidated balance sheet...................................................... $ 387 $ 362 ======= =======
Each plan was separately valued based on the individual plan's underlying terms, demographics and asset mix. The assumptions used in determining the projected benefit obligation and net periodic pension (credit) cost of such plans at December 31 are as follows.
1995 1994 1993 --------- --------- --------- Discount rate.................................... 7.25% 8.0%-9.0% 7.0%-7.5% Salary increase assumption....................... 5.25% 5.0%-5.5% 4.5%-5.5% Expected long-term rate of return on plan assets. 9.0%-9.5% 9.5% 9.5%
(B) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation sponsors postretirement plans that provide life insurance and health care benefits for certain employees when they retire. The postretirement health care benefit, which can also cover eligible dependents, is contributory, with retiree contributions adjusted annually to reflect increases in the Corporation's health care costs. The postretirement life insurance benefit is noncontributory. Net periodic postretirement benefit cost included the following components for the years ended December 31.
1995 1994 1993 (IN MILLIONS) ---- ---- ---- Service cost..................................................... $ 1 $1 $2 Interest cost.................................................... 4 3 5 Net amortization................................................. 14 -- -- --- --- --- Net periodic postretirement benefit cost......................... $19 $4 $7 === === ===
57 The Corporation funds postretirement benefit cost as claims are incurred. The following table reconciles the plan's funded status and amounts recognized in the consolidated balance sheet at December 31.
1995 1994 (IN MILLIONS) ---- ---- Accumulated postretirement benefit obligation: Retirees......................................................... $(55) $(37) Fully eligible active plan participants.......................... (11) (4) Other active plan participants................................... (11) (8) ---- ---- Total accumulated postretirement benefit obligation................ (77) (49) Plan assets (at market value)...................................... -- -- ---- ---- Accumulated postretirement benefit obligation in excess of plan assets............................................................ (77) (49) Unrecognized net (gain)............................................ (9) (17) Unrecognized prior service cost.................................... 4 -- ---- ---- Accrued postretirement benefit liability recognized in the consolidated balance sheet........................................ $(82) $(66) ==== ====
The assumption used to measure postretirement benefit costs is a 9% annual rate of increase in the per capita cost of covered health care benefits for 1996, trending downward to 5.5% by the year 2000, and remaining at that level thereafter. This assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would have increased the accumulated postretirement benefit obligation as of December 31, 1995, by $4 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by approximately $0.4 million. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% at December 31, 1995, and 8.0% at year-end 1994. The Corporation adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1994. The cumulative effect of adoption was a charge of $12 million ($8 million net of income taxes). The effect of postemployment benefit costs on income before income taxes was not significant in 1995 or 1994. (C) EMPLOYEE SAVINGS PLANS The Corporation maintains various savings plans for U.S.-based employees meeting certain eligibility requirements. Under the existing FCC 401(k) plan, participants may contribute from 1% to 6% of their salary on a pretax basis, and an additional 1% to 10% of salary on an after-tax basis. Beginning in 1994, the employer contribution to the plan was determined as 100% of the first $750 of pretax contributions made by participants and 50% of any pretax contributions in excess of $750. The plan was amended in 1993 to allow a supplemental profit-based contribution to the plan. The existing NBD 401(k) plan requires employer contributions equal to participants' contributions up to 2% of their salary, plus an amount equal to one-half of participants' contributions between 2% and 6% of their salary subject to certain limitations imposed by the IRS. Total expense for these plans was $37 million in 1995, $36 million in 1994, and $35 million in 1993. The Corporation also maintains an Employee Stock Purchase and Savings Plan that allows eligible employees to authorize payroll deductions for deposit in interest-bearing savings accounts for up to two years. Employees then have the option to either withdraw their savings balance in cash or purchase shares of the Corporation's common stock at a price fixed under the plan. No expense is recognized in connection with such stock purchases. 58 (D) STOCK AWARD AND STOCK OPTION PLANS The Corporation maintains various incentive plans that allow the granting of restricted shares, stock options, or other stock-based awards to eligible employees. Restricted shares granted to key officers require them to continue employment from one to seven years beginning on the original grant date before the shares are ultimately distributed to the employee. The market value of the restricted shares as of the date of grant is amortized to compensation expense over the restriction period. The Corporation also maintains performance-based stock plans. The shares issued under these programs are distributed only if performance criteria are met. The ultimate expense attributable to these plans is based on the market value of the shares on the date the shares are awarded. For both the restricted stock plans and the performance-based stock plans, the unamortized cost of such shares is included in stockholders' equity. At December 31, 1995, the number of restricted shares and performance-based shares outstanding was 3,071,074. The various incentive plans also permit the granting of stock options. In addition, stock options may be granted that include the right to receive a restorative option. A restorative option allows a participant who exercises the original option, and who meets several specific criteria related to the payment of the purchase price of the option with shares of the Corporation's common stock, the right to receive an option to purchase the number of shares of common stock equal to the number of shares used by the participant in payment of the original option price plus, in the case of certain plans, the number of shares used by the participant in payment of related tax withholding obligations. The exercise price of the restorative option is equal to the fair market value of the common stock on the date the reload option is granted. The following table summarizes stock option activity related to the various incentive plans for 1995.
OPTIONS OUTSTANDING OPTION PRICE (SHARES IN THOUSANDS) ----------- ------------- Balance as of January 1, 1995........................ 12,864 $ 9.38-$36.06 Granted............................................ 4,150 $25.35-$41.82 Exercised.......................................... (4,394) $ 6.26-$35.13 Forfeited, expired or canceled..................... (232) $15.29-$33.06 Other.............................................. 18 $ 6.26-$10.49 ------ Balance as of December 31, 1995...................... 12,406 $ 6.26-$41.82 ======
At December 31, 1995, 6,442,956 options were exercisable. NOTE 14--INCOME TAXES The components of total applicable income tax expense (benefit) in the consolidated income statement for the years ended December 31, 1995, 1994 and 1993, are as follows.
1995 1994 1993 (IN MILLIONS) ----- ---- ---- Income tax expense (benefit) Current Federal.................................................... $ 737 $397 $372 Foreign.................................................... 27 14 31 State...................................................... 84 64 63 ----- ---- ---- Total.................................................... 848 475 466 Deferred Federal.................................................... (216) 149 228 State...................................................... (28) 8 18 ----- ---- ---- Total.................................................... (244) 157 246 ----- ---- ---- Applicable income taxes........................................ $ 604 $632 $712 ===== ==== ====
59 The tax effects of fair value adjustments on securities available-for-sale, foreign currency translation adjustments, and certain tax benefits related to stock options are recorded directly to stockholders' equity. The net tax expense (benefits) recorded directly in stockholders' equity amounted to $133 million, ($86) million and ($14) million in 1995, 1994 and 1993, respectively. A summary reconciliation of the differences between applicable income taxes and the amounts computed at the applicable regular federal tax rate of 35% is as follows.
1995 1994 1993 (IN MILLIONS) ---- ---- ---- Taxes at statutory federal income tax rate.................... $614 $649 $701 Increase (decrease) in taxes resulting from: Tax-exempt income (net)..................................... (54) (50) (57) State income taxes, net of federal income taxes............. 37 47 46 Other....................................................... 7 (14) 22 ---- ---- ---- Applicable income taxes....................................... $604 $632 $712 ==== ==== ====
A net deferred tax liability is included in other liabilities in the consolidated balance sheet as a result of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their related tax bases. The components of the net deferred tax liability as of December 31, 1995 and 1994, are as follows.
1995 1994 (IN MILLIONS) ------ ------ Deferred tax liabilities Deferred income on lease financing............................. $ 828 $ 785 Appreciation on equity security investments.................... 111 219 Prepaid pension asset.......................................... 144 98 Fair value adjustment on investment securities available-for- sale.......................................................... 63 -- Other.......................................................... 181 237 ------ ------ Gross deferred tax liabilities................................. 1,327 1,339 ------ ------ Deferred tax assets Allowance for credit losses.................................... 491 451 Securitization of credit card receivables...................... 102 86 Depreciation................................................... 66 34 Fair value adjustment on investment securities available-for- sale.......................................................... -- 90 Other.......................................................... 341 272 ------ ------ Gross deferred tax assets...................................... 1,000 933 Valuation allowance............................................ -- -- ------ ------ Gross deferred tax assets, net of valuation allowance.......... 1,000 933 ------ ------ Net deferred tax liability....................................... $ 327 $ 406 ====== ======
NOTE 15--LEASE COMMITMENTS The Corporation has entered into a number of operating and capitalized lease agreements for premises and equipment. The minimum annual rental commitments under these leases are shown below.
(IN MILLIONS) 1996................................................................. $ 89 1997................................................................. 82 1998................................................................. 73 1999................................................................. 69 2000................................................................. 61 2001 and thereafter.................................................. 260 ---- $634 ====
60 Occupancy expense has been reduced by rental income from premises leased to others in the amount of $44 million in 1995, $38 million in 1994 and $38 million in 1993. NOTE 16--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, the Corporation is a party to financial instruments containing credit and/or market risks that are not required to be reflected in a balance sheet. These financial instruments include credit- related instruments as well as certain derivative and cash instruments. The Corporation's risk management policies monitor and limit exposure to credit, liquidity and market risks. (A) CREDIT RISK The following disclosures represent the Corporation's credit exposure, assuming that every counterparty to financial instruments with off-balance- sheet credit risk fails to perform completely according to the terms of the contracts, and that the collateral, and other security if any, proves to be of no value to the Corporation. (B) MARKET RISK This note does not address the amount of market losses the Corporation would incur if future changes in market prices make financial instruments with off- balance-sheet market risk less valuable or more onerous. The measurement of market risk is meaningful only when all related and offsetting on- and off- balance-sheet transactions are aggregated, and the resulting net positions are identified. (C) COLLATERAL AND OTHER SECURITY ARRANGEMENTS The credit risk of both on- and off-balance-sheet financial instruments varies based on many factors, including the value of collateral held and other security arrangements. To mitigate credit risk, the Corporation generally determines the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customer's creditworthiness. The Corporation may also receive comfort letters and oral assurances. The amount and type of collateral held to reduce credit risk varies but may include real estate, machinery, equipment, inventory and accounts receivable, as well as cash on deposit, stocks, bonds and other marketable securities that are generally held in the Corporation's possession or at another appropriate custodian or depository. This collateral is valued and inspected on a regular basis to ensure both its existence and adequacy. Additional collateral is requested when appropriate. (D) CREDIT-RELATED FINANCIAL INSTRUMENTS The table below summarizes credit-related financial instruments, including both commitments to extend credit and letters of credit.
COMMITMENTS AND LETTERS OF CREDIT 1995 1994 DECEMBER 31 (IN BILLIONS) ----- ----- Unused loan commitments*........................................... $54.0 $45.6 Unused credit card lines........................................... 76.7 65.0 Unused home equity lines........................................... 1.8 1.8 Commercial letters of credit....................................... 0.9 1.1 Standby letters of credit and foreign office guarantees............ 6.9 6.2
- -------- *Includes unused commercial real estate exposure of $1.2 billion and $1.0 billion at December 31, 1995 and 1994, respectively. Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements. 61 Loan commitments are agreements to make or acquire a loan or lease as long as the agreed-upon terms (e.g., expiry, covenants or notice) are met. The Corporation's commitments to purchase or extend loans help its customers meet their liquidity needs. Credit card lines allow customers to use a credit card to buy goods or services and to obtain cash advances. However, the Corporation has the right to change or terminate any terms or conditions of the credit card account. Extensions of credit under home equity lines are secured by residential real estate. Commercial letters of credit are issued or confirmed to ensure payment of customers' payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the risk associated with these contracts. Standby letters of credit and foreign office guarantees are issued in connection with agreements made by customers to counterparties. If the customer fails to comply with the agreement, the counterparty may enforce the standby letter of credit or foreign office guarantee as a remedy. Credit risk arises from the possibility that the customer may not be able to repay the Corporation for standby letters of credit or foreign office guarantees. At December 31, 1995 and 1994, standby letters of credit and foreign office guarantees had been issued for the following purposes.
STANDBY LETTERS OF CREDIT AND FOREIGN OFFICE GUARANTEES 1995 1994 DECEMBER 31 (IN MILLIONS) ------ ------ Financial Tax-exempt obligations.......................................... $2,407 $2,032 Insurance-related............................................... 849 796 Other financial................................................. 3,031 2,614 Performance....................................................... 616 770 ------ ------ Total*........................................................ $6,903 $6,212 ====== ======
- -------- *Includes $833 million and $820 million participated to other institutions at December 31, 1995, and December 31, 1994, respectively. At December 31, 1995, $5.453 billion of standby letters of credit was due to expire within three years and $1.450 billion was to expire after three years. (E) DERIVATIVE FINANCIAL INSTRUMENTS The Corporation enters into a variety of derivative financial instruments in its trading, asset and liability management, and corporate investment activities. These instruments offer customers protection from rising or falling interest rates, exchange rates, commodity prices and equity prices. They can either reduce or increase the Corporation's exposure to such changing rates or prices. Following is a brief description of such derivative financial instruments. . Interest rate forward and futures contracts represent commitments to either purchase or sell a financial instrument at a specified future date for a specified price, and may be settled in cash or through delivery. . An interest rate swap is an agreement in which two parties agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a specified floating rate index. Certain agreements are combined interest rate and foreign currency swap transactions. . Interest rate options are contracts that grant the purchaser, for a premium payment, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from the writer of the option. 62 . Interest rate caps and floors are contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds the fixed cap rate or falls below the fixed floor rate on specified future dates. . Forward rate agreements are contracts with notional principal amounts that settle in cash at a specified future date based on the differential between a specified market interest rate and a fixed interest rate. . Foreign exchange contracts represent spot, forward, futures and option contracts to exchange currencies. . Commodity price contracts represent swap, futures, cap, floor and option contracts that derive their value from underlying commodity prices. . Equity price contracts represent swap, futures, cap, floor and option contracts that derive their value from underlying equity prices. The Corporation's objectives and strategies for using derivative financial instruments for structural interest rate risk management and foreign exchange risk management are discussed on pages 26 to 29. Balance sheet exposure for derivative financial instruments includes the amount of recognized gains in the market valuation of those contracts. Those amounts fluctuate as a function of maturity, interest rates, foreign exchange rates, commodity prices and equity prices. The credit risk associated with exchange-traded derivative financial instruments is limited to the relevant clearinghouse. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in a financial instrument that the Corporation may be obligated to acquire under certain written put options. Caps and floors written do not expose the Corporation to credit risk. On some derivative financial instruments, the Corporation may have additional risk. This is due to the underlying risk in the financial instruments that the Corporation may be obligated to acquire, or the risk that the Corporation will deliver under a contract but the customer will fail to deliver the countervailing amount. The Corporation believes its credit and settlement procedures minimize these risks. Not all derivative financial instruments have off-balance-sheet market risk. Market risk associated with options purchased and caps and floors purchased is recorded in the balance sheet. The tables on page 34 report the Corporation's gross notional principal or contractual amounts of derivative financial instruments as of December 31, 1995, and December 31, 1994. These instruments include swaps, forwards, futures, options, caps, floors, forward rate agreements, and other conditional and exchange contracts. The amounts do not represent the market or credit risk associated with these contracts, as previously defined, but rather give an indication of the volume of the transactions. (F) CASH FINANCIAL INSTRUMENTS The face amount of securities sold but not yet purchased totaled $1.723 billion at December 31, 1995, and $1.036 billion at December 31, 1994. The fair value of these obligations is reflected in the balance sheet in other short-term borrowings. The fair value of such securities totaled $1.765 million at December 31, 1995, and $972 million at December 31, 1994. NOTE 17--CONCENTRATIONS OF CREDIT RISK The Corporation provides a wide range of financial services, including credit products, to consumers, middle market businesses and large corporate customers. Credit policies and processes emphasize diversification of risk among industries, geographic areas and borrowers. The only significant domestic credit concentrations for the Corporation were consumer, commercial real estate and the U.S. government. Information on the Corporation's consumer and commercial real estate loans is presented in Note 8, on page 52, and information on unused consumer and commercial real estate commitments is presented in Note 16, on page 61. 63 U.S. government risk arises primarily from the holding of government securities and short-term credits collateralized by such securities. Information on foreign outstandings is presented in the "Foreign Outstandings" table on page 75. In addition to these foreign outstandings, the Corporation's credit risk from derivative financial instruments and other off- balance-sheet commitments to banks in Japan was approximately $2.9 billion and $1.3 billion at December 31, 1995, and December 31, 1994, respectively. NOTE 18--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The Corporation is required to disclose the estimated fair value of its financial instruments in accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." These disclosures do not attempt to estimate or represent an estimate of the Corporation's fair value as a whole. The Corporation does not plan to dispose of, either through sale or settlement, the majority of its financial instruments at these estimated fair values. Certain limitations are inherent in the methodologies used to estimate fair value. As a result, disclosed fair values may not be the amount realized in a current transaction between willing parties. Specifically, the fair values disclosed represent point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. Further, quoted market prices may not be realized because the financial instrument may be traded in a market that lacks liquidity; or a fair value derived using a discounted cash flow approach may not be the amount realized because of the subjectivity involved in selecting underlying assumptions, such as projecting cash flows or selecting a discount rate. The fair value amount also may not be realized because it ignores transaction costs and does not include potential tax effects. Additionally, estimated fair values of certain financial instruments ignore intangible value associated with the financial instruments; for example, significant unrecognized value exists that is attributable to the Corporation's credit card relationships and core deposits. The only fair value disclosure provided in addition to those made for the Corporation's financial instruments pertains to credit card securitizations; this disclosure is provided because the interest rate risk exposure related to such securitization is reduced by financial instruments. 64 The following table summarizes the carrying values and estimated fair values of financial instruments as of December 31, 1995 and 1994.
1995 1994 -------------------- -------------------- CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE (IN MILLIONS) -------- ---------- -------- ---------- Financial assets Cash and other short-term financial instruments (a)..................... $29,236 $29,236 $29,251 $29,251 Trading assets (a)................... 8,150 8,150 5,089 5,089 Investment securities (b)............ 9,449 9,449 15,015 14,784 Loans (c)............................ 64,434 64,208 55,176 53,871 Derivative product assets Trading purposes (1)(a)............ 6,644 6,644 4,408 4,408 Other than trading purposes (f).... 69 217 39 52 ------- ------- ------- ------- Total derivative product assets.. 6,713 6,861 4,447 4,460 Other financial instruments (a)...... 1,666 1,666 1,516 1,516 Allowance for credit losses............ (1,338) -- (1,158) -- Financial liabilities Deposits(a)(d)....................... $69,106 $69,168 $64,895 $64,749 Securities sold but not yet purchased (a)....................... 1,765 1,765 972 972 Other short-term financial instruments (a)..................... 24,477 24,477 25,089 25,089 Long-term debt (a)(e)................ 8,163 8,504 7,246 7,084 Derivative product liabilities Trading purposes (1)(a)............ 6,681 6,681 4,133 4,133 Other than trading purposes (f).... 42 55 39 311 ------- ------- ------- ------- Total derivative product liabilities..................... 6,723 6,736 4,172 4,444 Off-balance-sheet exposure-- nonfinancial instruments Credit card securitizations, net (g). 294 266 265 (60)
- -------- (1) The estimated average fair values of derivative financial instruments used in trading activities during 1995 were $7.1 billion classified as assets and $6.7 billion classified as liabilities. Estimated fair values are determined as follows: (A) FINANCIAL INSTRUMENTS WHERE CARRYING VALUE APPROXIMATES FAIR VALUE A financial instrument's carrying value approximates its fair value when the financial instrument has an immediate or short-term maturity (generally 90 days or less), or is carried at fair value. Additionally, the carrying value of financial instruments that reprice frequently, such as floating rate debt, represents fair value. The estimated fair values of trading securities and securities sold but not yet purchased were generally based on quoted market prices or dealer quotes. The estimated fair value of commercial real estate loans held for accelerated disposition was based on their estimated liquidation value. The estimated fair value of derivative product assets and liabilities was based on quoted market prices or pricing and valuation models on a present-value basis using current market information. The majority of commitments to extend credit and letters of credit would result in loans with a market rate of interest if funded. The fair value of these commitments are the fees that would be charged customers to enter into similar agreements with comparable pricing and maturity. The recorded book value of deferred fee income approximates the fair value. 65 (B) INVESTMENT SECURITIES The estimated fair values of debt investment securities were generally based on quoted market prices or dealer quotes. See Note 1, beginning on page 44, and Note 7, beginning on page 51, for information on methods for estimating the fair value of equity investment securities. (C) LOANS The discounted cash flow method was used to estimate the fair value of certain commercial and consumer installment loans. Discount rates used represent current lending rates for new loans with similar characteristics. The fair value of floating rate loans is equal to their carrying value. The estimated fair value of consumer mortgage loans was based on committed sales prices and a valuation model using current market information. (D) DEPOSITS The fair value of demand and savings deposits with no defined maturity is the amount payable on demand at the report date. The fair value of fixed-rate time deposits is estimated by discounting the future cash flows to be paid, using the current rates at which similar deposits with similar remaining maturities would be issued. (E) LONG-TERM DEBT Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation's fixed-rate long-term debt. Discounting was based on the contractual cash flows and the current rates at which debt with similar terms could be issued. (F) DERIVATIVE PRODUCT ASSETS AND LIABILITIES--OTHER THAN TRADING PURPOSES The estimated fair values of derivative product assets and liabilities used for risk management purposes were based on quoted market prices or pricing and valuation models on a present-value basis using current market information. (G) CREDIT CARD SECURITIZATIONS (OFF-BALANCE-SHEET EXPOSURE) Floating and fixed rate credit card receivables sold as securities to investors through a separate trust are not financial instruments of the Corporation. However, the Corporation uses financial instruments (see (f) above) to reduce interest rate risk exposure attributable to these securitizations. The carrying value and the interest rate effect on anticipated excess servicing fee income are disclosed in the preceding table. The carrying value represents the reserve for credit losses related to securitized credit card receivables and net deferred income or expense. The interest rate effect on anticipated excess servicing fee income represents the difference between the par value and the quoted market price of the securitized credit card receivables held by investors. NOTE 19--CONTINGENCIES The Corporation and certain of its subsidiaries are defendants in various lawsuits, including certain class actions, arising out of the normal course of business, and the Corporation has received certain tax deficiency assessments. Since the Corporation and certain of its subsidiaries, which are regulated by one or more federal and state regulatory authorities, also are the subject of numerous examinations and reviews by such authorities, the Corporation is and will, from time to time, normally be engaged in various disagreements with regulators, related primarily to banking matters. In the opinion of management and the Corporation's general counsel, the ultimate resolution of the matters referred to in this note will not have a material effect on the consolidated financial statements. 66 NOTE 20--FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS CONDENSED BALANCE SHEET
1995 1994 DECEMBER 31 (IN MILLIONS) ------- ------- ASSETS Cash and due from banks--bank subsidiaries...................... $ 24 $ 2 Interest-bearing due from banks Bank subsidiaries............................................. 313 161 Other......................................................... 500 396 Resale agreement with bank subsidiary........................... 3 42 Trading assets.................................................. 74 -- Investment securities--available-for-sale....................... 43 93 Loans and receivables--subsidiaries Bank subsidiaries............................................. 1,789 1,783 Nonbank subsidiaries.......................................... 1,072 1,014 Investment in subsidiaries Bank subsidiaries............................................. 8,701 7,831 Nonbank subsidiaries.......................................... 1,051 993 Premises and equipment.......................................... -- 53 Other assets.................................................... 127 133 ------- ------- Total assets................................................ $13,697 $12,501 ======= ======= LIABILITIES Borrowings--nonbank subsidiaries................................ $ 139 $ 82 Other short-term borrowings..................................... 288 189 Long-term debt.................................................. 4,439 4,001 Other liabilities............................................... 381 420 ------- ------- Total liabilities........................................... 5,247 4,692 Stockholders' Equity............................................ 8,450 7,809 ------- ------- Total liabilities and stockholders' equity.................. $13,697 $12,501 ======= =======
67 FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY) CONDENSED INCOME STATEMENT
1995 1994 1993 FOR THE YEAR (IN MILLIONS) ------ ------ ------ OPERATING INCOME Dividends Bank subsidiaries...................................... $ 686 $ 575 $ 377 Nonbank subsidiaries................................... 114 111 71 Interest income Bank subsidiaries...................................... 163 139 140 Nonbank subsidiaries................................... 67 62 82 Other.................................................. 48 29 15 Other income (loss) Bank subsidiaries...................................... 8 9 11 Nonbank subsidiaries................................... 1 1 1 Other........................ ......................... -- 26 (2) ------ ------ ------ Total................................................ 1,087 952 695 OPERATING EXPENSE Interest expense Nonbank subsidiaries................................... 4 1 4 Other.................................................. 367 298 293 Merger-related charges................................... 69 -- -- Other expense............................................ 39 31 30 ------ ------ ------ Total................................................ 479 330 327 INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES.............................. 608 622 368 Applicable income taxes (benefit)........................ (59) (26) (31) INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES............................................ 667 648 399 Equity in undistributed net income of subsidiaries Bank subsidiaries...................................... 418 552 732 Nonbank subsidiaries................................... 65 21 159 ------ ------ ------ NET INCOME............................................... $1,150 $1,221 $1,290 ====== ====== ======
The Parent Company Only Statement of Stockholders' Equity is the same as the Consolidated Statement of Stockholders' Equity (see page 42). 68 FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENT OF CASH FLOWS
1995 1994 1993 FOR THE YEAR (IN MILLIONS) ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................... $ 1,150 $ 1,221 $ 1,290 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of subsidiaries............... (1,282) (1,259) (1,340) Dividends received from subsidiaries............... 800 677 422 Depreciation and amortization...................... 8 9 9 Merger-related charges............................. 45 -- -- Net (increase) in trading account assets........... (74) -- -- Net (increase) decrease in accrued income receivable........................................ (2) (2) 5 Net (decrease) in accrued expenses payable......... (7) (5) (5) Other noncash adjustments.......................... (88) 46 3 ------- ------- ------- Total adjustments.................................. (600) (534) (906) ------- ------- ------- Net cash provided by operating activities............ 550 687 384 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in loans to subsidiaries................ 35 66 241 Net (increase) decrease in resale agreements with bank subsidiary..................................... 39 179 (134) Net (increase) decrease in capital investments in subsidiaries........................................ 101 (141) (135) Purchase of investment securities--available-for- sale................................................ (71) (225) -- Purchase of investment securities.................... -- -- (16) Proceeds from maturities of investment securities-- available-for-sale.................................. 78 52 -- Proceeds from maturities of investment securities.... -- -- 8 Proceeds from sales of investment securities-- available-for-sale.................................. 48 107 -- Proceeds from sales of investment securities......... -- -- 6 Purchases of premises and equipment.................. (1) -- (4) Sales of premises and equipment...................... 51 -- 4 Other, net........................................... -- -- 1 ------- ------- ------- Net cash provided by (used in) investing activities.. 280 38 (29) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings..... 155 (80) (180) Proceeds from issuance of long-term debt............. 772 935 887 Redemption and repayment of long-term debt........... (335) (640) (748) Net increase (decrease) in other liabilities......... (86) (29) 48 Dividends paid....................................... (447) (397) (331) Proceeds from issuance of common and treasury stock.. 48 52 47 Purchase of treasury stock........................... (538) (397) (26) Proceeds from issuance of preferred stock............ -- -- 196 Payment for redemption of preferred stock............ (121) (150) (1) ------- ------- ------- Net cash (used in) financing activities.............. (552) (706) (108) ------- ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS............ 278 19 247 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....... 559 540 293 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 837 $ 559 $ 540 ======= ======= ======= OTHER CASH FLOW DISCLOSURES Interest paid...................................... $364 $322 $322 Income tax payment (receipt)....................... (53) 6 (96)
69 Dividends that may be paid by national bank subsidiaries are subject to two statutory limitations. Under the first, dividends cannot exceed the level of "undivided profits then on hand" less the amount of bad debts, as defined, in excess of the allowance for credit losses. In addition, a bank cannot declare a dividend, without regulatory approval, in an amount in excess of its net profits, as defined, for the current year combined with the retained net profits for the preceding two years. State bank subsidiaries may also be subject to limitations on dividend payments. Based on these statutory requirements, the Principal Banks could, in the aggregate, have declared additional dividends of up to approximately $1.2 billion without regulatory approval at January 1, 1996. The payment of dividends by any bank may also be affected by other factors, such as the maintenance of adequate capital. As of December 31, 1995, all of the Principal Banks significantly exceeded the regulatory guidelines for "well-capitalized" status. Federal banking law also restricts each bank subsidiary from extending credit to the Corporation in excess of 10% of the subsidiary's capital stock and surplus, as defined. Any such extensions of credit are subject to strict collateral requirements. In connection with issuances of commercial paper, the Corporation has agreements providing future credit availability (back-up lines of credit) with various nonaffiliated banks. The agreements aggregated $300 million at December 31, 1995. The commitment fee paid under each agreement is 0.125%. The back-up lines of credit, together with overnight money market loans, short- term investments and other sources of liquid assets, exceeded the amount of commercial paper issued at December 31, 1995. 70 REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES To the Stockholders of First Chicago NBD Corporation: FINANCIAL STATEMENTS The Management of First Chicago NBD Corporation and its subsidiaries is responsible for the preparation, integrity and objectivity of the financial statements and footnotes contained in this Form 10-K. The financial statements have been prepared in accordance with generally accepted accounting principles and are free from material fraud or error. The other financial information in this Form 10-K is consistent with the financial statements. Where financial information must of necessity be based upon estimates and judgments, they represent the best estimates and judgments of Management. The Corporation's financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose appointment is ratified by the stockholders. The independent public accountants' responsibility is to express an opinion on the Corporation's financial statements. As described further in the report that follows, their opinion is based on their audit, which was conducted in accordance with generally accepted auditing standards and is believed by them to provide a reasonable basis for their opinion. Management has made available to Arthur Andersen LLP all of the Corporation's financial records and related data. Furthermore, Management believes that all representations made to Arthur Andersen LLP during their audit were valid and appropriate. INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING Management is also responsible for establishing and maintaining the Corporation's internal control structure that provides reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements. Management continually monitors the internal control structure for compliance with established policies and procedures. The Corporation maintains a strong internal auditing program that independently assesses the effectiveness of the internal control structure. The Audit Committee of the Board of Directors, composed entirely of outside Directors, oversees the Corporation's financial reporting process on behalf of the Board of Directors and has responsibility for recommending the independent public accountants for the Corporation who are appointed by the Board of Directors. The Audit Committee reviews with the independent public accountants the scope of their audit and audit reports and meets with them on a scheduled basis to review their findings and any action to be taken thereon. In addition, the Audit Committee meets with the internal auditors and with Management to review the scope and findings of the internal audit program and any actions to be taken by Management. The independent public accountants and the internal auditors meet periodically with the Audit Committee without Management being present. Management also recognizes its responsibility for fostering a strong ethical climate so that the Corporation's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized by and reflected in the Corporation's integrity policies, which address, among other things, the necessity of ensuring open communication within the Corporation; potential conflicts of interest; compliance with all domestic and foreign laws, including those related to financial disclosure; and the confidentiality of proprietary information. The Corporation maintains a systematic program to assess compliance with these policies. There are inherent limitations in the effectiveness of any internal control structure, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control structure can provide only reasonable assurance with respect to reliability of financial statements and safeguarding of assets. Furthermore, because of changes in conditions, internal control structure effectiveness may vary over time. 71 The Corporation assessed its internal control structure over financial reporting as of December 31, 1995, in relation to the criteria described in the "Internal Control--Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Corporation believes that as of December 31, 1995, in all material respects, the Corporation maintained an effective internal control structure over financial reporting. /s/ Richard L. Thomas Richard L. Thomas Chairman /s/ Verne G. Istock Verne G. Istock President and Chief Executive Officer /s/ Robert A. Rosholt Robert A. Rosholt Executive Vice President and Chief Financial Officer 72 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of First Chicago NBD Corporation: We have audited the accompanying consolidated balance sheet of First Chicago NBD Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of First Chicago NBD Corporation's management. Our responsibility is to express an opinion of 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 respects, the financial position of First Chicago NBD Corporation and its subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Chicago, Illinois, January 16, 1996 73 SELECTED STATISTICAL INFORMATION FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES
1995 1994 1993 DECEMBER 31 (IN MILLIONS) ------ ------- ------- Debt securities U.S. government and federal agency Held-to-maturity..................................... $ -- $ 6,469 $ 5,344 Available-for-sale................................... 6,840 4,910 3,609 ------ ------- ------- Total.............................................. 6,840 11,379 8,953 States and political subdivisions Held-to-maturity..................................... -- 1,591 1,667 Available-for-sale................................... 1,462 76 1 ------ ------- ------- Total.............................................. 1,462 1,667 1,668 Other bonds, notes and debentures Held-to-maturity..................................... -- 5 7 Available-for-sale................................... 94 276 365 ------ ------- ------- Total.............................................. 94 281 372 ------ ------- ------- Total debt securities.............................. 8,396 13,327 10,993 Equity securities(1)..................................... 1,053 1,688 1,654 ------ ------- ------- Total.............................................. $9,449 $15,015 $12,647 ====== ======= =======
- -------- (1) Includes Federal Reserve stock. MATURITY OF DEBT INVESTMENT SECURITIES As of December 31, 1995, debt investment securities had the following maturity and yield characteristics.
BOOK VALUE YIELD (DOLLARS IN MILLIONS) ------ ----- U.S. government and federal agency Within one year................................................... $1,501 5.91% After one but within five years................................... 2,064 7.40 After five but within ten years................................... 3,186 7.10 After ten years................................................... 89 7.42 ------ ----- $6,840 6.93% ====== ===== States and political subdivisions* Within one year................................................... $ 176 10.92% After one but within five years................................... 666 10.85 After five but within ten years................................... 324 9.60 After ten years................................................... 296 9.43 ------ ----- $1,462 10.30% ====== ===== Other bonds, notes and debentures Within one year................................................... $48 12.25% After one but within five years................................... 34 6.53 After five but within ten years................................... 5 7.92 After ten years................................................... 7 5.39 ------ ----- $94 9.51% ====== =====
- -------- * Yields for obligations of states and political subdivisions are calculated on a tax-equivalent basis using a tax rate of 35%. 74 SECURITIZATION OF CREDIT CARD RECEIVABLES Since 1987, the Corporation has actively packaged and sold credit card assets as securities to investors. The securitization of credit card receivables is an effective balance sheet management tool since capital is freed for other uses. In addition, while such securitizations affect net interest income, the provision for credit losses and noninterest income, net income is essentially unaffected. Credit Card continues to service credit card accounts even after receivables are securitized. Net interest income and certain fee revenue on the securitized portfolio are not recognized; however, these are offset by servicing fees as well as by lower provisions for credit losses. At year-end 1995, $7.9 billion in credit card receivables was securitized, compared with $6.1 billion at year-end 1994. For analytical purposes only, the following table shows income statement line items adjusted for the net impact of securitization of credit card receivables.
1995 1994 --------------------------------- --------------------------------- CREDIT CARD CREDIT CARD REPORTED SECURITIZATIONS ADJUSTED REPORTED SECURITIZATIONS ADJUSTED (IN MILLIONS) -------- --------------- -------- -------- --------------- -------- Net interest income-- tax-equivalent basis... $3,311 $ 658 $3,969 $3,043 $ 550 $3,593 Provision for credit losses................. 510 336 846 276 253 529 Noninterest income...... 2,591 (322) 2,269 2,393 (297) 2,096 Noninterest expense..... 3,535 -- 3,535 3,220 -- 3,220 Net income.............. 1,150 -- 1,150 1,221 -- 1,221 Assets--year-end........ $122,002 $7,877 $129,879 $112,763 $6,117 $118,880 --average......... 122,370 7,179 129,549 107,846 5,538 113,384
FOREIGN OUTSTANDINGS The Corporation's cross-border outstandings consist of loans (including accrued interest), acceptances, interest-bearing deposits with other banks, equity investments, other interest-bearing investments and other nonlocal currency monetary assets. The table below presents a breakout of cross-border outstandings for each of the past three year-ends where such outstandings exceeded 1.0% of total assets.
(IN MILLIONS) GOVERNMENT AND BANKS AND OTHER COMMERCIAL COUNTRY DECEMBER 31 OFFICIAL INSTITUTIONS FINANCIAL INSTITUTIONS AND INDUSTRIAL OTHER TOTAL - ------- ----------- --------------------- ---------------------- -------------- ----- ------ Japan................... 1995 $ -- $6,140 $169 $20 $6,329 1994 -- 4,724 156 30 4,910 1993 -- 3,693 85 21 3,799 United Kingdom.......... 1995 $360 $ 671 $292 $45 $1,368 1994 * * * * * 1993 * * * * * France.................. 1995 $162 $1,077 $ 25 $-- $1,264 1994 * * * * * 1993 * * * * *
- -------- *Outstandings were less than 1% of total assets. 75 At December 31, 1995, the only country for which cross-border outstandings totaled between 0.75% and 1.0% of total assets was Korea; such outstandings totaled $1.023 billion. At December 31, 1994, the only countries for which cross-border outstandings totaled between 0.75% and 1.0% of total assets were the United Kingdom and Korea; such outstandings totaled $1.921 billion. At December 31, 1993, the only country for which cross-border outstandings totaled between 0.75% and 1.0% of total assets was Canada; such outstandings totaled $830 million. MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS The following table shows a distribution of the maturity of loans and, for those loans due after one year, a breakdown between those loans that have floating interest rates and those that have predetermined interest rates. The amounts exclude domestic consumer loans and domestic lease financing receivables.
DECEMBER 31, 1995 ONE YEAR ONE TO OVER (IN MILLIONS) OR LESS FIVE YEARS FIVE YEARS TOTAL -------- ---------- ---------- ------- Domestic Commercial............................ $17,132 $1,660 $6,759 $25,551 Real estate........................... 1,695 3,840 1,719 7,254 ------- ------ ------ ------- Total domestic...................... 18,827 5,500 8,478 32,805 Foreign................................. 2,665 525 536 3,726 ------- ------ ------ ------- Total............................... $21,492 $6,025 $9,014 $36,531 ======= ====== ====== ======= Loans with floating interest rates...... $3,240 $8,046 $11,286 Loans with predetermined interest rates. 2,785 968 3,753 ------ ------ ------- Total............................... $6,025 $9,014 $15,039 ====== ====== =======
NONPERFORMING LOANS The following table shows a breakout of nonperforming loans for the past five years.
1995 1994 1993 1992 1991 DECEMBER 31 (DOLLARS IN MILLIONS) ---- ---- ---- ---- ------ Nonaccrual loans................................ $344 $267 $478 $712 $1,195 Accrual renegotiated loans...................... 19 27 7 5 14 ---- ---- ---- ---- ------ Total nonperforming loans................... $363 $294 $485 $717 $1,209 ==== ==== ==== ==== ====== Nonperforming loans Domestic...................................... $360 $284 $421 $589 $1,001 Foreign....................................... 3 10 64 128 208 ---- ---- ---- ---- ------ Total nonperforming loans................... $363 $294 $485 $717 $1,209 ==== ==== ==== ==== ====== Nonperforming loans/loans outstanding........... 0.6% 0.5% 1.0% 1.5% 2.4%
ACCELERATED ASSET DISPOSITION PORTFOLIO During the third quarter of 1992, the Corporation segregated approximately $2.0 billion of commercial real estate exposure at FNBC to be managed under an accelerated disposition program. By year-end 1994, the liquidation of this portfolio had been virtually completed. During 1995, assets having nearly $147 million in original contractual exposure were sold or otherwise liquidated. This resulted in a $29 million reduction in the portfolio's carrying value and the recognition of net 76 gains of $37 million in noninterest income during 1995. The carrying value of the remaining assets in the portfolio was $22 million at year-end 1995, representing 26% of original contractual exposure. Nonperforming assets in this portfolio totaled $22 million at year-end 1995, $37 million at year-end 1994, and $87 million at year-end 1993. LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING INTEREST The following table summarizes those loans that are 90 days or more past due and still accruing interest.
1995 1994 1993 1992 1991 DECEMBER 31 (IN MILLIONS) ---- ---- ---- ---- ---- Domestic............................................... $197 $150 $121 $122 $188 Foreign................................................ -- -- -- -- 3 ---- ---- ---- ---- ---- Total.............................................. $197 $150 $121 $122 $191 ==== ==== ==== ==== ====
INTEREST SHORTFALL ON NONPERFORMING LOANS Interest at original contractual rates (based on average outstanding balances) and interest actually recorded for those periods at December 31 was as follows.
1995 1994 ---------------------------------- ---------------------------------- ACCELERATED ACCELERATED DISPOSITION DISPOSITION DOMESTIC FOREIGN PORTFOLIO TOTAL DOMESTIC FOREIGN PORTFOLIO TOTAL (IN MILLIONS) -------- ------- ----------- ----- -------- ------- ----------- ----- Interest at original contract rates......... $32 $-- $ 2 $34 $25 $ 1 $-- $26 Interest actually recognized............. 13 -- 1 14 10 -- -- 10 --- --- --- --- --- --- --- --- Interest shortfall, before income tax effect................. $19 $-- $ 1 $20 $15 $ 1 $-- $16 === === === === === === === ===
77 ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
1995 1994 1993 1992 1991 (IN MILLIONS) ------ ------ ------ ------ ------ Balance, beginning of year............. $1,158 $1,106 $1,041 $1,136 $1,257 Provision for credit losses............ 510 276 390 653 606 Provision for loans held for accelerated disposition............... -- -- -- 491 -- Charge-offs Commercial Domestic Commercial.......................... 70 68 122 253 259 Real estate......................... 25 41 99 149 229 Lease financing..................... 2 3 6 6 18 Foreign(1)........................... 1 9 47 78 83 Consumer Credit card.......................... 241 193 165 180 194 Other................................ 70 50 46 52 56 ------ ------ ------ ------ ------ Total charge-offs.................. 409 364 485 718 839 Recoveries Commercial Domestic Commercial.......................... 59 55 81 39 28 Real estate......................... 16 15 9 6 4 Lease financing..................... 2 1 2 5 2 Foreign.............................. 9 44 17 22 35 Consumer Credit card.......................... 33 32 57 52 48 Other................................ 26 25 23 22 20 ------ ------ ------ ------ ------ Total recoveries................... 145 172 189 146 137 Net charge-offs........................ 264 192 296 572 702 Charge-offs of loans upon transfer to accelerated disposition portfolio..... -- -- -- 636 -- Transfers related to securitized receivables........................... (75) (49) (29) (42) (28) Other(2)............................... 9 17 -- 11 3 ------ ------ ------ ------ ------ Balance, end of year................... $1,338 $1,158 $1,106 $1,041 $1,136 ====== ====== ====== ====== ======
- -------- (1) 1992 amounts include $12 million defined as commercial real estate. (2) Primarily acquisitions. 78 ALLOCATED ALLOWANCE FOR CREDIT LOSSES While the allowance for credit losses is available to absorb credit losses in the entire portfolio, the tables below present an estimate of the allowance for credit losses allocated by loan type and the percentage of loans in each category to total loans.
1995 1994 1993 DECEMBER 31 (DOLLARS IN MILLIONS) ------ ------ ------ Commercial Domestic.............................................. $ 929 $ 848 $ 789 Foreign............................................... 57 59 81 Consumer Credit card........................................... 303 215 201 Other................................................. 49 36 35 ------ ------ ------ Total............................................... $1,338 $1,158 $1,106 ====== ====== ====== Percentage of loans in each category to total loans Commercial Domestic.............................................. 53% 56% 56% Foreign............................................... 6 6 6 Consumer Credit card........................................... 15 13 13 Other................................................. 26 25 25 ------ ------ ------ Total............................................... 100% 100% 100% ====== ====== ======
Allocation for potential losses not specifically identified is included in the commercial segment. Allocation information is not available for 1992 and 1991. 79 DEPOSITS The following tables show a maturity distribution of domestic time certificates of deposit of $100,000 and over, other domestic time deposits of $100,000 and over, and deposits in foreign offices, predominantly in amounts in excess of $100,000, at December 31, 1995.
DOMESTIC TIME CERTIFICATES OF DEPOSIT OF $100,000 AND OVER AMOUNT PERCENT (DOLLARS IN MILLIONS) ------- ------- Three months or less............................................... $3,217 65% Over three months to six months.................................... 602 12 Over six months to twelve months................................... 646 13 Over twelve months................................................. 489 10 ------- --- Total.......................................................... $4,954 100% ======= === DOMESTIC OTHER TIME DEPOSITS OF $100,000 AND OVER AMOUNT PERCENT (DOLLARS IN MILLIONS) ------- ------- Three months or less............................................... $501 51% Over three months to six months.................................... 78 8 Over six months to twelve months................................... 122 12 Over twelve months................................................. 292 29 ------- --- Total.......................................................... $993 100% ======= === FOREIGN OFFICES AMOUNT PERCENT (DOLLARS IN MILLIONS) ------- ------- Three months or less............................................... $16,880 95% Over three months to six months.................................... 678 4 Over six months to twelve months................................... 208 1 Over twelve months................................................. 7 -- ------- --- Total.......................................................... $17,773 100% ======= ===
80 SHORT-TERM BORROWINGS Borrowings with original maturities of one year or less are classified as short-term. The following is a summary of short-term borrowings for each of the three years ended December 31, 1995.
1995 1994 1993 (DOLLARS IN MILLIONS) ------- ------- ------- Federal funds purchased Outstanding at year-end............................ $ 3,447 $ 2,562 $ 2,923 Weighted average rate at year-end.................. 5.49% 5.72% 3.03% Daily average outstanding for the year............. $ 3,505 $ 2,846 $ 3,263 Weighted average rate for the year................. 6.24% 4.48% 3.25% Highest outstanding at any month-end............... $ 4,824 $ 3,087 $ 4,850 Securities under repurchase agreements Outstanding at year-end............................ $12,264 $14,357 $ 8,115 Weighted average rate at year-end.................. 5.79% 4.65% 2.95% Daily average outstanding for the year............. $16,536 $13,519 $ 9,982 Weighted average rate for the year................. 5.88% 4.27% 2.98% Highest outstanding at any month-end............... $20,439 $17,977 $11,178 Bank notes Outstanding at year-end............................ $ 7,027 $ 6,070 $ 3,720 Weighted average rate at year-end.................. 5.93% 5.72% 3.35% Daily average outstanding for the year............. $ 5,731 $ 5,181 $ 3,067 Weighted average rate for the year................. 5.96% 4.71% 3.33% Highest outstanding at any month-end............... $ 7,027 $ 6,537 $ 3,823 Other short-term borrowings Outstanding at year-end............................ $ 2,775 $ 2,352 $ 3,109 Weighted average rate at year-end.................. 5.45% 4.51% 3.68% Daily average outstanding for the year............. $ 3,436 $ 3,448 $ 4,307 Weighted average rate for the year................. 5.72% 3.88% 3.50% Highest outstanding at any month-end............... $ 4,212 $ 4,722 $ 5,982 Total short-term borrowings Outstanding at year-end............................ $25,513 $25,341 $17,867 Weighted average rate at year-end.................. 5.75% 5.00% 3.17% Daily average outstanding for the year............. $29,208 $24,994 $20,619 Weighted average rate for the year................. 5.92% 4.33% 3.19%
1995 1994 1993 1992 1991 COMMON STOCK AND STOCKHOLDER DATA* ------- ------- ------- ------- ------- Market price High for the year................ $42 1/2 $33 $36 3/8 $33 1/8 $30 1/8 Low for the year................. 27 3/8 26 3/4 28 5/8 26 3/4 20 3/4 At year-end...................... 39 1/2 27 3/8 29 3/4 32 3/4 29 3/4 Book value (at year-end)........... 25.25 22.60 21.25 18.27 18.06 Dividend payout ratio.............. 39% 34% 28% 89% 61%
- -------- *There were 40,119 common stockholders of record as of December 31, 1995. 81
1995 1994 1993 1992 1991 FINANCIAL RATIOS ---- ---- ---- ---- ---- Net income as a percentage of: Average stockholders' equity.................. 13.8% 15.8% 18.5% 6.4% 8.6% Average common stockholders' equity........... 14.3 16.6 19.9 6.3 8.7 Average total assets.......................... 0.94 1.13 1.33 0.42 0.53 Average earning assets........................ 1.09 1.32 1.52 0.48 0.61 Stockholders' equity at year-end as a percentage of: Total assets at year-end...................... 6.9 6.9 8.1 7.0 6.5 Total loans at year-end....................... 13.1 14.2 15.4 13.2 11.4 Total deposits at year-end.................... 12.2 12.0 12.9 10.4 9.2 Average stockholders' equity as a percentage of: Average assets................................ 6.8 7.2 7.2 6.5 6.2 Average loans................................. 14.1 15.4 14.8 12.6 11.0 Average deposits.............................. 12.4 12.8 11.7 9.9 8.9 Income to fixed charges: Excluding interest on deposits................ 1.8X 2.2x 3.0x 1.3x 1.6x Including interest on deposits................ 1.4X 1.6x 1.8x 1.1x 1.1x
QUARTERLY DIVIDENDS AND MARKET PRICE SUMMARY
DIVIDENDS STOCK MARKET DECLARED PRICE RANGE(1) --------- --------------- PER SHARE LOW HIGH --------- ------- ------- 1995 First quarter....................................... $0.33 $27 3/8 $32 7/8 Second quarter...................................... 0.33 30 1/8 33 1/4 Third quarter....................................... 0.33 31 1/2 39 1/4 Fourth quarter...................................... 0.36 36 1/2 42 1/2 ----- Year.............................................. $1.35 27 3/8 42 1/2 ===== 1994 First quarter....................................... $0.30 $27 1/4 $30 3/4 Second quarter...................................... 0.30 27 3/8 32 Third quarter....................................... 0.30 28 3/8 33 Fourth quarter...................................... 0.33 26 3/4 31 ----- Year.............................................. $1.23 26 3/4 33 =====
- -------- (1) The principal market for the Corporation's common stock is the New York Stock Exchange (the "NYSE"). In addition to the NYSE, the Corporation's common stock is listed on the Chicago Stock Exchange and the Pacific Stock Exchange. 82 CONSOLIDATED SUMMARY OF QUARTERLY FINANCIAL INFORMATION
1995 (IN MILLIONS, EXCEPT PER SHARE DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 DATA) ----------- ------------ ------- -------- Interest income...................... $2,066 $2,054 $2,011 $1,959 Net interest income.................. 834 796 784 794 Provision for credit losses.......... 210 125 90 85 Noninterest income................... 655 702 631 603 Noninterest expense.................. 1,088 827 821 799 Net income........................... 126 357 331 336 Earnings per share Primary.............................. $0.37 $1.07 $0.99 $1.01 Fully diluted........................ 0.37 1.06 0.98 0.99 1994 (IN MILLIONS, EXCEPT PER SHARE DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 DATA) ----------- ------------ ------- -------- Interest income...................... $1,754 $1,607 $1,461 $1,314 Net interest income.................. 756 749 739 712 Provision for credit losses.......... 96 63 52 65 Noninterest income................... 622 589 558 624 Noninterest expense.................. 806 811 788 815 Net income........................... 315 301 304 301 Earnings per share Primary............................ $0.94 $0.89 $0.89 $0.90 Fully diluted...................... 0.93 0.88 0.88 0.88
Amounts presented above reflect the Merger and have not been previously reported on Form 10-Q for any quarter. See Note 3 to the Consolidated Financial Statements on page 48 for a discussion of the Merger. 83 AVERAGE BALANCES/NET INTEREST MARGIN/RATES First Chicago NBD Corporation and Subsidiaries
1995 YEAR ENDED DECEMBER 31 -------------------------- AVERAGE AVERAGE (INCOME AND RATES ON TAX-EQUIVALENT BASIS) BALANCE INTEREST RATE (DOLLARS IN MILLIONS) -------- -------- ------- ASSETS Interest-bearing due from banks (1)................................ $ 10,011 $ 620 6.19% Federal funds sold and securities under resale agreements.......... 15,701 922 5.87 Trading assets..................................................... 7,300 469 6.42 Investment securities (2) U.S. government and federal agency................................ 10,023 681 6.79 States and political subdivisions................................. 1,546 141 9.12 Other............................................................. 1,781 71 3.99 -------- ------ ---- Total investment securities..................................... 13,350 893 6.69 Loans (3)(4) Domestic offices.................................................. 55,530 5,043 9.21 Foreign offices................................................... 3,414 246 7.21 -------- ------ ---- Total loans..................................................... 58,944 5,289 9.09 -------- ------ ---- Total earning assets (5)........................................ 105,306 8,193 7.78 Cash and due from banks............................................ 6,328 Allowance for credit losses........................................ (1,198) Other assets....................................................... 11,934 -------- Total assets.................................................... $122,370 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits--interest-bearing Savings........................................................... $ 11,716 $ 313 2.67% Money market...................................................... 8,942 354 3.96 Time.............................................................. 17,346 1,008 5.81 Foreign offices (6)............................................... 15,821 906 5.73 -------- ------ ---- Total deposits--interest-bearing................................ 53,825 2,581 4.80 Federal funds purchased and securities under repurchase agreements. 20,041 1,192 5.95 Other short-term borrowings........................................ 9,167 538 5.87 Long-term debt..................................................... 7,941 571 7.19 -------- ------ ---- Total interest-bearing liabilities.............................. 90,974 4,882 5.37 Demand deposits.................................................... 13,254 Other liabilities.................................................. 9,807 Preferred stock.................................................... 570 Common stockholders' equity........................................ 7,765 -------- Total liabilities and stockholders' equity...................... $122,370 ======== Interest income/earning assets (5)................................. $8,193 7.78% Interest expense/earning assets.................................... 4,882 4.64 ------ ---- Net interest margin................................................ $3,311 3.14% ====== ====
- -------- (1) Principally balances in overseas offices. (2) The combined amounts for investment securities available-for-sale and held- to-maturity are based on their respective carrying values. Based on the amortized cost of investment securities available-for-sale, the combined average balance for 1995 would be $13.428 billion, and the average earned rate would be 6.65%. (3) Rates are calculated on average lease-financing receivable balances reduced by deferred liability for taxes. (4) Nonperforming loans are included in average balances used to determine rates. (5) Includes tax-equivalent adjustments based on federal income tax rate of 35% for 1995, 1994 and 1993, and 34% for 1992. (6) Includes International Banking Facilities' deposit balances in domestic offices and balances of Edge Act and overseas offices. 84
1994 1993 1992 ----------------------------------------------------- ------------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ------- -------- ------- ------- -------- ------- ------- -------- ------- $ 8,497 $ 395 4.65% $ 8,098 $ 332 4.10% $ 8,136 $ 406 4.99% 14,340 624 4.35 11,740 350 2.98 8,356 291 3.48 4,927 286 5.80 4,876 229 4.70 4,556 270 5.93 11,093 698 6.29 8,973 585 6.52 8,084 613 7.58 1,649 146 8.85 1,757 151 8.59 2,009 179 8.91 1,990 48 2.41 2,054 57 2.78 2,552 95 3.72 -------- ------ ---- ------- ------ ---- ------- ------ ---- 14,732 892 6.05 12,784 793 6.20 12,645 887 7.01 47,208 3,832 8.24 44,262 3,441 7.88 45,514 3,678 8.17 2,894 194 6.70 3,131 211 6.74 3,727 293 7.86 -------- ------ ---- ------- ------ ---- ------- ------ ---- 50,102 4,026 8.15 47,393 3,652 7.80 49,241 3,971 8.15 -------- ------ ---- ------- ------ ---- ------- ------ ---- 92,598 6,223 6.72 84,891 5,356 6.31 82,934 5,825 7.02 6,553 6,171 5,425 (1,132) (1,062) (1,117) 9,827 6,642 6,968 -------- ------- ------- $107,846 $96,642 $94,210 ======== ======= ======= $ 11,815 $ 274 2.32% $11,100 $ 265 2.39% $ 9,732 $ 296 3.04% 9,280 261 2.81 10,163 247 2.43 10,211 311 3.05 13,650 570 4.18 14,204 543 3.82 18,665 910 4.88 12,347 548 4.44 10,944 417 3.81 11,972 566 4.73 -------- ------ ---- ------- ------ ---- ------- ------ ---- 47,092 1,653 3.51 46,411 1,472 3.17 50,580 2,083 4.12 16,365 704 4.30 13,245 404 3.05 13,419 469 3.50 8,629 378 4.38 7,374 253 3.43 3,896 159 4.08 6,755 445 6.59 4,817 334 6.93 4,025 310 7.70 -------- ------ ---- ------- ------ ---- ------- ------ ---- 78,841 3,180 4.03 71,847 2,463 3.43 71,920 3,021 4.20 13,377 13,078 11,620 7,898 4,730 4,505 686 794 581 7,044 6,193 5,584 -------- ------- ------- $107,846 $96,642 $94,210 ======== ======= ======= $6,223 6.72% $5,356 6.31% $5,825 7.02% 3,180 3.43 2,463 2.90 3,021 3.64 ------ ---- ------ ---- ------ ---- $3,043 3.29% $2,893 3.41% $2,804 3.38% ====== ==== ====== ==== ====== ====
85 ANALYSIS OF CHANGES IN NET INTEREST INCOME The following table shows the approximate effect on net interest income of volume and rate changes for 1995 and 1994. For purposes of this table, changes that are not due solely to volume or rate changes are allocated to volume.
1995 OVER 1994 1994 OVER 1993 ------------------ ------------------ VOLUME RATE TOTAL VOLUME RATE TOTAL YEAR ENDED DECEMBER 31 (IN MILLIONS) ------ ---- ------ ------ ---- ----- Increase (decrease) in Interest income Interest-bearing due from banks......... $ 94 $131 $ 225 $ 19 $ 44 $ 63 Federal funds sold and securities under resale agreements...................... 80 218 298 113 161 274 Trading assets.......................... 152 31 183 3 54 57 Investment securities U.S. government and federal agency.... (73) 56 (17) 133 (20) 113 States and political subdivisions..... (9) 4 (5) (10) 5 (5) Other................................. (8) 31 23 (1) (8) (9) Loans Domestic offices...................... 756 455 1,211 239 152 391 Foreign offices....................... 37 15 52 (16) (1) (17) ------ ---- Total................................. 1,970 867 Increase (decrease) in Interest expense Deposits Savings............................... (3) 42 39 17 (8) 9 Money market.......................... (13) 106 93 (25) 39 14 Time.................................. 215 223 438 (23) 50 27 Foreign offices....................... 199 159 358 62 69 131 Federal funds purchased and securities under repurchase agreements.............. 219 269 488 134 166 300 Other short-term borrowings............... 32 128 160 55 70 125 Long-term debt............................ 85 41 126 128 (17) 111 ------ ---- Total................................. 1,702 717 ------ ---- Increase in net interest income........... $ 268 $150 ====== ====
ITEM 2. PROPERTIES The Corporation's headquarters are at One First National Plaza, Chicago, Illinois, a 60-story building located in the center of the Chicago "Loop" business district. The building is master-leased by FNBC and has approximately 1,850,000 square feet of rentable space, of which the Corporation occupies approximately 59% and the balance is subleased to others. In 1995, First Chicago Building Corporation, a wholly-owned subsidiary of FNBC, purchased a 23-story office building in Chicago's west Loop business district providing approximately 1,036,000 square feet for future operations consolidation and expansion. Also in 1995, FCCNB exercised its option to purchase three buildings in Elgin, Illinois, comprising in the aggregate approximately 520,000 square feet on approximately 31 acres of land, housing Illinois Credit Card operations. NBD Michigan owns and occupies a 14-story, 540,000-square-foot main office building in Detroit's central financial and business district; a 14-story, 300,000-square-foot office building in Troy, Michigan, housing its retail support activities; and a 380,000-square-foot facility in Van Buren Township, near Detroit Metropolitan Airport, housing its data center and check processing operations. NBD Michigan also owns approximately 143 acres of land in Farmington Hills, Michigan, for possible future facility needs. In addition, NBD Michigan leases 86 and occupies a 200,000-square-foot office center in Troy, Michigan, and NBD Indiana leases and occupies a 380,000-square-foot office building in Indianapolis, Indiana. At December 31, 1995, the Corporation and its subsidiaries occupied 939 locations within the United States, including 742 bank branches. Foreign offices, including Adelaide, Melbourne and Sydney, Australia; Beijing; Buenos Aires; Frankfurt; Hong Kong; London; Mexico City; Seoul; Taipei; Tokyo; and Toronto and Windsor, Canada, are located in leased premises. ITEM 3. LEGAL PROCEEDINGS The information required by this Item is set forth in Note 19 to the Consolidated Financial Statements, on page 66 of this Form 10-K, and is expressly incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Corporation held a Special Meeting of Stockholders on October 20, 1995. Stockholders approved and adopted the Agreement and Plan of Merger (the "Merger Agreement"), dated as of July 11, 1995, as amended, by and between FCC and NBD, and the consummation of the transactions contemplated thereby, pursuant to which FCC merged with and into NBD upon the terms and subject to the conditions set forth in the Merger Agreement. A total of 120,223,918 shares were represented in person or by proxy at the Special Meeting, or approximately 75.6 percent of the total shares outstanding and entitled to vote. Of the total number of outstanding shares entitled to vote, 116,642,706.2 (73.375%) were voted for; 3,051,366.7 (1.919%) were voted against; and 529,845.4 (0.333%) abstained. There were no broker non-votes. Executive Officers of the Registrant
PRESENT POSITION HELD WITH THE CORPORATION AND NAME AND AGE EFFECTIVE DATE FIRST ELECTED TO OFFICE INDICATED - ------------ ------------------------------------------------ Richard L. Thomas (65).. Director and Chairman of the Board (12-1-95) Verne G. Istock (55).... Director (10-1-85), Chief Executive Officer (1-1-94) and President (12-1-95) Thomas H. Jeffs II (57). Director and Vice Chairman of the Board (10-1-85) Scott P. Marks, Jr. (50)................... Director and Vice Chairman of the Board (12-1-95) David J. Vitale (49).... Director and Vice Chairman of the Board (12-1-95) Frederick M. Adams, Jr. (51)................... Executive Vice President (6-15-92) John W. Ballantine (49). Executive Vice President (12-1-95) Gordon S. Crimmins (61). Executive Vice President (1-1-94) Robert A. DeAlexandris (55)................... Executive Vice President (6-15-92) Alan F. Delp (55)....... Executive Vice President (12-1-95) Sherman I. Goldberg (53)................... Executive Vice President, General Counsel and Secretary (12-1-95) Thomas H. Hodges (50)... Executive Vice President (12-1-95) Philip S. Jones (53).... Executive Vice President (6-15-92) W.G. Jurgensen (44)..... Executive Vice President (12-1-95) James R. Lancaster (64). Executive Vice President (6-15-92) Thomas J. McDowell (57). Executive Vice President (1-1-95) Timothy P. Moen (43).... Executive Vice President (12-1-95) Susan S. Moody (42)..... Executive Vice President (1-1-95) Andrew J. Paine, Jr. (58)................... Executive Vice President (10-15-92) Robert A. Rosholt (46).. Executive Vice President and Chief Financial Officer (12-1-95)
Each of the executive officers has served as an officer of the Corporation or a subsidiary, or their respective predecessors, for more than five years. Executive officers of the Corporation serve until the annual meeting of the Board of Directors (May 10, 1996). 87 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is set forth in this Form 10-K in the third paragraph on page 7, the "Common Stock and Stockholder Data" table on page 81 and the "Quarterly Dividends and Market Price Summary" table on page 82, and is expressly incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in this Form 10-K in the "Selected Financial Data" table on page 13 and the "Financial Ratios" table on page 82, and is expressly incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth on pages 13 to 39 of this Form 10-K, and is expressly incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth in this Form 10-K in the "Selected Financial Data" table on page 13, the "Selected Statistical Information" table on page 30, the "Loan Composition" table on page 30, the Consolidated Financial Statements and the Notes thereto on pages 40 to 70, the "Report of Independent Public Accountants" on page 73 and the "Selected Statistical Information" section on pages 74 to 86, and is expressly incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this Item has been previously reported in the Corporation's Current Report on Form 8-K dated September 18, 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item pertaining to executive officers of the Corporation is set forth on page 87 of this Form 10-K under the heading "Executive Officers of the Registrant," and is expressly incorporated herein by reference. The information required by this Item pertaining to directors of the Corporation is set forth under the heading "Election of Directors" in the Corporation's definitive proxy statement dated April 5, 1996, and is expressly incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth under the headings "Compensation of Executive Officers," "Director Meeting Attendance and Fee Arrangements" and "Committees of the Board of Directors--Organization, Compensation and Nominating Committee--Committee Interlocks and Insider Participation" in the Corporation's definitive proxy statement dated April 5, 1996, and is expressly incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth under the heading "Beneficial Ownership of the Corporation's Common Stock" in the Corporation's definitive proxy statement dated April 5, 1996, and is expressly incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is set forth under the headings "Committees of the Board of Directors--Organization, Compensation and Nominating Committee--Committee Interlocks and Insider Participation" and "Transactions with Directors, Executive Officers, Stockholders and Associates" in the Corporation's definitive proxy statement dated April 5, 1996, and is expressly incorporated herein by reference. 88 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements:
PAGE ---- Consolidated Balance Sheet--December 31, 1995 and 1994................. 40 Consolidated Income Statement--Three Years Ended December 31, 1995..... 41 Consolidated Statement of Stockholders' Equity--Three Years Ended December 31, 1995..................................................... 42 Consolidated Statement of Cash Flows--Three Years Ended December 31, 1995.................................................................. 43 Notes to Financial Statements.......................................... 44
(2) Financial Statement Schedules. All schedules normally required by Form 10-K are omitted since they either are not applicable or the required information is shown in the financial statements or the notes thereto. (3) Exhibits. 3(A). Restated Certificate of Incorporation of the Corporation, as amended. 3(B). By-Laws of the Corporation, as amended. 4. Instruments defining the rights of security holders, in- cluding indentures.+ 10(A). NBD Bancorp, Inc. Performance Incentive Plan, as amended [Exhibit 10(a) to the Corporation's 1991 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by refer- ence].* 10(B). NBD Bancorp, Inc. Executive Incentive Plan [Exhibit (10) (b) to the Corporation's 1994 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by reference].* 10(C). NBD Bancorp, Inc. Pension Restoration/Supplemental Plan [Exhibit (10) (c) to the Corporation's 1994 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by ref- erence].* 10(D). First Chicago NBD Corporation Plan for Deferring the Pay- ment of Directors' Fees.* 10(E). NBD Bancorp, Inc. Executive Estate Plan [Exhibit (10) (g) to the Corporation's 1994 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by reference].* 10(F). NBD Bancorp, Inc. Non-Employee Director Stock Award Plan [Exhibit 10 (h) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by refer- ence].* 10(G). Supplemental Disability and Split-Dollar Life Insurance Policies of NBD Indiana, Inc. covering the named executive officers [Exhibit 10 (i) to the Corporation's 1992 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by reference].* 10(H). NBD Bancorp, Inc. Long-Term Disability Restoration Plan [Exhibit 10 (k) to the Corporation's 1993 Annual Report on Form 10-K (File No. 1-7127) incorporated herein by refer- ence].* 10(I). First Chicago Corporation Stock Incentive Plan [Exhibit 10(A) to FCC's 1990 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(J). First Chicago Corporation Strategic Stock Incentive Plan, as amended [Exhibit 10(A) to FCC's 1988 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(K). First Chicago Corporation 1983 Stock Option Plan, as amended and restated [Exhibit 28 to FCC's Post-Effective Amendment No. 1 to Form S-8 Registration Statement (File No. 33-15779) incorporated herein by reference].*
89 10(L). Form of The First National Bank of Chicago Compensation Agreement, as amended.* 10(M). Form of First Chicago Corporation Compensation Agreement, as amended.* 10(N). First Chicago Corporation Compensation Deferral Plan, as amended.* 10(O). First Chicago Corporation Executive Estate Plan.* 10(P). First Chicago Corporation Savings Incentive Plan, as amended and restated [Exhibit 10(G) to FCC's 1994 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(Q). First Chicago Corporation Supplemental Savings Incentive Plan [Exhibit 10(I) to FCC's 1990 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(R). First Chicago Corporation Executive Retirement Plan [Ex- hibit 10(I) to FCC's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(S). Form of Individual Change of Control Employment Agree- ment.* 10(T). Form of Individual Executive Employment Agreement.* 10(U). First Chicago Corporation Trust Agreement (Trust A) [Ex- hibit 10(K) to FCC's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(V). First Chicago Corporation Trust Agreement (Trust B) [Ex- hibit 10(L) to FCC's 1992 Annual Report on Form 10-K (File No. 1-6052) incorporated herein by reference].* 10(W). Letter dated December 18, 1995, from the Corporation to Richard L. Thomas.* 10(X). Form of First Chicago NBD Corporation Director Stock Plan.* 10(Y). Form of First Chicago NBD Corporation Stock Performance Plan.* 10(Z). Form of First Chicago NBD Corporation Senior Management Annual Incentive Plan.* 10(AA). Agreement and Plan of Merger, dated as of July 11, 1995, between NBD Bancorp, Inc. and First Chicago Corporation, as amended. 12. Statements re computation of ratios. 21. Subsidiaries of the Corporation. 23. Consents of experts and counsel. 27. Financial Data Schedule.
(b) The Corporation filed the following Current Reports on Form 8-K during the quarter ended December 31, 1995:
DATE ITEM REPORTED ---- ------------- November 10, 1995 The following announcements: (i) on October 20, 1995, FCC's and NBD's respective stockholders approved the Merger; (ii) on November 7, 1995, the Federal Reserve Board approved the Corporation's Merger application; and (iii) the composition of the Corporation's Board of Directors following the Effective Time. November 14, 1995 The Corporation's pro forma financial information and certain historical financial information. December 1, 1995 Announcement that the Merger became effective. December 4, 1995 The Corporation's supplemental financial information. December 8, 1995 Announcement that the Corporation increased the common stock quarterly dividend.
- -------- + The Corporation hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the Corporation and its consolidated subsidiaries; the total amount of such debt does not exceed 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 90 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS 8TH DAY OF MARCH, 1996. First Chicago NBD Corporation (Registrant) /s/ Verne G. Istock By __________________________________ Verne G. Istock Principal Executive Officer 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 CORPORATION AND IN THE CAPACITIES INDICATED, THIS 8TH DAY OF MARCH, 1996. /s/ Terence E. Adderley /s/ Scott P. Marks, Jr. - ------------------------------------- ------------------------------------- Terence E. Adderley Scott P. Marks, Jr. Director Director /s/ James K. Baker /s/ William T. McCormick , Jr. - ------------------------------------- ------------------------------------- James K. Baker William T. McCormick, Jr. Director Director /s/ John H. Bryan /s/ Earl L. Neal - ------------------------------------- ------------------------------------- John H. Bryan Earl L. Neal Director Director /s/ Siegfried Buschmann /s/ James J. O'Connor - ------------------------------------- ------------------------------------- Siegfried Buschmann James J. O'Connor Director Director /s/ James S. Crown /s/ Thomas E. Reilly, Jr. - ------------------------------------- ------------------------------------- James S. Crown Thomas E. Reilly, Jr. Director Director /s/ Maureen A. Fay /s/ Patrick G. Ryan - ------------------------------------- ------------------------------------- Maureen A. Fay Patrick G. Ryan Director Director /s/ Charles T. Fisher III /s/ Adele Simmons - ------------------------------------- ------------------------------------- Charles T. Fisher III Adele Simmons Director Director /s/ Donald V. Fites /s/ Richard L. Thomas - ------------------------------------- ------------------------------------- Donald V. Fites Richard L. Thomas Director Director /s/ Verne G. Istock /s/ David J. Vitale - ------------------------------------- ------------------------------------- Verne G. Istock David J. Vitale Director Director /s/ Thomas H. Jeffs II /s/ Robert A. Rosholt - ------------------------------------- ------------------------------------- Thomas H. Jeffs II Robert A. Rosholt Director Principal Financial Officer /s/ Richard A. Manoogian /s/ William J. Roberts - ------------------------------------- ------------------------------------- Richard A. Manoogian William J. Roberts Director Principal Accounting Officer 91
EXHIBIT INDEX TO EXHIBITS PAGE ------- ----------------- ---- 3(A). Restated Certificate of Incorporation of the Corporation, as amended. 3(B). By-Laws of the Corporation, as amended. 4. Instruments defining the rights of security holders, in- cluding indentures.+ 10(A). NBD Bancorp, Inc. Performance Incentive Plan, as amended [incorporated herein by reference]. 10(B). NBD Bancorp, Inc. Executive Incentive Plan [incorporated herein by reference]. 10(C). NBD Bancorp, Inc. Pension Restoration/Supplemental Plan [incorporated herein by reference]. 10(D). First Chicago NBD Corporation Plan for Deferring the Pay- ment of Directors' Fees. 10(E). NBD Bancorp, Inc. Executive Estate Plan [incorporated herein by reference]. 10(F). NBD Bancorp, Inc. Non-Employee Director Stock Award Plan [incorporated herein by reference]. 10(G). Supplemental Disability and Split-Dollar Life Insurance Policies of NBD Indiana, Inc. covering the named executive officers [incorporated herein by reference]. 10(H). NBD Bancorp, Inc. Long-Term Disability Restoration Plan [incorporated herein by reference]. 10(I). First Chicago Corporation Stock Incentive Plan [incorporated herein by reference]. 10(J). First Chicago Corporation Strategic Stock Incentive Plan, as amended [incorporated herein by reference]. 10(K). First Chicago Corporation 1983 Stock Option Plan, as amended and restated [incorporated herein by reference]. 10(L). Form of The First National Bank of Chicago Compensation Agreement, as amended. 10(M). Form of First Chicago Corporation Compensation Agreement, as amended. 10(N). First Chicago Corporation Compensation Deferral Plan, as amended. 10(O). First Chicago Corporation Executive Estate Plan. 10(P). First Chicago Corporation Savings Incentive Plan, as amended and restated [incorporated herein by reference]. 10(Q). First Chicago Corporation Supplemental Savings Incentive Plan [incorporated herein by reference]. 10(R). First Chicago Corporation Executive Retirement Plan [incorporated herein by reference]. 10(S). Form of Individual Change of Control Employment Agree- ment. 10(T). Form of Individual Executive Employment Agreement. 10(U). First Chicago Corporation Trust Agreement (Trust A) [incorporated herein by reference]. 10(V). First Chicago Corporation Trust Agreement (Trust B) [incorporated herein by reference]. 10(W). Letter dated December 18, 1995, from the Corporation to Richard L. Thomas. 10(X). Form of First Chicago NBD Corporation Director Stock Plan. 10(Y). Form of First Chicago NBD Corporation Stock Performance Plan. 10(Z). Form of First Chicago NBD Corporation Senior Management Annual Incentive Plan. 10(AA). Agreement and Plan of Merger, dated as of July 11, 1995, between NBD Bancorp, Inc. and First Chicago Corporation, as amended. 12. Statements re computation of ratios. 21. Subsidiaries of the Corporation. 23. Consents of experts and counsel. 27. Financial Data Schedule.
- -------- + The Corporation hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the Corporation and its consolidated subsidiaries; the total amount of such debt does not exceed 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. EX-3.(A) 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3(A). RESTATED CERTIFICATE OF INCORPORATION OF FIRST CHICAGO NBD CORPORATION (As last amended effective December 30, 1995) This Restated Certificate of Incorporation of First Chicago NBD Corporation, originally incorporated in the State of Delaware under the name National Detroit Corporation pursuant to a certificate of incorporation filed July 14, 1972, amends the Restated Certificate of Incorporation last amended effective October 28, 1993 and has been duly adopted in accordance with the General Corporation Law of Delaware. FIRST. The name of the corporation is First Chicago NBD Corporation. SECOND. The address of its registered office in the State of Delaware is 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 760,000,000 shares which shall be divided into two classes as follows: (a) 10,000,000 shares of Preferred Stock without par value (Preferred Stock), which shall include, but not be limited to, Preferred Stock with Cumulative and Adjustable Dividends, Series B; Preferred Stock with Cumulative and Adjustable Dividends, Series C; 8.45% Cumulative Preferred Stock; and 5 3/4% Cumulative Convertible Preferred Stock; Series B; and (b) 750,000,000 shares of Common Stock of the par value of $1.00 per share (Common Stock). The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock and other general provisions relating thereto shall be as follows and as set forth in Exhibits A-D attached hereto: PART I PREFERRED STOCK (a) Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects except that the dates from which dividends accrue or accumulate with respect thereto may vary. (b) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in this Certificate of Incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: (i) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. (ii) The dividend rate or rates on the shares of such series and the relation which such dividends shall bear to the dividends payable on any other class of capital stock or on any other series of Preferred Stock, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate. (iii) Whether the shares of such series shall be redeemable, and, if redeemable, whether redeemable for cash, property or rights, including securities of any other corporation, at the option of either the holder or the corporation or upon the happening of a specified event, the limitations and restrictions with respect to such redemption, the time or times when, the price or prices or rate or rates at which, the adjustments with which and the manner in which such shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed. (iv) The rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution or winding up of the corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates. (v) Whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof. (vi) Whether the shares of such series shall be convertible into or exchangeable for shares of any other class or of any other series of any class of capital stock of the -2- corporation, and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange. (vii) The voting powers, full and/or limited, if any, of the shares of such series, and whether and under what conditions the shares of such series (along or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the corporation in case of dividend arrearages or other specified events, or upon other matters. (viii) Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series. (ix) Any other preferences, privileges and powers and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Restated Certificate of Incorporation. (c) Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock pursuant to this Part I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. (d) Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the corporation, or which have been issued and reacquired in any manner, may, upon compliance with any applicable provisions of the General Corporation Law of the State of Delaware, be given the status of authorized and unissued shares of Preferred Stock and may be reissued by the Board of Directors as part of the series of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. PART II COMMON STOCK (a) Except as otherwise required by law or by any amendment to this Restated Certificate of Incorporation, each holder of Common Stock shall have one vote for each share of stock held by him on all matters voted upon by the stockholders. -3- (b) Subject to the preferential dividend rights, if any, applicable to shares of Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for Preferred Stock, the holders of Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. (c) In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the corporation, or may sell, transfer, or otherwise dispose of all or any part of such remaining assets to any corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the corporation for the purposes of this paragraph. (d) Such numbers of shares of Common Stock as may from time to time be required for such purpose shall be reserved for issuance (i) upon conversion of any shares of Preferred Stock or any obligation of the corporation convertible into shares of Common Stock which is at the time outstanding or issuable upon exercise of any options or warrants at the time outstanding and (ii) upon exercise of any options or warrants at the time outstanding to purchase shares of Common Stock. PART III GENERAL PROVISIONS (a) At any meeting of stockholders, the presence in person or by proxy of the holders of record of a majority of the outstanding shares of stock of the corporation entitled to be voted at such meeting shall constitute a quorum for all purposes, except as otherwise provided by this Restated Certificate of Incorporation or required by applicable law. (b) Subject to the protective conditions or restrictions of any outstanding series of Preferred Stock, any amendment to this Restated Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote. -4- (c) No holder of stock of any class of the corporation shall be entitled as a matter of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class of capital stock of the corporation, or of any bonds, certificates of indebtedness, debentures, or other securities, whether or not convertible into stock of the corporation, now or hereafter authorized, but any such stock or other securities may be issued and disposed of pursuant to resolution by the Board of Directors to such persons, firms, corporations or associations and upon such terms and for such consideration (not less than the par value or stated value thereof) as the Board of Directors in the exercise of its discretion may determine and may be permitted by law without action by the stockholders. The Board of Directors may provide for payment therefor to be received by the corporation in cash, personal property, real property (or leases thereof) or services. Any and all shares of stock so issued for which the consideration so fixed has been paid or delivered, shall be deemed fully paid and not liable to any further call or assessment. FIFTH. Reserved. SIXTH. Subject to any provision contained in any resolution of the Board of Directors adopted pursuant to Part I of Article Fourth of this Certificate of Incorporation requiring an increase or increases in the number of directors, the number of directors constituting the Board of Directors shall be that number as shall be fixed from time to time in the manner provided by Article Eleventh of this Restated Certificate of Incorporation and by By-laws in conformity therewith. Election of directors need not be by written ballot unless the By- laws of the corporation shall so provide. In addition to all of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-laws of the corporation. Wherever the term "Board of Directors" is used in this Restated Certificate of Incorporation, such term shall mean the Board of Directors of the corporation; provided, however, that, to the extent any committee of directors of the corporation is lawfully entitled to exercise the powers of the Board of Directors, such committee may exercise any right or authority of the Board of Directors under this Restated Certificate of Incorporation. SEVENTH. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board -5- of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. EIGHTH. (a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for -6- negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. Any person entitled to indemnification against expenses under this paragraph (b) shall, to the extent not prohibited by the laws of Delaware and any other applicable law, also be entitled to indemnification, and the corporation shall indemnify him, against judgments and amounts paid in settlement actually and reasonably incurred by him in connection with such action or suit, upon the same terms and conditions and subject to the same limitations as provided with respect to expenses. (c) To the extent that a director, officer, employee or agent of a corporation has been successful on merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Article or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum (as defined in the By-laws of the corporation) consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (iii) by the stockholders. Notwithstanding the failure or refusal of the directors, counsel and stockholders to make provision therefor, such indemnification shall be made if a court of competent jurisdiction makes a determination that the director, officer, employee or agent has a right to indemnification hereunder in any specific case upon the application of such director, officer, employee or agent. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. (f) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue -7- as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. (h) For the purposes of this Article, references to "the corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. (i) Neither the corporation nor its directors or officers nor any person acting on its behalf shall be liable to anyone for any determination as to the existence or absence of conduct which would provide a basis for making or refusing to make any payment under this Article or for taking or omitting to take any other action under this Article, in reliance upon the advice of counsel. (j) A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the shareholders of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. NINTH. The corporation shall have perpetual existence. -8- TENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of Delaware, and all rights conferred herein upon stockholders and directors are granted subject to this reservation. ELEVENTH. Board of Directors. (a) Number, Election and Terms of Directors: The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors. The number of the directors of the corporation shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors of the corporation, except that the minimum number of directors shall be fixed at no less than 15 and the maximum number of directors shall be fixed at no more than 30. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1986 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1987, successors of the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. (b) Stockholder Nomination of Director Candidates: Nominations for election to the Board of Directors of the corporation at a meeting of stockholders may be made by the Board of Directors, on behalf of the Board of Directors by any nominating committee appointed by the Board of Directors, or by any stockholder of the corporation entitled to vote for the election of directors at the meeting. Nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered to or mailed, postage prepaid, and received by the Secretary of the corporation at least 60 days but no more than 90 days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders. The notice shall set forth (i) the name and address of the stockholder who intends to make the nomination; (ii) the name, age, business address and, if known, residence address of each nominee; (iii) the principal occupation or employment of each nominee; (iv) the number of shares of stock of the corporation which are beneficially owned by each nominee and by the nominating stockholder; (v) any other information concerning the nominee that must be disclosed of nominees in proxy solicitation pursuant to Regulation 14A of the Securities Exchange Act of 1934 (or any subsequent provisions replacing such Regulation); and (vi) the executed consent of each nominee to serve as a director of the corporation, if elected. The chairman of the meeting of stockholders may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. -9- (c) Newly Created Directorships and Vacancies: Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by a sole remaining director. Any director of any class chosen to fill a vacancy in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the next annual meeting for the year in which his or her term expires and until such director's successor shall have been elected and qualified. (d) Removal: Any director may be removed from office only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. (e) Preferred Stock: Notwithstanding the foregoing paragraphs, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto. The then authorized number of directors of the corporation shall be increased by the number of additional directors to be elected, and such directors so elected shall not be divided into classes pursuant to this Article Eleventh unless expressly provided by such terms. (f) Amendment or Repeal: Notwithstanding anything contained in this Certificate of Incorporation or the By-laws of the corporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, repeal or adopt any provision inconsistent with the purpose and intent of this Article Eleventh. TWELFTH. Stockholder Action. Any action required or permitted to be taken by any stockholders of the corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Except as may be otherwise required by law, special meetings of stockholders of the corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. Notwithstanding anything contained in this Certificate of Incorporation or the By-laws of the corporation to the contrary, the affirmative vote of at least 80% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together -10- as a single class, shall be required to alter, amend or adopt any provision inconsistent with the purpose and intent of this Article Twelfth. THIRTEENTH. (a) In addition to any affirmative vote required by law or by or under this Restated Certificate of Incorporation or the By-laws and except as otherwise expressly herein provided in this Article Thirteenth, the approval or authorization of a Business Combination (which together with certain other terms used in this Article, are hereinafter defined) shall require the affirmative vote of a majority of the voting power of all the shares of Voting Stock held by stockholders other than an Interested Stockholder, with which or by or on whose behalf, directly or indirectly, a Business Combination is proposed, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage or separate class vote may be otherwise required. (b) The provisions of paragraph (a) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or by or under any other provision of this Restated Certificate of Incorporation, or the By- laws of the corporation, or otherwise, if all the conditions specified in either of the following paragraphs First or Second are met: First: The Business Combination shall have been approved by a majority (whether such approval is made prior to or subsequent to the acquisition of beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors; or Second: All of the following conditions shall have been met: (1) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest amount determined under subparagraphs (i) and (ii) below: (i) The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf on the Interested Stockholder for any shares of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock (a) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (b) in the transaction in which it became an Interested Stockholder, whichever is higher; and (ii) The Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher. -11- All per share prices shall be adjusted to reflect any intervening stock splits, stock dividends, and reverse stock splits. (2) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Voting Stock, other than Common Stock, shall be at least equal to the highest amount determined under clauses (i), (ii), and (iii) below. (i) The highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Voting Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Voting Stock (a) within the two- year period immediately prior to the Announcement Date or (b) in the transaction in which it became an Interested Stockholder, whichever is higher. (ii) The Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (iii) The highest preferential amount per share to which the holders of shares of such class or series of Voting Stock would be entitled, if any, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, regardless of whether the Business Combination to be consummated constitutes such an event. All per share prices shall be adjusted for intervening stock splits, stock dividends, and reverse stock splits. The provisions of this paragraph Second (2) shall be required to be met with respect to every class or series of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired beneficial ownership of any shares of a particular class or series of Voting Stock. (3) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full periodic dividends (whether or not cumulative) in accordance with the terms of any outstanding Preferred Stock; (ii) there shall have been (a) no reduction in the annual rate of dividend paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (b) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization, or any similar transaction which has the effect of reducing the number of outstanding shares of -12- Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors, and (iii) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage of beneficial ownership of any class or series of capital stock. (4) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges, or other financial assistance or any tax credits or other tax advantages provided by the corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (6) Such Interested Stockholder shall not have made any major change in the corporation's business or equity capital structure without the approval of a majority of the Continuing Directors. (c) For the purposes of this Article Thirteenth: (i) The term "Business Combination" shall mean: (a) any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder or (b) any other company (whether or not such other company is an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any Substantial Part of the assets, securities or commitments of the corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or -13- (d) any reclassification of securities (including any reverse stock split), or recapitalization of the corporation or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of Voting Stock, or any securities convertible into Voting Stock, or into equity securities of any Subsidiary, that is beneficially owned by an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (e) any agreement, contract, or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) through (d). (ii) The term "Voting Stock" shall mean all outstanding shares of capital stock of the corporation of whatever class or series which is entitled to vote under any circumstances in the election of directors of the corporation. (iii) A "person" shall mean any individual, firm, corporation, partnership, trust or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting, or disposing of Voting Stock. (iv) "Interested Stockholder" shall mean any person (other than the corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (a) is a person who is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then outstanding Voting Stock; or (b) is an Affiliate or Associate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of 10% or more of the voting power of the then outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (v) A person shall be a "beneficial owner" of any Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or -14- (b) which such person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph (c)(iv) of this Article, the number of shares of capital stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of paragraph (c)(v) of this Article but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (vi) An "Affiliate" of, or a person "affiliated" with, a specified person, is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. (vii) "Associate" used to indicate a relationship with any person, means (1) any corporation or organization (other than the corporation or a majority- owned subsidiary of the corporation) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person. (viii) "Subsidiary" means any company of which a majority of any class of equity security is owned, directly or indirectly, by the corporation. (ix) The term "Substantial Part" shall mean an amount equal to or greater than an amount equal to fifteen percent of the stockholders' equity of the corporation as reflected in the most recent fiscal year-end consolidated balance sheet of the corporation. (x) "Continuing Director" means any member of the Board of Directors of the corporation (the "Board") while such person is a member of the Board, who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director, while such successor is a member of the Board, who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended to succeed the Continuing Director by a majority of Continuing Directors then on the Board. -15- (xi) "Fair Market Value" means (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape for the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined in good faith by a majority of Continuing Directors then on the Board. (xii) In the event of any Business Combination in which the corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs (b) Second (1) and (2) of this Article shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (d) The Board shall have the power and duty to determine for the purposes of this Article Thirteenth, on the basis of information known to it after reasonable inquiry (i) whether a person is an Interested Stockholder; (ii) the number of shares of Voting Stock beneficially owned by any person; (iii) whether a person is an Affiliate or Associate of another; (iv) whether the requirements of paragraph (b) Second of this Article have been met with respect to any Business Combination; and (v) whether any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the corporation, any Subsidiary, or any Interested Stockholder, or any Affiliate or Associate of any Interested Stockholder constitutes a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. (e) The Board of Directors shall not approve, adopt or recommend any proposal to enter into a Business Combination, or any offer of any person, other than the corporation, to make a tender or exchange offer for any capital stock of the corporation, unless and until the Board of Directors shall first establish a procedure for evaluating, and shall have evaluated, the proposal or offer, and determined that it would be in compliance with all applicable laws and in the best interests of the corporation and its stockholders. In connection with its evaluation, the Board of Directors may seek and obtain the advice of independent investment counsel, may seek and rely upon an opinion of legal counsel and other independent advisers, and may test such compliance with laws in any state or federal court or before any state or federal administrative agency which may have appropriate jurisdiction. In connection with its evaluation as to the best -16- interests of the corporation and its stockholders, the Board of Directors shall consider all factors which it deems relevant, or the stockholders might deem relevant, including without limitation: (i) the adequacy and fairness of the consideration to be received by the corporation and/or its stockholders considering the future prospects for the corporation and its business, historical trading prices of the corporation's capital stock, the price that might be achieved in a negotiated sale of the corporation as a whole, and premiums over trading prices which have been proposed or offered with respect to the securities of other companies in the past in connection with similar offers; (ii) the business, financial condition and earnings prospects of the acquiring person or entity and the competence, experience and integrity of the acquiring person or entity and their or its management, and (iii) the potential social and economic impact of the offer and its consummation on the communities in which the corporation and its subsidiaries operate or are located and upon the corporation, its subsidiaries, and their employees, depositors, and loan and other customers. (f) The Board of Directors shall not approve, adopt or recommend any offer of any person, other than the corporation, to make a tender or exchange offer for any capital stock of the corporation in which the Fair Market Value per share of the consideration to be received by one or more stockholders is substantially more than the Fair Market Value per share of the consideration to be received by other stockholders holding shares of the same class and series, or any tender or exchange offer the consummation of which is reasonably likely, in the good faith determination of the Board of Directors, in one transaction or a series of transactions, to have that result. (g) Nothing contained in this Article Thirteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (h) The fact that any Business Combination complies with the provisions of paragraph (b) Second of this Article Thirteenth shall not be construed to impose any fiduciary duty, obligation, or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. (i) Notwithstanding any other provisions of this Restated Certificate of Incorporation or the By-laws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or the By-laws of the corporation), the affirmative vote of the holders of at least 80% of the voting power of all the shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or adopt any provisions inconsistent with or to repeal this Article Thirteenth; provided, however, that if such action has been proposed, directly or indirectly, on behalf of an Interested Stockholder, it must also be approved by the affirmative vote of a majority of the voting power of all the shares of Voting Stock held by stockholders other than such Interested Stockholder. -17- FOURTEENTH. This Restated Certificate of Incorporation shall be effective at 12:01 a.m. Eastern Standard Time on December 30, 1995. IN WITNESS WHEREOF, First Chicago NBD Corporation has caused its corporate seal to be hereunto affixed and this Restated Certificate of Incorporation to be signed by M. Eileen Kennedy, its Senior Vice President and Treasurer, and the same to be attested by Michael Lipsitz, its Assistant Secretary, this 22nd day of December, 1995. FIRST CHICAGO NBD CORPORATION /s/ M. Eileen Kennedy By: ______________________________ Senior Vice President and Treasurer (Corporate Seal) ATTEST: /s/ Michael Lipsitz By: _______________________ Assistant Secretary -18- Exhibit A CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS, SERIES B (Without Par Value) OF FIRST CHICAGO NBD CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of FIRST CHICAGO NBD CORPORATION, formerly known as NBD BANCORP, INC., a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on July 11, 1995, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of the Corporation, by the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 1,191,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. ------------ The designation of the series of Preferred Stock created by this resolution shall be "Preferred Stock with Cumulative and Adjustable Dividends, Series B" (hereinafter called this "Series") and the number of shares constituting this Series is 1,191,000. Shares of this Series shall have a stated value of $100 per share. The number of authorized shares of this A-1 Series may be reduced by further resolution duly adopted by the Board and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. -------------- (1) Dividend rates on the shares of this Series shall be for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods"), which Quarterly Dividend Periods shall commence on March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof 3.75% below the Applicable Rate (as defined in paragraph (2) of this Section (b)) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 6.00% or, greater than 12.00% per annum. Such dividends shall be cumulative from December 1, 1995, and shall be payable, when and as declared by the Board, on the last day of February, May, August and November of each year, commencing the last day of February, 1996. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. (2) Except as provided below in this paragraph, the "Applicable Rate" for any Quarterly Dividend Period shall be the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. In the event that the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Quarterly Dividend Period, then the Applicable Rate for such Dividend Period shall be the higher of whichever of such rates can be so determined. In the event that the Corporation determines in good faith that none of such rates can be determined for any Quarterly Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. (3) Except as provided below in this paragraph, the "Treasury Bill Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the A-2 last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury Bill Rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Quarterly Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (4) Except as provided below in this paragraph, the "Ten Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend A-3 Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (5) Except as provided below in this paragraph, the "Twenty Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Twenty Year Average Yield during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal A-4 Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Twenty Year Average Yield shall not be published by any Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eighteen nor more than twenty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Twenty Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eighteen nor more than twenty-two years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (6) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate shall each be rounded to the nearest five hundredths of a percentage point. (7) The dividend rate with respect to each Quarterly Dividend Period will be calculated as promptly as practicable by the Corporation according to the appropriate method described herein. The mathematical accuracy of each such calculation will be confirmed in writing by independent accountants of recognized standing. The Corporation will cause each dividend rate to be published in a newspaper of general circulation in New York City prior to the commencement of the new Quarterly Dividend Period to which it applies and will cause notice of such dividend rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series. (8) For purposes of this Section (b), the term (i) "Calendar Period" shall mean 14 calendar days; (ii) "Special Securities" shall mean securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount; A-5 (iii) "Ten Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and (iv) "Twenty Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). (9) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (10) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (9) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (11) Dividends payable on each share of this Series for each full Quarterly Dividend Period shall be computed by dividing the dividend rate for such Quarterly Dividend Period by four and applying such rate against the stated value per share of this Series. Dividends payable on this Series for any period less than a full Quarterly Dividend Period shall be computed on the basis of a 360 day year consisting of 30 day months. A-6 (c) Redemption. ----------- (1) The Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price of $100 per share, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not A-7 prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion or Exchange. ----------------------- The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. ------- The shares of this Series shall not have any voting powers either general or special, except that (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration, or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66- 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at any time a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at an annual or special meeting of stockholders, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the A-8 Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter- yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (f) Liquidation Rights. ------------------- (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $100 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. A-9 (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), the Corporation's 8.45% Cumulative Preferred Stock, Series E (Stated Value $625 per share) or the Corporation's 5 3/4% Cumulative Convertible Preferred Stock, Series B (Stated Value $5,000 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes." A-10 The foregoing Certificate of Voting Powers, Designation, Preferences and Relative, Participating, Optional and Other Special Rights and the Qualifications, Limitations or Restrictions relating to this Series shall be effective at 12:01 a.m. Eastern Standard Time on December 1, 1995 in accordance with the provisions of Sections 103 and 151(g) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, First Chicago NBD Corporation has caused this certificate to be signed by Verne G. Istock, its Chief Executive Officer, and the same to be attested by Daniel T. Lis, its Assistant Secretary, this 29th day of November, 1995. FIRST CHICAGO NBD CORPORATION By: \s\ Verne G. Istock --------------------------------- Title: Chief Executive Officer ATTEST: By: \s\ Daniel T. Lis --------------------------- Assistant Secretary A-11 Exhibit B CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE PREFERRED STOCK WITH CUMULATIVE AND ADJUSTABLE DIVIDENDS, SERIES C (Without Par Value) OF FIRST CHICAGO NBD CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of FIRST CHICAGO NBD CORPORATION, formerly known as NBD BANCORP, INC., a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on July 11, 1995, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of the Corporation, by the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 713,800 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. ------------ The designation of the series of Preferred Stock created by this resolution shall be "Preferred Stock with Cumulative and Adjustable Dividends, Series C" (hereinafter called this "Series") and the number of shares constituting this Series is 713,800. Shares of this Series shall have a stated value of $100 per share. The number of authorized shares of this B-1 Series may be reduced by further resolution duly adopted by the Board and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. -------------- (1) Dividend rates on the shares of this Series shall be for each quarterly dividend period (hereinafter referred to as a "Quarterly Dividend Period"; and any Quarterly Dividend Period being hereinafter individually referred to as a "Dividend Period" and collectively referred to as "Dividend Periods"), which Quarterly Dividend Periods shall commence on, March 1, June 1, September 1 and December 1 in each year and shall end on and include the day next preceding the first day of the next Quarterly Dividend Period, at a rate per annum of the stated value thereof 1.80% below the Applicable Rate (as defined in paragraph (2) of this Section (b)) in respect of such Quarterly Dividend Period. Anything to the contrary herein notwithstanding, the dividend rate for any Quarterly Dividend Period shall in no event be less than 6.50% or greater than 12.50% per annum. Such dividends shall be cumulative from December 1, 1995 and shall be payable, when and as declared by the Board, on the last day of February, May, August and November of each year, commencing the last day of February, 1996. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on such record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. (2) Except as provided below in this paragraph, the "Applicable Rate" for any Quarterly Dividend Period shall be the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such Dividend Period. In the event that the Corporation determines in good faith that for any reason one or more of such rates cannot be determined for any Quarterly Dividend Period, then the Applicable Rate for such Dividend Period shall be the higher of whichever of such rates can be so determined. In the event that the Corporation determines in good faith that none of such rates can be determined for any Quarterly Dividend Period, then the Applicable Rate in effect for the preceding Dividend Period shall be continued for such Dividend Period. (3) Except as provided below in this paragraph, the "Treasury Bill Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the B-2 last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum market discount rate during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period as provided below) for all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason no such U.S. Treasury Bill Rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable noninterest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Treasury Bill Rate for any Quarterly Dividend Period as provided above in this paragraph, the Treasury Bill Rate for such Dividend Period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (4) Except as provided below in this paragraph, the "Ten Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend B-3 Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Ten Year Average Yield shall not be published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Ten Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than twelve years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (5) Except as provided below in this paragraph, the "Twenty Year Constant Maturity Rate" for each Quarterly Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly by the Federal Reserve Board during the Calendar Period immediately prior to the ten calendar days immediately preceding the last day of February, May, August or November, as the case may be, prior to the Quarterly Dividend Period for which the dividend rate on this Series is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Twenty Year Average Yield during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such Yield shall be published during the relevant Calendar Period as provided below), as published weekly during such Calendar Period by any Federal B-4 Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that a per annum Twenty Year Average Yield shall not be published by any Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly average yield to maturity, if only one such yield shall be published during the relevant Calendar Period as provided below) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eighteen nor more than twenty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the Corporation. In the event that the Corporation determines in good faith that for any reason the Corporation cannot determine the Twenty Year Constant Maturity Rate for any Quarterly Dividend Period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such Dividend Period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eighteen nor more than twenty-two years from the date of each such quotation, as quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the Corporation by at least three recognized U.S. Government securities dealers selected by the Corporation. (6) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate shall each be rounded to the nearest five hundredths of a percentage point. (7) The dividend rate with respect to each Quarterly Dividend Period will be calculated as promptly as practicable by the Corporation according to the appropriate method described herein. The mathematical accuracy of each such calculation will be confirmed in writing by independent accountants of recognized standing. The Corporation will cause each dividend rate to be published in a newspaper of general circulation in New York City prior to the commencement of the new Quarterly Dividend Period to which it applies and will cause notice of such dividend rate to be enclosed with the dividend payment checks next mailed to the holders of shares of this Series. (8) For purposes of this Section (b), the term (i) "Calendar Period" shall mean 14 calendar days; (ii) "Special Securities" shall mean securities which can, at the option of the holder, be surrendered at face value in payment of any Federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount; B-5 (iii) "Ten Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years); and (iv) "Twenty Year Average Yield" shall mean the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). (9) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with or junior to this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (10) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (9) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (11) Dividends payable on each share of this Series for each full Quarterly Dividend Period shall be computed by dividing the dividend rate for such Quarterly Dividend Period by four and applying such rate against the stated value per share of this Series. Dividends payable on this Series for any period less than a full Quarterly Dividend Period shall be computed on the basis of a 360 day year consisting of 30 day months. B-6 (c) Redemption. ----------- (1) The Corporation, at its option, may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price of $100 per share, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method as may be determined by the Board in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not B-7 prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion or Exchange. ----------------------- The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. ------- The shares of this Series shall not have any voting powers either general or special, except that (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at any time a default in preference dividends on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at an annual or special meeting of stockholders, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the B-8 Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter- yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (f) Liquidation Rights. ------------------- (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $100 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. B-9 (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value), the Corporation's 8.45% Cumulative Preferred Stock, Series E (Stated Value $625 per share), or the Corporation's 5 3/4% Cumulative Convertible Preferred Stock, Series B (Stated Value $5,000 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes." B-10 The foregoing Certificate of Voting Powers, Designation, Preferences and Relative, Participating, Optional and Other Special Rights and the Qualifications, Limitations or Restrictions relating to this Series shall be effective at 12:01 a.m. Eastern Standard Time on December 1, 1995 in accordance with the provisions of Sections 103 and 151(g) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, First Chicago NBD Corporation has caused this certificate to be signed by Verne G. Istock, its Chief Executive Officer, and the same to be attested by Daniel T. Lis, its Assistant Secretary, this 29th day of November, 1995. FIRST CHICAGO NBD CORPORATION By: \s\ Verne G. Istock --------------------------------- Title: Chief Executive Officer ATTEST: By: \s\ Daniel T. Lis --------------------------- Assistant Secretary B-11 Exhibit C CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE 8.45% CUMULATIVE PREFERRED STOCK, SERIES E (Stated Value $625 per share) OF FIRST CHICAGO NBD CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of FIRST CHICAGO NBD CORPORATION, formerly known as NBD BANCORP, INC., a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on July 11, 1995, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of the Corporation, by the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 160,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. ------------ The designation of the series of Preferred Stock created by this resolution shall be "8.45% Cumulative Preferred Stock, Series E" (hereinafter called this "Series") and the number of shares constituting this Series is 160,000. Shares of this Series shall have a stated value of $625 per share. The number of authorized shares of this Series may be reduced by C-1 further resolution duly adopted by the Board of Directors and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. -------------- (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $52.8125 per share. Such dividends shall be cumulative from October 1, 1995, and shall be payable, when and as declared by the Board of Directors, on the first day of January, April, July and October of each year, commencing the first day of January, 1996. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 45 days preceding such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any C-2 moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this Series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period shall be computed on the basis of a 360 day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). (c) Redemption. ----------- (1) The shares of this Series shall not be redeemable prior to November 16, 1997. On and after November 16, 1997, the Corporation, at its option, and with the prior consent of the Board of Governors of the Federal Reserve System may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price per share of $625, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (2) In the event that fewer than all the outstanding shares of this Series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said C-3 notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. ----------- The holders of shares of this Series shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (e) Voting. ------- The shares of this Series shall not have any voting powers either general or special, except that: (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by C-4 proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at any time a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at an annual or special meeting of stockholders voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred Stock shall be equivalent to six full quarter- yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (4) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. C-5 (f) Liquidation Rights. ------------------- (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $625 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) Priority. --------- For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts C-6 distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holder of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value) or the Corporation's 5 3/4% Cumulative Convertible Preferred Stock, Series B (Stated Value $5,000 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or if the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (h) Sinking or Retirement Fund. --------------------------- The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock." C-7 The foregoing Certificate of Voting Powers, Designation, Preferences and Relative, Participating, Optional and Other Special Rights and the Qualifications, Limitations or Restrictions relating to this Series shall be effective at 12:01 a.m. Eastern Standard Time on December 1, 1995 in accordance with the provisions of Sections 103 and 151(g) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, First Chicago NBD Corporation has caused this certificate to be signed by Verne G. Istock, its Chief Executive Officer, and the same to be attested by Daniel T. Lis, its Assistant Secretary, this 29th day of November, 1995. FIRST CHICAGO NBD CORPORATION By: \s\ Verne G. Istock --------------------------------- Title: Chief Executive Officer ATTEST: By: \s\ Daniel T. Lis --------------------------- Assistant Secretary C-8 Exhibit D CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THEREOF, OF THE 5 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B (Stated Value $5,000 per share) OF FIRST CHICAGO NBD CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of FIRST CHICAGO NBD CORPORATION, formerly known as NBD BANCORP, INC., a Delaware corporation (hereinafter called the "Corporation"), at a meeting duly convened and held on July 11, 1995, at which a quorum was present and acting throughout: "RESOLVED, that pursuant to authority conferred upon the Board of Directors (the "Board") of the Corporation by the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") of the Corporation, the Board hereby provides for and authorizes the issuance of a series of Preferred Stock of the Corporation to consist of 40,000 shares, and hereby fixes the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: (a) Designation. ------------ The designation of the series of Preferred Stock created by this resolution shall be "5 3/4% Cumulative Convertible Preferred Stock, Series B" (hereinafter called this "Series") and the number of shares constituting this Series is 40,000. Shares of this Series shall have a D-1 stated value of $5,000 per share. The number of authorized shares of this Series may be reduced by further resolution duly adopted by the Board of Directors and by the filing of a certificate pursuant to the provisions of the General Corporation Law of the State of Delaware stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased. (b) Dividend Rate. -------------- (1) Shares of this Series shall be entitled to receive dividends at a fixed annual rate of $287.50 per share. Such dividends shall be cumulative from October 1, 1995, and shall be payable, when and as declared by the Board of Directors, on the first day of January, April, July and October of each year, commencing the first day of January, 1996. Each such dividend shall be paid to the holders of record of shares of this Series as they appear on the stock register of the Corporation on the applicable record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 45 days prior to such dividend payment date thereof. (2) No full dividends shall be declared or paid or set apart for payment on Preferred Stock of any series ranking, as to dividends, on a parity with this Series for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on this Series for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series, all dividends declared upon shares of this Series and any other Preferred Stock ranking on a parity as to dividends with this Series shall be declared pro rata so that the amount of dividends declared per share on this Series and such other Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and such other Preferred Stock bear to each other. Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stocks, in excess of full cumulative dividends, as herein provided, on this Series. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. (3) So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation and other than as provided in paragraph (2) of this Section (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to or on a parity with this Series as to dividends or upon liquidation, nor shall any Common Stock or any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon D-2 liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this series as to dividends and upon liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of this series shall have been paid for all past dividend payment periods. (4) Dividends payable on this Series for any period less than a full quarterly dividend period shall be computed on the basis of a 360 day year consisting of twelve 30-day months. The amount of dividends payable on shares of this Series for each full quarterly dividend period shall be computed by dividing by four the annual rate per share set forth in Section (b)(1). (c) Redemption. ----------- (1) The shares of this series shall not be redeemable prior to April 1, 1997. On and after April 1, 1997, the Corporation, at its option, and with the prior consent of the Board of Governors of the Federal Reserve System may redeem shares of this Series, as a whole or in part, at any time or from time to time, at a redemption price as set forth below, plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption:
If Redeemed During the Twelve-Month Period Redemption Price Beginning on April 1, per share ---------------------- ---------------- 1997 $5,172.50 1998 5,143.75 1999 5,115.00 2000 5,086.25 2001 5,057.50 2002 5,028.75 2003 and thereafter 5,000.00
(2) In the event that fewer than all the outstanding shares of this series are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (3) In the event the Corporation shall redeem shares of this Series, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares D-3 of this Series to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the then current Conversion Price (as defined herein), together with a statement that all conversion rights with respect to the shares of the Series called for redemption will terminate at the close of business on the fifth Business Day preceding the redemption date; (v) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (4) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of this Series so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (5) Any shares of this Series which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (6) Notwithstanding the foregoing provisions of this Section (c), if any dividends on this Series are in arrears, no shares of this Series shall be redeemed unless all outstanding shares of this Series are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of this Series; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of this Series (i) upon the conversion of shares of the Series into shares of Common Stock pursuant to Section (d) hereof or (ii) pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of this Series. (d) Conversion. ----------- (1) (A) Subject to the provisions for adjustment hereinafter set forth, each share of the Series shall be convertible at the option of the holder thereof, in whole or part, in the manner hereinafter set forth, into fully paid and nonassessable shares of Common Stock (as hereinafter defined) at the conversion price, determined as hereinafter provided, in effect on the date of conversion, each share of the Series being credited at its stated value; provided that if any shares of the Series are called for redemption, the conversion rights pertaining thereto will terminate at the close business on the fifth Business Day preceding the D-4 redemption date, unless the Corporation shall default in providing money for the payment of the redemption price as provided in Section (c) hereof. The price at which shares of Common Stock shall be delivered upon conversion of the shares of the Series (hereinafter referred to as the "Conversion Price") shall be initially $29.6271 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraph (2) of this Section (d). (B) Any holder of shares of the Series desiring to convert such stock into shares of Common Stock shall surrender the certificate or certificates for the shares of the Series being converted, duly endorsed or assigned to the Corporation or in blank, at the principal office of the Corporation for that purpose, accompanied by a written notice of conversion specifying the number of shares of the Series to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued; in case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issue of shares of Common Stock in such name or names. In case less than all of the shares of the Series represented by a certificate are to be converted by a holder, upon such conversion the Corporation shall issue and deliver or cause to be issued and delivered to such holder a certificate or certificates for the shares of the Series not so converted. The holders of shares of the Series at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares of the Series (except shares of the Series redeemed on a redemption date between such record date and the dividend payment date) on the corresponding dividend payment date notwithstanding the subsequent conversion thereof or the Corporation's default in payment of the dividend due on such dividend payment date. However, shares of the Series surrendered for conversion during the period from the close of business on any dividend payment record date for the Series to the opening of business on the corresponding dividend payment date (except shares of the Series called for redemption on a redemption date after the dividend payment record date and on or before the fifth business day following the dividend payment date) must be accompanied by payment of an amount equal to the dividend payable on such shares of the Series on such dividend payment date. A holder of shares of the Series on a dividend payment record date who (or whose transferee) converts shares of the Series on a dividend payment date will receive the dividend payable on such shares of the Series by the Corporation on such date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of the Series for conversion. Except as provided above, no payment or adjustment will be made on account of accrued or unpaid dividends upon the conversion of shares of the Series. (C) As promptly as practicable after the surrender of certificates for shares of the Series as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such share in accordance with the provisions of this Section (d), and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be promptly settled as provided in paragraph (11) of this Section (d). D-5 (D) Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of the Series shall have been surrendered and such notice (and if applicable, payment of an amount equal to the dividend payable on such shares) received by the Corporation as aforesaid; the shares of the Series so surrendered for conversion shall no longer be deemed to be outstanding and all rights with respect to such shares of the Series shall cease, except the right of the holders thereof to receive full shares of Common Stock in exchange therefor and payment for any fractional shares; and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. All shares of Common Stock delivered upon conversion of shares of the Series will upon delivery be duly and validly issued and fully paid and nonassessable. (2) The Conversion Price shall be adjusted from time to time as follows: (A) In case the Corporation shall pay or make a dividend or other distribution on any class of capital stock of the Corporation in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, and the denominator shall be the sum of (i) such number of shares and (ii) the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the date following the date fixed for such determination. (B) In case the Corporation shall issue rights or warrants to all holders of its shares of Common Stock entitling them to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (3)) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the date following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus (ii) the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price, and the denominator shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on the date fixed for D-6 such determination plus (y) the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the date following the date fixed for such determination. (C) In case the Corporation shall, by dividend or otherwise, distribute to all holders of shares of Common Stock evidences of indebtedness or assets (including securities, but excluding any rights or warrants referred to in paragraph (2)(B), any dividend or distribution paid in cash out of the surplus or retained earnings of the Corporation and any dividend or distribution referred to in paragraph (2)(A)), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (3)) of the Common Stock on the date fixed for such determination, less the then fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of Common Stock, and the denominator shall be such current market price per share of Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event that the Corporation shall distribute or shall have distributed any rights or warrants to acquire capital stock ("Rights") pursuant to this subparagraph (C), the distribution of separate certificates representing the Rights subsequent to their initial distribution (whether or not the initial distribution of the Rights shall have occurred prior to the date of the issuance of the Series) shall be deemed to be the distribution of the Rights for purposes of this subparagraph (C); provided that the Corporation may, in lieu of making any adjustment pursuant to this subparagraph (C) upon a distribution of separate certificates representing the Rights, make proper provision so that each holder of the Series who converts the shares of this Series (or any portion hereof) (i) on or before the record date for such distribution of separate certificates shall be entitled to receive upon conversion shares of Common Stock issued with Rights and (ii) after such record date and prior to the expiration, redemption or termination of the Rights shall be entitled to receive upon conversion, in addition to the shares of Common Stock issuable upon conversion, the same number of Rights as would a holder of the number of shares of Common Stock that the shares of such Series so converted would have entitled the holder thereof to purchase in accordance with the terms and provisions applicable to the Rights if the shares of such Series were converted immediately prior to the record date for such distribution. Common Stock owned by or held for the account of the Corporation or any majority owned subsidiary shall not be deemed outstanding for the purpose of any adjustment required under this subparagraph (C). (D) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares, the Conversion Price in effect at the opening of business on the date following the date upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall D-7 each be combined into a smaller number of shares, the Conversion Price in effect at the opening of business on the date following the date upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the date upon which such subdivision or combination becomes effective. (E) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which paragraph (6) applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (2)(C)), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective," or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (2)(D) of this Section (d)). (3) For the purpose of any computation under paragraphs (2)(B) and 2(C), the current market price per share of Common Stock on any day shall be deemed to be the average of the daily Closing Prices (as hereinafter defined) per share of Common Stock for the 30 consecutive Trading Days (as hereinafter defined) ending on the fifth Trading Day before the day in question. (4) Notwithstanding the provisions of paragraph (2) above, no adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (4)) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (4) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Notwithstanding any other provisions of this Section (d), the Corporation shall not be required to make any adjustment of the Conversion Price for the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under such plan. All calculations under this Section (d) shall be made to the nearest 1/100 of a cent (with $.00005 being rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share being rounded upward), as the case may be. (5) The Corporation may make such reductions in the Conversion Price, in addition to those required by this Section (d), as it considers to be advisable in order to avoid or diminish any income tax to any holder of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe D-8 for stock or from any event treated as such for income tax purposes or for any other reasons. The Corporation shall have the power to resolve any ambiguity or correct any error in this Section (d) and its actions in so doing shall be final and conclusive. (6) In case the Corporation shall effect any capital reorganization of the Common Stock (other than a subdivision, combination, capital reorganization or reclassification provided for in paragraph (2)) or shall consolidate, merge or engage in a statutory share exchange with or into any other corporation (other than a consolidation, merger or share exchange in which the Corporation is the surviving corporation and each share of Common Stock outstanding immediately prior to such consolidation or merger is to remain outstanding immediately after such consolidation or merger) or shall sell or transfer all or substantially all its assets to any other corporation, lawful provision shall be made as a part of the terms of such transaction whereby the holders of shares of the Series shall receive upon conversion thereof, in lieu of each share of Common Stock which would have been issuable upon conversion of such stock if converted immediately prior to the consummation of such transaction, the same kind and amount of stock (or other securities, cash or property, if any) as may be issuable or distributable in connection with such transaction with respect to each share of Common Stock outstanding at the effective time of such transaction subject to subsequent adjustments for subsequent stock dividends and distributions, subdivisions or combinations of shares, capital reorganizations, reclassification, consolidations, mergers or share exchanges, as nearly equivalent as possible to the adjustments provided for in this Section (d). (7) Whenever the Conversion Price is adjusted as herein provided: (A) the Corporation shall compute the adjusted Conversion Price and shall cause to be prepared a certificate signed by the chief financial or accounting officer of the Corporation setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based and the computation thereof and such certificate shall forthwith be filed with each transfer agent for the Series; and (B) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall, as soon as practicable, be mailed to the holders of record of outstanding shares of the Series. (8) In case: (A) the Corporation shall declare a dividend or other distribution on the Common Stock other than in cash out of its surplus or retained earnings; (B) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants entitling them to subscribe for or purchase any shares of capital stock of any class or of any other rights; D-9 (C) of any reclassification of the Common Stock (other than a subdivision or combination of outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or of the sale or transfer of all or substantially all the assets of the Corporation; or (D) of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; then the Corporation shall cause to be mailed to each transfer agent for the Series and to the holders of record of the outstanding shares of the Series, at least 20 days (or 10 days in any case specified in paragraph (A) or (B) above) prior to the applicable record or effective date hereinafter specified, a notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to such dividend, distribution, rights or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding up. Such notice shall also state whether such transaction will result in any adjustment in the Conversion Price applicable to the Series and, if so, shall state what the adjusted Conversion Price will be and when it will become effective. Neither the failure to give the notice required by this paragraph (8), nor any defect therein, to any particular holder shall affect the sufficiency of the notice or the legality or validity of the proceedings described in paragraphs (8)(A) through (8)(D). (9) Any shares of this Series which shall at any time have been converted shall, after such conversion, have the status as authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock for the purpose of issuance upon conversion of shares of the Series, the full number of shares of Common Stock then issuable upon the conversion of all shares of the Series then outstanding and shall take all action necessary so that shares of Common Stock so issued will be validly issued, fully paid and nonassessable; provided, however, that nothing contained herein shall preclude the Corporation from satisfying its obligations in respect of the conversion of the shares by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation. (10) The Corporation will pay any and all stamp or similar taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of the Series. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of the Series so converted were D-10 registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (11) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of shares of the Series. If any such conversion would otherwise require the issuance of such a fractional share (determined to the extent of four decimal places after taking into account all shares of the Series being converted into Common Stock by the holder), an amount equal to such fraction multiplied by the Closing Price per share of Common Stock for the day of conversion shall be paid to the holder in cash by the Corporation. Any share of the Series may be converted, at the request of its holder, in part into Common Stock. If a part of a share of the Series is converted, then the Corporation will convert such shares into the requested shares of Common Stock (subject to this paragraph (11)) and issue a fractional share of the Series evidencing the remaining interest of such holder. (12) Notwithstanding anything elsewhere contained herein, any funds which at any time shall have been deposited by the Corporation or on its behalf with any paying agent for the purpose of paying dividends on, or the redemption price of, any shares of the Series and which shall not be required for such purposes because of the conversion of such shares shall after such conversion be repaid to the Corporation by the paying agent. (13) In any case in which paragraph (2) of this Section (d) provides that an adjustment shall become effective on the day next following a record date for an event, the Corporation may defer until the occurrence of such event (a) issuance to the holder of any share of this Series converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (11) of this Section (d). (14) If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section (d), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (15) If the Corporation shall take any action affecting the Common Stock, other than action described in this Section (d), that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of the Series, the Conversion Price for the Series may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. D-11 (16) The certificate of any independent firm of public accountants of recognized standing selected by the Board shall be presumptive evidence of the correctness of any computation made under this Section (d). (17) For purposes of this resolution, the following terms shall have the following meanings: (i) "Closing Price" shall mean the last sale price as shown on the New York Stock Exchange Composite Transactions Tape, or in case no such sale takes place on such day, the average of the closing bid and asked prices on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for such purposes (other than the Corporation or a subsidiary thereof). (ii) "Common Stock" shall mean the Corporation's Common Stock, $1.00 par value per share, as the same exists at the date of filing of the Certificate of Designation relating to this Series or any other class of stock resulting from successive changes or reclassification of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (iii) "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a day which is a Business Day. (iv) "Business Day" shall mean a day which is not a Saturday, Sunday or other day on which commercial banking institutions in the City of Chicago, Illinois or The City of New York, New York are authorized or obligated by law or executive order to close. (e) Voting. ------- The shares of this Series shall not have any voting powers either general or special, except that: (1) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series at the time outstanding, given in person or by proxy, either in writing or by a vote at D-12 a meeting called for the purpose at which the holders of shares of this Series shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any Certificate of Designation, Preferences and Rights or any similar document relating to any series of Preferred Stock) which would adversely affect the preferences, rights, powers or privileges of this Series; (2) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66 2/3% of all of the shares of this Series and all other series of Preferred Stock ranking on a parity with shares of this Series, either as to dividends or upon liquidation, at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of this Series and such other series of Preferred Stock shall vote together as a single class without regard to series, shall be necessary for authorizing, effecting or validating the creation, authorization or issue of any shares of any class of stock of the Corporation ranking prior to the shares of this Series as to dividends or upon liquidation, or the reclassification of any authorized stock of the Corporation into any such prior shares, or the creation, authorization or issue of any obligation or security convertible into or evidencing the right to purchase any such prior shares; (3) If at any time a default in preference dividends (as defined below) on the Preferred Stock shall exist, the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Preferred Stock of all series shall have the right at an annual or special meeting of stockholders, voting together as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Preferred Stock. Each director elected by the holders of shares of Preferred Stock (herein called a "Preferred Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or of the holders of shares of Preferred Stock, called for that purpose. So long as a default in any preference dividends on the Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the Preferred Director and filed with the Corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of holders of the outstanding shares of Preferred Stock, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of D-13 directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued dividends upon any series of the Preferred stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Preferred Stock of each and every series then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (4) A holder of shares of this Series shall be entitled to one vote per share of the Series held by him when such holder is permitted to vote pursuant to the foregoing. (f) Liquidation Rights. ------------------- (1) Upon the dissolution, liquidation or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made on the Common Stock or on any other class of stock ranking junior to the Preferred Stock upon liquidation, the amount of $5,000 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. (2) Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section (f). (3) After the payment to the holders of the shares of this Series of the full preferential amounts provided for in this Section (f), the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. (4) In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. (5) Upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to paragraph (1) of this Section (f) before any payment shall be made to D-14 the holders of any class of capital stock of the Corporation ranking junior upon liquidation to this Series. (g) Priority. For purposes of this resolution, any stock of any class or classes of the Corporation shall be deemed to rank: (1) prior to the shares of this Series, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holder of shares of this Series; (2) on a parity with shares of this Series, either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share or sinking fund provisions, if any, be different from those of this Series, if such stock is the Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series B (Without Par Value), Preferred Stock with Cumulative and Adjustable Dividends, Series C (Without Par Value), or the Corporation's 8.45% Cumulative Preferred Stock, Series E (Stated Value $625 per share), or if the holders of such stock shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of shares of this Series; and (3) junior to shares of this Series, either as to dividends or upon liquidation, if such class shall be Common Stock or the holders of shares of this Series shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or classes. (h) Sinking or Retirement Fund. --------------------------- The shares of this Series shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such stock." D-15 The foregoing Certificate of Voting Powers, Designation, Preferences and Relative, Participating, Optional and Other Special Rights and the Qualifications, Limitations or Restrictions relating to this Series shall be effective at 12:01 a.m. Eastern Standard Time on December 1, 1995 in accordance with the provisions of Sections 103 and 151(g) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, First Chicago NBD Corporation has caused this certificate to be signed by Verne G. Istock, its Chief Executive Officer, and the same to be attested by Daniel T. Lis, its Assistant Secretary, this 29th day of November, 1995. FIRST CHICAGO NBD CORPORATION By: \s\ Verne G. Istock --------------------------------- Title: Chief Executive Officer ATTEST: By: \s\ Daniel T. Lis --------------------------- Assistant Secretary D-16 EX-3.(B) 3 BY-LAWS EXHIBIT 3(B). BY-LAWS As Adopted December 29, 1972 (As last amended effective March 8, 1996) First Chicago NBD Corporation (A Delaware Corporation) - -------------------------------------------------------------------------------- ARTICLE I Offices Section 1. Registered Office. The registered office of the Corporation is located at 1209 Orange Street, Wilmington, Delaware 19801. The Corporation may, by resolution of the Board of Directors, change the location to any other place in Delaware. Section 2. Other offices. The Corporation may have such other offices, within or without the State of Delaware, as the Board of Directors may from time to time establish. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of any other business as may properly come before the meeting shall be held on the second Friday in May of each year or at such other date as from time to time may be designated by the Board of Directors. Section 2. Special Meetings. A special meeting of the stockholders may be called at any time only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. Section 3. Place of Meetings. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting of stockholders. Section 4. Notice of Meetings. Written notice stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or under the direction of the Secretary, to each stockholder of record entitled to vote at such meeting. Except as otherwise required by statute, the written notice shall be given not less than ten nor more than sixty days before the date of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Attendance of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Adjourned Meetings. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 6. Voting Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders of record entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of record who is present. Section 7. Quorum. Except as otherwise required by statute, the presence at any meeting, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, the stockholders of record entitled to vote, present in person or by proxy, may adjourn the meeting from time to time until a quorum is present. Section 8. Proxies. Each stockholder of record entitled to vote at a meeting of stockholders may authorize another person or persons (but no more than three) to act for him by proxy, but no such proxy shall be voted or acted upon other than at the meeting specified in the proxy or any adjournment of such meeting. Section 9. Voting Rights. Except as otherwise provided by statute or by the Certificate of Incorporation, and subject to the provisions of Article VII of these By-Laws, each stockholder of record shall at every meeting of the stockholders be entitled to one vote for each share of the capital stock having voting power held by such stockholder. Section 10. Required Vote. Except as otherwise required by statute or by the Certificate of Incorporation, the holders of record of a majority of the capital stock having voting power, present in person or by proxy, shall decide any question brought before a meeting of the stockholders at which a quorum is present. Section 11. Elections of Directors. Elections of directors need not be by written ballot. ARTICLE III BOARD OF DIRECTORS Section 1. General Powers. The business of the Corporation shall be managed by the Board of Directors, except as otherwise provided by statute or by the Certificate of Incorporation. Section 2. Number. The number of the Directors of the Corporation shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors of the Corporation, except that the minimum number of directors shall be fixed at no less than 15 and the maximum number of directors shall be fixed at no more than 30. The directors shall be divided into three classes, designated Class I, Class II and Class III. -2- Each class shall consist, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1986 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1987, successors of the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. Section 3. Election and Term of Office. Except as otherwise provided in these By-laws, directors shall be elected at the annual meeting of stockholders. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by a sole remaining director. Any director of any class chosen to fill a vacancy in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the next annual meeting for the year in which his or her term expires and until such director's successor shall have been elected and qualified. Section 4. First Meetings. The first meeting of each newly elected Board of Directors shall be held without notice immediately after the annual meeting of the stockholders for the purpose of the organization of the Board, the election of officers, and the transaction of such other business as may properly come before the meeting. Section 5. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places, within or without the State of Delaware, as shall from time to time be determined by the Board. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, any Director who is a Vice Chairman of the Board or the Secretary, and shall be called by the Secretary on the written request of three directors. Such meetings shall be held at such times and at such places, within or without the State of Delaware, as shall be determined by the officer calling or by the directors requesting the meeting. Notice of the time and place thereof shall be mailed to each director, addressed to him at his address as it appears on the records of the Corporation, at least two days before the day on which the meeting is to be held, or sent to him at such place by telegraph, radio or cable, or telephoned or delivered to him personally, not later than the day before the day on which the meeting is to be held. Such notice need not state the purposes of the meeting. Any or all directors may waive notice of any meeting, either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 7. Quorum, Required Vote, and Adjournment. The presence, at any meeting, of a majority of the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business. Except as otherwise required by statute or by the Certificate of Incorporation, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present at the time and place of any meeting may adjourn such meeting from time to time until a quorum be present. Section 8. Consent of Directors in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all the members of the Board or committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 9. Participation - Meeting by Telephone. A member of the Board or any committee thereof may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. -3- Section 10. Compensation. The Board of Directors may authorize the payment to directors of a fixed fee and expenses for attendance at meetings of the board or any committee thereof, and annual fees for service as directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV EXECUTIVE COMMITTEE Section 1. Number and Qualifications. There shall be a committee composed of not less than four (4) members to be known as the Executive Committee which shall consist of all the officer-directors of the Corporation and two (2) other directors appointed as shall be provided by the Board of Directors. Provision shall be made by the Board of Directors for the appointment of alternates from among the directors, to act for members in the event of their absence or disability. Section 2. Presiding Officer. The Chairman of the Board shall act as presiding officer of any meeting of the Executive Committee. In the event of the absence or disability of the Chairman of the Board, the President shall act as presiding officer. In the event of the absence or disability of the Chairman of the Board and the President, another officer-director, if present, shall act as the presiding officer. If no officer-director is present, the other members present at the meeting shall elect one of their number as presiding officer. Section 3. Quorum. Any two (2) persons each of whom is a member or alternate member of the Executive Committee, of whom not less than one (1) shall be non- officer directors, shall constitute a quorum for the transaction of business at any meeting of the Executive Committee. Section 4. Duties. The Executive Committee shall function from day to day or such other short intervals as shall be found requisite and expedient in carrying on of the business and affairs of the Corporation, and between meetings of the Board of Directors, said Committee shall have and may exercise, so far as may be permitted by law, all power and authority of the Board of Directors (including the right to authorize the seal of the Corporation to be affixed to all instruments on which the same may be required or appropriate). A record of the meetings of the Committee shall be kept, which shall be accessible to inspection by the Directors at all times, and the Committee shall, at each regular meeting of the Board of Directors and at such other times as the Board of Directors may request, submit in writing a full report of its actions. The Board of Directors shall approve or disapprove the report of the Executive Committee, such action to be recorded in the minutes of the meeting; provided, however, that no rights of third parties shall be affected by any action of the Board of Directors, if such rights have attached by virtue of action of the Executive Committee. ARTICLE V OTHER COMMITTEES The Board of Directors may, by resolution, designate one or more other regular and special committees, consisting of directors, officers or other persons which shall have and may exercise such powers and functions as the Board may prescribe in the management of the business and affairs of the Corporation. Such committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. The Board of Directors may from time to time suspend, alter, continue or terminate any such committee or the powers and functions thereof. -4- ARTICLE VI OFFICERS Section 1. Number, Election, Term of Office and Qualification. The number, titles and duties of the officers shall be determined by the Board of Directors from time to time, subject to the provisions of applicable law, the Certificate of Incorporation, and these By-Laws. Each officer shall be elected by the Board of Directors and shall hold office until such officer's successor is elected and qualified or until such officer's death, resignation or removal. The election of officers shall be held annually at the first meeting of the Board of Directors held after each annual meeting of stockholders, subject to the power of the Board of Directors to designate any office at any time and elect any person thereto. The officers shall include a Chairman of the Board, a President, and may include one or more Vice Chairman of the Board, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors may determine. The same person may hold any two or more offices, and in any such case, these By-Laws shall be construed and understood accordingly; provided that the same person may not hold the offices of Chairman of the Board and Secretary or President and Secretary. No officer other than the Chairman of the Board, President or Vice Chairman of the Board need be a director of the Corporation. Section 2. Removal. Any officer or agent may be removed at any time, with or without cause, by the Board of Directors. Section 3. Vacancies. Any vacancy occurring in any office of the Corporation may be filled for the unexpired term in the manner prescribed by these By-Laws for the regular election to such office. Section 4. Chief Executive Officer. The Board of Directors shall designate one of the officers to be the Chief Executive Officer. Subject to the direction and under the supervision of the Board of Directors, the Chief Executive Officer shall have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees. Section 5. The Secretary. The Secretary shall keep the minutes of the proceedings of the stockholders and of the Board of Directors in one or more books to be kept for that purpose. He shall have custody of the seal of the Corporation and shall have authority to cause such seal to be affixed to, or impressed or otherwise reproduced upon, all documents the execution and delivery of which on behalf of the Corporation shall have been duly authorized. He shall in general, perform all duties and have all powers incident to the office of Secretary and shall perform such other duties and have such other powers as may from time to time be assigned to him by these By-Laws, by the Board of Directors or by the Chief Executive Officer. Section 6. Treasurer. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. He shall cause all moneys and other valuable effects to be deposited in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall cause the funds of the Corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall, in general, perform all duties and have all powers incident to the office of Treasurer and shall perform such other duties and have such other powers as may from time to time be assigned to him by these By-Laws, by the Board of Directors or by the Chief Executive Officer. ARTICLE VII FIXING RECORD DATE In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, -5- or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VIII EXECUTION OF INSTRUMENTS Section 1. Execution of Instruments Generally. All documents, instruments or writings of any nature shall be signed, executed, verified, acknowledged and delivered by such officer or officers or such agent or agents of the Corporation and in such manner as the Board of Directors from time to time may determine. Section 2. Checks, Drafts, Etc. All notes, drafts, acceptances, checks, endorsements, and all evidence of indebtedness of the Corporation whatsoever, shall be signed by such officer or officers or such agent or agents of the Corporation and in such manner as the Board of Directors from time to time may determine. Endorsements for deposit to the credit of the Corporation in any of its duly authorized depositories shall be made in such manner as the Board of Directors from time to time may determine. Section 3. Proxies and Consents. Proxies to vote and written consent with respect to shares of stock of other corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by two officers, one of whom shall be the Chairman, President, Vice Chairman, or a Vice President and the other of whom shall be the Secretary or an Assistant Secretary of the Corporation; or by any other person or persons duly authorized by the Board of Directors. ARTICLE IX CAPITAL STOCK Section 1. Stock Certificates. The interest of every holder of stock in the Corporation shall be evidenced by a certificate or certificates signed by, or in the name of the Corporation by the Chairman, President, Vice Chairman or a Vice President, and by the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation and in such form not inconsistent with the Certificate of Incorporation or applicable law as the Board of Directors may from time to time prescribe. If such certificate is countersigned (1) by a transfer agent, whether or not a subsidiary of the Corporation, other than the Corporation or its employee, or (2) by a registrar, whether or not a subsidiary of the Corporation, other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 2. Transfer of Stock. Shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by his attorney duly authorized in writing, upon surrender to the Corporation of the certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer tax stamps. In that event it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction on its books. -6- Section 3. Rights of Corporation with Respect to Registered Owners. Prior to the surrender to the Corporation of the certificates for shares of stock with a request to record the transfer of such shares, the Corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. Section 4. Transfer Agents and Registrars. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issuance and transfer of certificates for shares of the stock of the Corporation and may appoint transfer agents or registrars or both, and may require all certificates of stock to bear the signature of either or both. Nothing herein shall be construed to prohibit the Corporation or any subsidiary of it from acting as its own transfer agent or registrar at any of its offices. Section 5. Lost, Destroyed and Stolen Certificates. Where the owner of a certificate for shares claims that such certificate has been lost, destroyed or wrongfully taken, the Corporation shall issue a new certificate in place of the original certificate if the owner satisfies such reasonable requirements, including evidence of such loss, destruction, or wrongful taking, as may be imposed by the Corporation, including but without limitation, the delivery to the Corporation of an indemnity bond satisfactory to it. ARTICLE X SEAL The corporate seal, subject to alteration by the Board of Directors, shall be in the form of a circle and shall bear the name of the Corporation and the year of its incorporation and shall indicate its formation under the laws of the State of Delaware. Such seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE XI FISCAL YEAR The fiscal year of the Corporation shall be the calendar year except as otherwise provided by the Board of Directors. ARTICLE XII AMENDMENTS The By-Laws of the Corporation may be amended or repealed, or new By-Laws not inconsistent with law or any provision of the Certificate of Incorporation, as amended, may be made and adopted by a majority vote of the whole Board of Directors at any regular or special meeting of the Board. -7- EX-10.(D) 4 DIRECTOR DEFERRAL PLAN EXHIBIT 10(D). THE FIRST CHICAGO NBD CORPORATION PLAN FOR DEFERRING THE PAYMENT OF DIRECTORS' FEES AS AMENDED AS OF DECEMBER 1, 1995 SECTION I PURPOSE ------- The purpose of the First Chicago NBD Corporation Plan for Deferring the Payment of Directors' Fees (the "Plan") is to enable each Director to defer all or a portion of his or her fees for future service as a member of the Board of Directors of First Chicago NBD Corporation (the "Corporation") or as a member of the Board of Directors of any affiliate or subsidiary of the Corporation. SECTION II ELIGIBILITY ----------- Any Director of the Corporation or Advisory Member of the Board of Directors of the Corporation (herein included in the term Director) who is not an employee of the Corporation, or any affiliate or subsidiary thereof, shall be eligible to participate in the Plan. In addition, any member of the Board of Directors of any affiliate or subsidiary of the Corporation who is not an employee of the Corporation, or any subsidiary or affiliate thereof, shall also be eligible, provided the Corporation's Board authorizes such eligibility. SECTION III ELECTION, MODIFICATION, AND TERMINATION PROCEDURES -------------------------------------------------- Any Director wishing to participate in the Plan must file with the Secretary of the applicable Board of Directors, in the calendar year preceding the year in which the deferred Director's fees are to be earned, a written Notice of Election to Defer the Payment of Director's Fees in the form attached as Exhibit "A" ("Notice of Election") to defer payment of all or a portion of his or her Director's fees for that year. The Director must file a Notice of Election on an annual basis for each year that the Director elects to defer fees, provided that the Notice of Election is filed in the calendar year preceding the year in which the deferred fees are to be earned. An effective election with respect to Director's fees that have been deferred under the terms of this Plan and fees that have already been earned may not be modified or revoked. A new Director who first becomes eligible under the Plan may elect to defer fees that have not been earned in the first year of being a Director by filing a Notice of Election within thirty (30) days after becoming eligible to enter the Plan. Any election made prior to the effective date of this Plan as modified shall not apply to any fees earned after such effective date except that the payment election shall remain the same. Election may be made by December of the year preceding the effective date as stated in Section XII of this Plan. SECTION IV ESTABLISHMENT AND ADMINISTRATION OF DEFERRED DIRECTOR'S FEE ACCOUNT ----------------------------------- The amount of any Director's fees deferred in accordance with an election shall be credited to a deferred Director's fee account maintained by the Corporation. Such account shall remain a part of the general funds of the Corporation and shall be subject to the claims of its general creditors. The Plan is intended to be "unfunded" for tax purposes and for purposes of Title I of ERISA. Nothing contained in the Plan shall be deemed to create a trust or fund of any kind or create any fiduciary relationship, and the obligation to make payment of deferred fees shall be and remain an unsecured, unfunded general obligation of the Corporation. A Director shall elect by filing a Notice of Investment Election in the form attached as Exhibit "B" ("Notice of Investment Election"), at the same time as the election to defer fees is made, to have earnings or losses on the deferred fees credited to the Director's deferred fee account consistent with the earnings or losses of any of the investment options then being offered to participants in the NBD Investment Plus Plan or any successor plan (with the exception of the FCN Fund or any other investment option which invests in equity securities, including derivative securities, of the Corporation). The Director may also elect, at the time of the Director's annual deferral election (or if none, prior to the calendar year in which such earnings are to be credited) to change the investment options for all or a portion of the existing balance in the Director's deferred fee account. A Director may also elect quarterly, using the Notice of Investment Election, effective as of April 1, July 1, or October 1, as the case may be, to change the options for all or a portion of the deferred fees to be credited to the Director's deferred fee account and the existing balance in the deferred fee account. The quarterly election should be made at least fifteen (15) days prior to the effective date of the election. The Director's investment election is to be used only for the purpose of valuing the Director's deferred fee account; the Corporation shall be under no obligation to invest any funds in accordance with the Director's elections. As of the last day of each month, the deferred fee account balance of each Director who has filed an effective deferral election shall be adjusted as follows: (a) The account balance shall first be charged with any distributions made during the month. (b) The account balance shall then be credited with an amount equivalent to the rate of return for that month. Such amount shall be computed by multiplying the account balance after the adjustment provided for in Subsection (a) by a rate equal to the rate of return for that month earned by the applicable investment option elected by the Director. (c) Finally, the account balance shall be credited with the amount, if any, of Director's fees deferred during that month. A separate record of deferred Director's fees and applicable earnings or losses shall be maintained by the Corporation for each participant in the Plan. The computations of the Corporation with respect to the amount equivalent to the applicable rate of return shall be conclusive and binding in the absence of bad faith. SECTION V PAYMENT OF DEFERRED DIRECTOR'S FEES ----------------------------------- Deferred fees shall be paid to a Director or, in the event of death, to his or her designated beneficiary in accordance with the Notice of Election and Beneficiary Designation (as defined below) that have been filed with the Secretary of the applicable Board of Directors. If a Director elects to receive payment of his or her deferred fees in installments rather than in a lump sum, the payment period shall not exceed ten years following the payment commencement date. The amount of any installment payment for any month shall be determined by multiplying the account balance of the Director's unpaid deferred fees as of the date of payment by a fraction, the numerator of which is one and the denominator of which is the number of remaining unpaid installments. Such balance shall be appropriately reduced to reflect the installment payments made hereunder. SECTION VI WHEN PAYMENT OF DEFERRED DIRECTOR'S FEES COMMENCES -------------------------------------------------- The payment in a lump sum or installments of amounts deferred pursuant to an election under the Plan shall commence on January 15 of the first year to which payment has been deferred, and shall be paid in accordance with the terms of such election. Installment payments shall be made either annually or quarterly as the Director has elected. The first year to which payment has been deferred may not be later than the second year after the Director has attained the age of seventy (70) years. If a Director shall die prior to the first year to which payment has been deferred, such payment shall commence on January 15 of the calendar year immediately following the year of death, and shall be paid in the manner specified in such election. Each election shall defer payment to commence on the date specified in the initial election, payable in the same manner. SECTION VII DESIGNATION OF BENEFICIARY -------------------------- Each Director, on becoming a participant, shall file with the Secretary of the applicable Board of Directors a Beneficiary Designation in the form attached as Exhibit "C" ("Beneficiary Designation") designating one or more beneficiaries to whom payments otherwise due the participant shall be made in the event of his or her death while serving as a Director or after leaving the Board. A Beneficiary Designation will be effective only if the signed form is filed with the Secretary of the applicable Board of Directors while the Director is alive, and will cancel all Beneficiary Designations signed and filed previously. If the primary beneficiary shall survive the Director but dies before receiving all the amounts due hereunder, the deferred amounts remaining unpaid at the time of death shall be paid in one lump sum to the legal representative of the primary beneficiary's estate. If the primary beneficiary shall predecease the Director, amounts remaining unpaid at the time of the Director's death shall be paid to the contingent beneficiary(s) surviving the Director, in the order specified by the Director in the Beneficiary Designation in effect and filed by the Director. If the contingent beneficiary(s) dies before receiving all the amounts due hereunder, the unpaid amount shall be paid in one lump sum to the legal representative of such contingent beneficiary(s) estate. If the Director shall fail to designate a beneficiary(s) as provided in this Section, or if all designated beneficiaries shall predecease the Director, the deferred amounts remaining unpaid at the time of such Director's death shall be paid in one lump sum to the legal representative of the Director's estate. SECTION VIII NONALIENATION OF BENEFITS ------------------------- Neither the Director nor any beneficiary designated by him or her shall have any right, directly or indirectly, to alienate, assign, or encumber any amount that is or may be payable hereunder. SECTION IX ADMINISTRATION OF PLAN ---------------------- Full power and authority to construe, interpret, and administer the Plan shall be vested in the Corporation's Board of Directors. Decisions of the Board shall be final, conclusive, and binding upon all parties. SECTION X AMENDMENT OR TERMINATION OF PLAN -------------------------------- The Board of Directors may amend or terminate this Plan at any time. Any amendment or termination of this Plan shall not affect the rights of participants or beneficiaries to the amounts in the Director's deferred fee accounts at the time of such amendment or termination. SECTION XI APPLICABLE LAW -------------- The provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of Michigan. SECTION XII EFFECTIVE DATE OF PLAN ---------------------- This Plan shall become operative and in effect for the fees to be earned in the year 1995 and thereafter until amended or terminated by the Board of Directors of the Corporation. EX-10.(L) 5 FIRST NATL BANK OF CHICAGO COMP. AGRMNT. EXHIBIT 10(L). THE FIRST NATIONAL BANK OF CHICAGO COMPENSATION AGREEMENT THIS AGREEMENT executed this ________ day of ___________________, l9__, by and between THE FIRST NATIONAL BANK OF CHICAGO, a national banking association (hereinafter referred to as "BANK") and ____________________________________ (hereinafter referred to as "DIRECTOR"). W I T N E S S E T H: ------------------- WHEREAS, DIRECTOR is a director of BANK; and WHEREAS, BANK and DIRECTOR desire to enter into a compensation agreement. NOW, THEREFORE, the parties agree that: l. BANK shall pay and DIRECTOR shall receive compensation for any services rendered by him as a director to the extent, at the time, and in the manner hereinafter provided. 2. BANK will cause to be set up upon its books two bookkeeping accounts, the first to be known as DIRECTOR'S "Deferred Compensation (Cash Account)" (hereinafter referred to as "Cash Account"), and the second as DIRECTOR'S "Deferred Compensation (Stock Account)" (hereinafter referred to as "Stock Account"). (a) Cash Account ------------ BANK will regularly credit to the Cash Account the amount which DIRECTOR would otherwise be entitled to receive for his services as a director in accordance with the terms and provisions of any resolution duly adopted by the Board of Directors (hereinafter referred to as "BOARD"), and, on the dividend payment date, an amount equal to the cash dividend which would have been payable upon that number of shares of First Chicago Corporation credited to the Stock Account on the record date applicable to such cash dividend, such credit to continue so long as there shall be shares credited to the Stock Account. (b) Stock Account ------------- On the tenth day (or next business day if a weekend or holiday) of January, April, July and October of each year, BANK shall determine the number of full shares of First Chicago Corporation stock which it could have purchased on that date with the amounts then in the Cash Account, based upon the closing price of such shares on the New York Stock Exchange on that date. Such shares shall be credited to the Stock Account and the amount in the Cash Account reduced accordingly. In addition, the Stock Account shall be credited with any stock splits or similar distributions which would have been payable on the number of shares then credited to such account. These amounts are to be established for bookkeeping purposes only, shall not represent either a cash deposit or actual shares, shall not give DIRECTOR any special right in cash or shares held or owned by BANK, and shall not give rise to any cause of action by DIRECTOR against BANK, except at such time as DIRECTOR shall become entitled to receive payment of compensation in accordance with the terms of this Agreement. BANK shall furnish DIRECTOR quarterly statements showing the balances in each of these accounts as they exist at the time such statement is rendered. 3. Commencing in the _________ /1/ year following DIRECTOR'S retirement, DIRECTOR shall be entitled to receive ________________ /2/ annual payments, such payments to be made on the first business day of April in each year. In the event of the death of DIRECTOR prior to said year, the payments shall commence on the first business day in April in the year following his death. Each payment shall be determined by dividing the number of payments remaining due hereunder into the aggregate of: (a) the amount in the Cash Account, and (b) the fair market value (on the date such payment is due) of the shares of stock then credited to the Stock Account, which fair market value shall be the price at which such stock closed on the New York Stock Exchange on the last trading day preceding the due date of the payment. Notwithstanding anything in this Agreement to the contrary, no payments shall be made pursuant to paragraph 3 hereof prior to the first to occur of Director's retirement or termination of service as a director, or Director's disability or death. 4. Any payments due hereunder which shall not have been paid to DIRECTOR during his lifetime shall be paid to his surviving spouse or to any other person as he may have designated in a writing filed with BANK to receive the same; these payments shall be made at the same time or times and in the same amount or amounts as would have been paid to DIRECTOR had he survived. DIRECTOR shall have the right during his lifetime to designate in writing and to change (in writing) the designation of any person to whom BANK shall make payments, if any, which remain unpaid at his death, and BANK may rely upon the last of such written designations in its possession in making any such payments. If any payments remain due hereunder upon the death of the survivor of DIRECTOR, his spouse or any person designated as the person entitled in a writing signed by DIRECTOR and filed with BANK to receive payments, BANK may make any payments due hereunder to the Executor or Administrator of the estate of the last to survive of the aforementioned. 5. The right of DIRECTOR, his spouse and of any person designated by him to receive payments hereunder is personal and is not subject to acceleration or assignment, and BANK shall have no liability for payments hereunder to any person or in any manner other than is herein provided. However, BANK, by resolution duly adopted by its BOARD, shall - ------------- 1 Insert when payment is to commence, eg., "first", "second", "fifth". 2 Insert number of annual payments to be received. have the right, at its option and at any time in its sole discretion, to pay all or any part of the aggregate amount of payments otherwise due hereunder, in cash (by check), and in advance of any scheduled payment date or dates otherwise prescribed herein. 5A. Notwithstanding paragraph 3 hereof, upon Director's retirement or termination of service as a director within one year following a Change of Control (as defined below), the amount in the Cash Account and the fair market value of the shares of stock then credited to the Stock Account (equal to the price at which such stock closed on the New York Stock Exchange on the day of such retirement or termination) shall be immediately paid in a cash lump sum as soon thereafter as is practicable to Director. For this purpose, a "Change of Control" shall mean any of the following events: (i) The acquisition, other than from First Chicago Corporation ("FIRST"), by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of common stock of FIRST or the combined voting power of the then outstanding voting securities of FIRST entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by FIRST or any of its subsidiaries, or any employee benefit plan (or related trust) of FIRST or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the common stock and voting securities of FIRST immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of common stock of FIRST or the combined voting power of the then outstanding voting securities of FIRST entitled to vote generally in the election of directors, as the case may be; or (ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by FIRST's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of FIRST (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the stockholders of FIRST of a reorganization, merger or consolidation of FIRST, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the common stock and voting securities of FIRST immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of FIRST or of the sale or other disposition of all or substantially all of the assets of FIRST." 6. This Agreement may be amended in writing at any time and in any manner without consent of any person other than DIRECTOR and BANK, but no such amendment shall have retroactive effect, and such amendment shall become effective only as to the next succeeding calendar quarter following the date of such amendment and thereafter. 7. This Agreement shall be binding upon, and shall inure to the benefit of, the successors and assigns of BANK. IN WITNESS WHEREOF, BANK has caused these presents to be executed in its name and on its behalf pursuant to the authorization of its Board of Directors, and DIRECTOR has hereunto set his hand all on the day and year first above written. THE FIRST NATIONAL BANK OF CHICAGO By:________________________________________ (SEAL) Attest: - ------------------------------------------------ Assistant Cashier ---------------------------------------------- DIRECTOR AMENDMENT TO THE FIRST NATIONAL BANK OF CHICAGO COMPENSATION AGREEMENT Pursuant to The First National Bank of Chicago Compensation Agreement between The First National Bank of Chicago and me, as amended from time to time, (this "Agreement"), said Agreement is amended as follows: 1. A new paragraph 8 is added as follows: "The DIRECTOR'S right to defer future compensation hereunder shall cease as of July 31, 1996 and the value of the DIRECTOR'S Cash Account and Stock Account shall be transferred to the deferred stock unit alternative under the First Chicago NBD Corporation Director Stock Plan ("Plan"), subject to (i) the terms and conditions of the Plan, (ii) First Chicago NBD Corporation stockholder approval of the Plan and (iii) compliance with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934; payments to DIRECTOR under the Plan of amounts deferred hereunder shall be made in accordance with DIRECTOR'S deferral elections." Notwithstanding the provisions of paragraph 6 of the Agreement, this Amendment shall become effective on the date hereof. __________________________ THE FIRST NATIONAL BANK OF CHICAGO By: ________________________ Executive Vice President Date: January __, 1996 EX-10.(M) 6 FIRST CHICAGO CORP. COMP. AGREMNT. EXHIBIT 10(M). FIRST CHICAGO CORPORATION COMPENSATION AGREEMENT THIS AGREEMENT executed this ________ day of ___________________, l9__, by and between FIRST CHICAGO CORPORATION, a Delaware corporation (hereinafter referred to as "FIRST") and ________________________________________________ (hereinafter referred to as "DIRECTOR"). W I T N E S S E T H: ------------------- WHEREAS, DIRECTOR is a director of FIRST; and WHEREAS, FIRST and DIRECTOR desire to enter into a compensation agreement. NOW, THEREFORE, the parties agree that: l. FIRST shall pay and DIRECTOR shall receive compensation for any services rendered by him as a director to the extent, at the time, and in the manner hereinafter provided. 2. FIRST will cause to be set up upon its books two bookkeeping accounts, the first to be known as DIRECTOR'S "Deferred Compensation (Cash Account)" (hereinafter referred to as "Cash Account"), and the second as DIRECTOR'S "Deferred Compensation (Stock Account)" (hereinafter referred to as "Stock Account"). (a) Cash Account ------------ FIRST will regularly credit to the Cash Account the amount which DIRECTOR would otherwise be entitled to receive for his services as a director in accordance with the terms and provisions of any resolution duly adopted by the Board of Directors (hereinafter referred to as "BOARD"), and, on the dividend payment date, an amount equal to the cash dividend which would have been payable upon that number of shares of First Chicago Corporation credited to the Stock Account on the record date applicable to such cash dividend, such credit to continue so long as there shall be shares credited to the Stock Account. (b) Stock Account ------------- On the tenth day (or next business day if a weekend or holiday) of January, April, July and October of each year, FIRST shall determine the number of full shares of First Chicago Corporation stock which it could have purchased on that date with the amounts then in the Cash Account, based upon the closing price of such shares on the New York Stock Exchange on that date. Such shares shall be credited to the Stock Account and the amount in the Cash Account reduced accordingly. In addition, the Stock Account shall be credited with any stock splits or similar distributions which would have been payable on the number of shares then credited to such account. These amounts are to be established for bookkeeping purposes only, shall not represent either a cash deposit or actual shares, shall not give DIRECTOR any special right in cash or shares held or owned by FIRST, and shall not give rise to any cause of action by DIRECTOR against FIRST, except at such time as DIRECTOR shall become entitled to receive payment of compensation in accordance with the terms of this Agreement. FIRST shall furnish DIRECTOR quarterly statements showing the balances in each of these accounts as they exist at the time such statement is rendered. 3. Commencing in the _________/1/ year following DIRECTOR'S retirement, DIRECTOR shall be entitled to receive ________________/2/ annual payments, such payments to be made on the first business day of April in each year. In the event of the death of DIRECTOR prior to said year, the payments shall commence on the first business day in April in the year following his death. Each payment shall be determined by dividing the number of payments remaining due hereunder into the aggregate of: (a) the amount in the Cash Account, and (b) the fair market value (on the date such payment is due) of the shares of stock then credited to the Stock Account, which fair market value shall be the price at which such stock closed on the New York Stock Exchange on the last trading day preceding the due date of the payment. Notwithstanding anything in this Agreement to the contrary, no payments shall be made pursuant to paragraph 3 hereof prior to the first to occur of Director's retirement or termination of service as a director, or Director's disability or death. 4. Any payments due hereunder which shall not have been paid to DIRECTOR during his lifetime shall be paid to his surviving spouse or to any other person as he may have designated in a writing filed with FIRST to receive the same; these payments shall be made at the same time or times and in the same amount or amounts as would have been paid to DIRECTOR had he survived. DIRECTOR shall have the right during his lifetime to designate in writing and to change (in writing) the designation of any person to whom FIRST shall make payments, if any, which remain unpaid at his death, and FIRST may rely upon the last of such written designations in its possession in making any such payments. If any payments remain due hereunder upon the death of the survivor of DIRECTOR, his spouse or any person designated as the person entitled in a writing signed by DIRECTOR and filed with FIRST to receive payments, FIRST may make any payments due hereunder to the Executor or Administrator of the estate of the last to survive of the aforementioned. 5. The right of DIRECTOR, his spouse and of any person designated by him to receive payments hereunder is personal and is not subject to acceleration or assignment, and FIRST shall have no liability for payments hereunder to any person or in any manner other than is herein provided. However, FIRST, by resolution duly adopted by its BOARD, shall have the right, at its option and at any time in its sole discretion, to pay all or any part of the aggregate amount of payments otherwise due hereunder, in cash (by check), and in advance of - ------------- /1/Insert when payment is to commence, e.g., "first", "second", "fifth". /2/Insert number of annual payments to be received. any scheduled payment date or dates otherwise prescribed herein. 5A. Notwithstanding paragraph 3 hereof, upon Director's retirement or termination of service as a director within one year following a Change of Control (as defined below), the amount in the Cash Account and the fair market value of the shares of stock then credited to the Stock Account (equal to the price at which such stock closed on the New York Stock Exchange on the day of such retirement or termination) shall be immediately paid in a cash lump sum as soon thereafter as is practicable to Director. For this purpose, a `Change of Control' shall mean any of the following events: (i) The acquisition, other than from First Chicago Corporation (`FIRST'), by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the `Exchange Act')) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of common stock of FIRST or the combined voting power of the then outstanding voting securities of FIRST entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by FIRST or any of its subsidiaries, or any employee benefit plan (or related trust) of FIRST or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the common stock and voting securities of FIRST immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of common stock of FIRST or the combined voting power of the then outstanding voting securities of FIRST entitled to vote generally in the election of directors, as the case may be; or (ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the `Incumbent Board') cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by FIRST's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of FIRST (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the stockholders of FIRST of a reorganization, merger or consolidation of FIRST, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the common stock and voting securities of FIRST immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of FIRST or of the sale or other disposition of all or substantially all of the assets of FIRST. 6. This Agreement may be amended in writing at any time and in any manner without consent of any person other than DIRECTOR and FIRST, but no such amendment shall have retroactive effect, and such amendment shall become effective only as to the next succeeding calendar quarter following the date of such amendment and thereafter. 7. This Agreement shall be binding upon, and shall inure to the benefit of, the successors and assigns of FIRST. IN WITNESS WHEREOF, FIRST has caused these presents to be executed in its name and on its behalf pursuant to the authorization of its Board of Directors, and DIRECTOR has hereunto set his hand all on the day and year first above written. FIRST CHICAGO CORPORATION By: -------------------------- (SEAL) Attest: - ----------------------- Assistant Secretary ----------------------------- DIRECTOR AMENDMENT TO FIRST CHICAGO CORPORATION COMPENSATION AGREEMENT Pursuant to the First Chicago Corporation Compensation Agreement between First Chicago Corporation and me, as amended from time to time, (this "Agreement"), said Agreement is amended as follows: 1. Paragraph 3 is amended by adding the following: "DIRECTOR will not be considered to have retired or terminated as a DIRECTOR of FIRST as a result of the merger of FIRST with and into NBD Bancorp, Inc. if upon such merger, DIRECTOR is a director of FIRST'S successor corporation or The First National Bank of Chicago." 2. A new paragraph 8 is added as follows: "The DIRECTOR'S right to defer future compensation hereunder shall cease as of July 31, 1996 and the value of the DIRECTOR'S Cash Account and Stock Account shall be transferred to the deferred stock unit alternative under the First Chicago NBD Corporation Director Stock Plan ("Plan"), subject to (i) the terms and conditions of the Plan, (ii) stockholder approval of the Plan and (iii) compliance with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934; provided, however that payments to DIRECTOR under the Plan of amounts deferred hereunder shall be made in accordance with DIRECTOR'S deferral election." Notwithstanding the provisions of paragraph 6 of the Agreement, this Amendment shall become effective on the date hereof. ---------------------- FIRST CHICAGO NBD CORPORATION By: ------------------------- Executive Vice President Date: January __, 1996 EX-10.(N) 7 FIRST CHICAGO CORP. COMP. DEFERRAL PLAN EXHIBIT 10(N). DRAFT 11-20-95 FIRST CHICAGO CORPORATION COMPENSATION DEFERRAL PLAN Amended and Restated Effective December 1, 1993 In exercise of the authority delegated to the undersigned by resolutions of the Board of Directors of First Chicago Corporation ("Board") adopted October 14, 1994 and the Organization, Compensation and Nominating Committee of the Board approved December 9, 1994, the undersigned has caused the attached document, FIRST CHICAGO CORPORATION COMPENSATION DEFERRAL PLAN (Amended and Restated Effective December 1, 1993), to be executed this __ day of ______________, 1995. FIRST CHICAGO CORPORATION By: ------------------------------ Marvin James Alef, Jr. Head of Human Resources DRAFT FIRST CHICAGO CORPORATION ------------------------- COMPENSATION DEFERRAL PLAN -------------------------- Amended and Restated Effective December 1, 1993 ----------------------------------------------- 1. Purpose. The purpose of the First Chicago Corporation Compensation Deferral Plan is to permit eligible Employees of First Chicago Corporation and its subsidiaries to elect to defer the payment of all or a portion of their Covered Compensation. 2. Definitions. 2.1 Beneficiary means any person or entity designated by a Participant on a form provided by the Plan Administrator to receive benefits in the event of the death of the Participant. Each designation shall revoke a Participant's previous designations and shall be effective only when filed in writing with the Plan Administrator during the Participant's lifetime. If a Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by such Participant dies before the Participant or before complete payment of all amounts due, the remaining balance in the Participant's account hereunder shall be distributed to the legal representative or representatives of the estate of the later to die of the Participant or the Participant's designated Beneficiary. 2.2 Board means the Board of Directors of the Corporation, excluding any member who is an officer or Employee of the Corporation or who would otherwise not be considered a disinterested person within the meaning of Rule 16b-3 of the Securities and Exchange Commission. 2.3 Corporation means First Chicago Corporation or its successor or successors and its fifty percent (50%) or more owned subsidiaries. 2.4 Covered Compensation means the annual cash bonus or, effective December 1, 1994, fifty percent of the bi-weekly salary earned by a Participant and any other cash compensation designated by the Organization, Compensation and Nominating Committee of the Board as eligible for deferral. 2.5 Employee means an employee or retiree of the Corporation or any of its subsidiaries of which the Corporation owns directly or indirectly at least a 50% interest. 2.6 Exchange Act means the Securities Exchange Act of 1934, as amended. 2.7 Investment Funds means those investment alternatives under the Plan which will be used to calculate the periodic investment experience of each Participant's account and shall be the investment alternatives offered under the First Chicago Corporation Savings Incentive Plan or any other investment alternatives designated by the Organization, Compensation and Nominating Committee. With respect to amounts deferred prior to December 1, 1993, Investment Funds shall include the investment alternatives available under the incentive deferral program then in effect. 2.8 Participant means either (a) an Employee who has met the eligibility requirements of Section 3 to participate in the Plan and who has elected to defer all or a portion of Covered Compensation or (b) an individual whose account balance from another deferral plan is transferred to this Plan as described in Section 3. 2.9 Plan means the First Chicago Corporation Compensation Deferral Plan. This Plan is an amendment and restatement of the First Chicago Corporation Incentive Deferral Plan. 2 2.10 Plan Administrator means the Executive Compensation Services Unit; provided however, the Organization, Compensation and Nominating Committee of the Board shall be the Plan Administrator with respect to any Participant who is an "officer" as defined in Section 16 of the Exchange Act, to the extent necessary to comply with Rule 16a-1(c)(3) of the Securities and Exchange Commission or any successor provision. 3. Eligibility. The Organization, Compensation and Nominating Committee of the Board shall designate the Employees who are eligible to participate in this Plan. In addition, each Employee who deferred any portion of an annual bonus under the incentive deferral program in effect prior to December 1, 1993 shall participate in this Plan to the extent of any deferred amounts which remain unpaid. Subject to the approval of the Plan Administrator, the Plan may accept the transfer of an individual's account balance or accrued benefit from another deferral plan maintained by the Corporation or an entity acquired by the Corporation at which time the individual will become a Participant to the extent of the transferred balance. Such transferred balance shall be credited to the Participant's account under this Plan and shall become subject to the terms and conditions of this Plan except that the timing of the distribution of such transferred balance (and subsequent earnings thereon) shall be governed by the Participant's election as filed under the prior plan except as otherwise determined by the Plan Administrator or permitted under this Plan. 4. Election to Defer Covered Compensation. (a) Initial Election to Defer. Each eligible Employee may file an irrevocable election to defer any portion of Covered Compensation until a future calendar year or 3 years which date must be at least six months after such Covered Compensation would otherwise be paid to the Employee. An Employee's election to defer must be in writing on a form prescribed by the Plan Administrator, must be filed with the Plan Administrator on or before the date prescribed and must defer an amount which is at least equal to the minimum deferral amount as set by the Plan Administrator. (b) Additional Deferral. A Participant may elect on a one time basis with respect to any deferred amount of Covered Compensation to further defer the payment of such Covered Compensation provided such election to defer is made more than 12 months in advance of the payment of such deferred Covered Compensation. 5. Participant's Account. The amount of Covered Compensation which has been deferred shall be credited to a memorandum account maintained on behalf of the Participant. Amounts credited pursuant to this Plan are credited for bookkeeping purposes only, shall not represent either a cash deposit or actual shares or units in any of the Investment Funds, shall not give any Participant any special right in cash or shares held or owned by the Corporation, and shall not give rise to any cause of action by Participants against the Corporation, except at such time as the Participant shall become entitled to receive payment in cash in accordance with the terms of this Plan. The Plan Administrator shall furnish quarterly statements to Participants showing the balances in each of their Investment Funds as of the statement date. 6. Investment of Participant's Account. A Participant shall elect to have his or her account treated as if invested in one of the Investment Funds. The Participant's account will be adjusted periodically to reflect the investment experience of the Investment Funds which the 4 Participant elected. Each Participant may file an election with the Plan Administrator (on a form prescribed by the Plan Administrator) to reallocate the investment of his account among the Investment Funds. The frequency and timing of investment reallocation directions shall be limited in the same manner as under the First Chicago Corporation Savings Incentive Plan. Senior Vice Presidents and above of the Corporation may only direct the reallocation of the portion of their Investment Funds attributable to First Chicago Corporation common stock during the window periods which follow the announcement of the Corporation's earnings. Executive Vice Presidents and above may only reallocate the portion of their Investment Funds attributable to First Chicago Corporation common stock once every six months during such window periods. 7. Investment of Participant's Account - Pre-December 1, 1993 Deferred Amounts. Each Participant with amounts deferred under the incentive deferral program in effect prior to December 1, 1993, shall continue to have the periodic investment experience of his account attributable to pre-December 1, 1993 deferrals calculated pursuant to the terms of his income deferral election in effect at the time of his deferral. However, such Participant may elect during a period prescribed by the Plan Administrator to have the investment experience of such portion of his account calculated as if invested in the investment alternatives of the First Chicago Corporation Savings Incentive Plan. After such election, such portion of his account shall be continued to be invested pursuant to Section 6. 8. Benefit. A Participant shall be entitled to a distribution of his account balance equal to the amount deferred, adjusted for the investment experience attributable to such deferred amounts had such amounts been invested in the Investment Funds as directed by the Participant. 5 9. Distribution of Account Balances Pursuant to Participant's Election. A Participant's account shall be distributed in cash only (and in no case in equity securities) and paid to the participant, at the time or times elected or, if earlier, upon the Participant's retirement (as defined under the First Chicago Corporation Pension Plan). A Participant, at the time he files an election to defer, may elect to receive payment in (a) a lump sum payment or (b) a series of substantially equal annual or, effective December 1, 1994, monthly installments over a period of time not exceeding ten (10) years (fifteen (15) years effective December 1, 1994). 10. Distribution upon Participant's Death or Termination of Employment. If prior to the distribution of the entire account balance under this Plan, a Participant dies or terminates employment before retirement (as defined under the First Chicago Corporation Pension Plan), the remaining account balance will be distributed in cash in the form of a single lump sum payment to either (i) the Beneficiary, in the case of the Participant's death, or (ii) the Participant, in the case of termination of employment; however, in the case of a Participant whose account balance (or a portion thereof) is transferred from another deferral plan maintained by the Corporation or an entity acquired by the Corporation, the portion of such Participant's account balance attributable to the transferred account balance will be distributed in cash pursuant to the terms of the deferral election as filed with respect to the transferred balance. 11. Emergency Payments. (a) In the event of an unforeseeable emergency as determined hereunder, the Plan Administrator may authorize the distribution of all or a portion of the Participant's account, without regard to the payment dates provided in paragraph 4, but only if the Plan Administrator 6 determines that such action is necessary to prevent severe financial hardship to the Participant. Such action shall be taken only if a Participant (or his legal representatives or successors) shall sign an application describing fully the circumstances which are deemed to justify the payment, together with an estimate of the amounts necessary to prevent severe financial hardship. Each such application shall be approved by the Plan Administrator, who shall certify that according to the best of his knowledge and belief the statements on the application are true. (b) For the purpose of this paragraph 11, the term "unforeseeable emergency" shall mean a severe financial hardship to a Participant or his dependents (as defined in section 152(a) of the Internal Revenue Code of 1986, as amended), loss of a Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances beyond the Participant's control. Hardship payments shall only be made to the extent necessary to satisfy the emergency need, and shall not be made to the extent that the hardship is or may be relieved through other means, including reimbursement or compensation, by insurance or otherwise, or by cessation of deferrals pursuant to this Plan. (c) The Plan Administrator may also authorize the distribution of all or a portion of the Participant's account, without regard to the payment dates provided in paragraph 4, provided the portion of the Participant's account from which such distribution is made is first reduced by an amount that shall equal the greater of either (i) 10% of the applicable portion of the Participant's account, (ii) 125% of the interest rate The First National Bank of Chicago announces from time to time as its corporate base rate multiplied by the applicable portion of the Participant's account or (iii) a "substantial penalty" as determined by the Plan Administrator upon advice of counsel so as to assure there is no constructive receipt of Participants' accounts under the Plan. 7 12. Acceleration of Payment. The inside directors of the Corporation may, in their sole discretion, accelerate any payment under this Plan for any Participants who are not "officers" as defined under Section 16 of the Exchange Act. The Organization, Compensation and Nominating Committee of the Board of Directors of the Corporation may, in its sole discretion, accelerate any payment under this Plan for Participants who are "officers" defined under Section 16 of the Exchange Act. 13. Valuation of Account Prior to Distribution. A Participant's account distributable shall be valued as of the end of the month preceding payment. 14. Administration. This Plan shall be administered by the Plan Administrator and its decision on any matter involving the interpretation of the Plan shall be binding on everyone; provided, however, that the Plan Administrator may not take any action with respect to any benefits payable to the Plan Administrator under the Plan unless such action could have been taken even if he were not the Plan Administrator. 15. Miscellaneous. 15.1 Prohibition of Alienation. Benefits under the Plan may not be anticipated, alienated, assigned or encumbered and any attempt to do so shall be void. 15.2 Litigation by Participants or Other Persons. To the extent permitted by law, if a legal action begun against the Corporation or an Employee or director thereof, or the Board, or any member thereof, by or on behalf of any person results adversely to that person, or if a legal action arises because of conflicting claims to a grant payable to a participant or Beneficiary, 8 the cost to the Corporation or Employee or director thereof, or the Board or any member thereof, of defending the action will be charged to the extent possible to the sums, if any, that were involved in the action or were payable to, or on account of, the Participant or Beneficiary concerned. 15.3 Indemnification. Any person who is or was a director, officer, or Employee of the Corporation and each member of the Board shall be indemnified and saved harmless by the Corporation from and against any and all liability or claims of liability to which such person may be subjected by reason of any act done or omitted to be done in good faith with respect to the administration of the Plan, including all expenses reasonably incurred in the Participant's defense in the event that the Corporation fails to provide such defense. 15.4 Rights to Employment. Participation in the Plan shall not confer upon any Participant any right with respect to continued employment by the Corporation. 15.5 Expenses. All expenses of administering the Plan shall be borne by the Corporation. 15.6 Other Plans. Nothing contained herein shall prevent the Corporation from establishing or maintaining other plans in which Participants in this Plan may also participate. 15.7 Facility of Payment. When, in the Board's opinion or in the opinion of anyone authorized by the Board, a Participant or Beneficiary is under a legal disability or incapacitated in any way so to be unable to manage the Participant's or Beneficiary's financial affairs, the Board may direct that the amount of the Participant's or Beneficiary's payment hereunder be made to the Participant's or Beneficiary's legal representative or to another person for such Participant's or Beneficiary's benefit, or the Board may direct that such amount be applied for the benefit of the Participant or Beneficiary in any way the Board considers advisable. 15.8 Notices. Any communication, statement or notice addressed to a 9 Participant at the Participant's last post office address shown on his employer's records, will be binding upon the Participant for all purposes of the Plan. Neither the Board nor the Corporation shall be obliged to search for or ascertain the whereabouts of any Participant. For purposes of this section 15.8, the term "Participant" includes any person entitled by reason of a Participant's death or legal disability to that Participant's deferred Covered Compensation under the Plan. 15.9 Records. All records held by the Corporation's Executive Compensation Services Unit with respect to an Employee shall be binding upon everyone for purposes of the Plan . 16. Amendment and Termination. The Corporation, by a resolution of its Board or by anyone authorized by the Board, may amend or terminate the Plan at any time; provided, however, that, except as may otherwise be required by law, no such amendment to or termination of the Plan shall reduce the benefits to which a Participant (or his Beneficiary) is entitled under the Plan as of the date of such amendment or termination. 17. Financing of Plan Benefits. Any benefits payable to a Participant under the Plan shall be financed from the general assets of his employer, and no Participant, or group of Participants, shall acquire any claim upon any specific asset of an employer solely by reason of his being a Participant in the Plan. This paragraph shall not prohibit the Corporation from transferring assets to a grantor trust for the purpose of providing benefits hereunder, which grantor trust shall remain subject to the claims of creditors. The accounting and recordkeeping of this Plan shall be entirely separate from any other plan. 10 18. Benefits Intended for Select Group of Management or Highly Compensated Employees. This Plan is intended to be maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and shall be interpreted and administered accordingly. 19. Compliance with "Cash Only Plan" Rules under Rule 16-b. With respect to each Participant who is an "officer,"as defined in the regulations promulgated under Section 16 of the Exchange Act, this Plan and all transactions under this Plan are intended to comply with rules under the regulations promulgated under Section 16 of the Exchange Act, specifically Rule 16a-1(c)(3), which exempt any such officer from the reporting, disclosure and short-swing profit rules of the Exchange Act with respect to amounts deferred under this Plan and the Plan shall be interpreted, construed and administered to effectuate that intent. To the extent any provision of the Plan or action by the Plan Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Plan Administrator. 20. Controlling Laws. To the extent not superseded by Federal law, the laws of Illinois, without regard to its laws of conflict, shall be controlling in all matters relating to the Plan. 11 EX-10.(O) 8 FIRST CHICAGO CORP. EXECUTIVE ESTATE PLAN EXHIBIT 10(O). DRAFT 10-03-95 FIRST CHICAGO CORPORATION EXECUTIVE ESTATE PLAN SECTION 1 - PURPOSE The FIRST CHICAGO CORPORATION EXECUTIVE ESTATE PLAN (hereinafter called the "Plan") is established and maintained to promote and advance the performance of First Chicago Corporation (hereinafter called the "Corporation") by providing designated senior officers of the Corporation and of its affiliated companies who have significant responsibility for such performance with competitive death benefit coverage and to assist the Corporation in attracting and retaining as senior officers individuals of superior ability by enhancing the value of the death benefit coverage benefits. SECTION 2 - DEFINITIONS (a) The term "affiliated companies" shall mean those corporations a majority of the outstanding voting capital stock of which is directly or indirectly owned or controlled by the Corporation. (b) The term "after-tax equivalent" shall mean such amount that would provide the recipient of a taxable death benefit under the Plan with an amount, after the payment of federal income tax, approximately equal to the death benefit the recipient would have received if the taxable death benefit were not subject to federal income taxation when made. (c) The term "Committee" shall mean the Organization, Compensation and Nominating Committee of the Board of Directors of the Corporation, the members of which shall be "disinterested persons" under Rule 16b-3 of the Securities and Exchange Commission or any successor regulation issued under the federal securities laws and shall be ineligible to participate in the Plan. (d) The term "disability" shall mean the incapability of a participant to perform the principal duties of his or her customary employment or position as the result of a physical or mental condition that is expected to be permanent and continuous during the remainder of the participant's life, as determined in the sole discretion of the Committee on the basis of evidence satisfactory to it. (e) The term "disabled participant" shall mean a participant who incurs a disability hereunder while a participant under the Plan from which he or she has not recovered. (f) The term "participant" shall mean a senior officer of the Corporation or of one of its affiliated companies who becomes and remains a participant in the Plan as provided in Section 6 of the Plan. (g) The term "retired participant" shall mean a participant whose employment with the Corporation and all its affiliated companies terminates as the result of retirement hereunder and who does not subsequently resume such employment. (h) The term "retirement" shall mean the cessation of employment with the Corporation and all its affiliated companies on or after the date a participant (i) attains age sixty-five (65), or (ii) completes five (5) years of service, attains age fifty-five (55), and receives the consent of the Committee. SECTION 3 - EFFECTIVE DATE AND DURATION The Plan shall be effective as of September 8, 1995. The Plan shall continue until it is terminated by the Board of Directors of the Corporation as provided in Section 11. SECTION 4 - ADMINISTRATION The Committee shall be responsible for the general operation and administration of the Plan and shall have the authority to interpret the Plan and to adopt administrative rules and regulations governing its operation. The Committee may delegate the performance of administrative functions to the Secretary of the Committee. SECTION 5 - FUND The death benefits payable under the Plan shall be paid out of the general assets of the Corporation. SECTION 6 - PARTICIPATION (a) Eligibility for participation in the Plan shall be limited to such senior officers of the Corporation or one of its affiliated companies as are designated from time to time by the Committee and approved by the Board of Directors. (b) Participation in the Plan by an eligible officer shall be solely within the discretion of the Committee. The Committee shall individually select and designate each eligible officer for participation, who shall become a participant as of the date specified by the Committee. (c) A participant shall remain a participant only for so long as he continues in the employ of the Corporation or one of its affiliated companies or is a retired participant or a disabled participant. The Committee in its sole discretion may terminate a participant's participation in the Plan only as provided in Section 10. 2 SECTION 7 - AMOUNT OF PRE-RETIREMENT DEATH BENEFIT (a) Upon the death of a participant prior to his or her retirement from the Corporation and its affiliated companies, the Corporation shall pay to his or her designated beneficiary an after-tax equivalent death benefit equal to six hundred percent (600%) of the participant's base salary at the time of death. (b) If a disabled participant dies before attaining age sixty-five (65), the Corporation shall pay to his or her designated beneficiary an after-tax equivalent death benefit equal to six hundred percent (600%) of the participant's annual base salary determined as of the date of his or her disability. If a disabled participant attains age sixty-five (65), such participant shall thereupon be deemed to be a retired participant and entitled to benefit coverage only in accordance with Section 8, based on the participant's annual base salary determined as of the date of his or her disability. If a disabled participant recovers from disability before attaining age sixty-five (65), the participant shall be deemed to be a retired participant as of the date he or she recovers from the disability if such participant is at least age fifty-five (55) on that date and does not then return to employment with the Corporation or any affiliated company. In all other cases, a disabled participant who recovers from disability shall have no further interest or rights under the Plan, except as may be provided by such person's subsequent participation in the Plan. SECTION 8 - AMOUNT OF POST-RETIREMENT DEATH BENEFIT Upon the death of a retired participant (i) during the first twelve (12) months following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to two hundred percent (200%) of the participant's annual base salary at the time of the participant's retirement; (ii) during the second twelve (12) month period following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred seventy- five percent (175%) of the participant's annual base salary at the time of the participant's retirement; (iii) during the third twelve (12) month period following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred fifty percent (150%) of the participant's annual base salary at the time of the participant's retirement; or (iv) during or subsequent to the thirty-seventh month following retirement, the Corporation shall pay to the participant's designated beneficiary an after-tax equivalent death benefit equal to one hundred percent (100%) of the participant's annual base salary at the time of the participant's retirement plus the lesser of Twenty-Five Thousand Dollars ($25,000) or twenty-five percent (25%) of the participant's annual base salary at the time of the participant's retirement. 3 SECTION 9 - BENEFICIARY DESIGNATION AND PAYMENT (a) Each participant shall complete a beneficiary designation form as prescribed by the Committee designating the beneficiary or beneficiaries to receive the amounts hereunder upon the participant's death. Each participant may designate one or more individuals, trusts or organizations as the primary beneficiary(ies). If more than one primary beneficiary is designated, the participant shall specify the percentage to be paid to each primary beneficiary. Each participant shall also designate a contingent beneficiary(ies), who shall receive payment hereunder only if the designated primary beneficiary(ies) does not survive the participant. (b) Unless a participant has previously made an irrevocable beneficiary designation, a participant may change his or her beneficiary designation at any time without the consent of any previously designated beneficiary by completing a new beneficiary designation form and delivering such form to the Secretary of the Committee. Such new beneficiary designation shall be effective when the completed form is received by the Secretary of the Committee. (c) In the event a participant failed to make a beneficiary designation, the amount payable under Section 7 or Section 8 shall be paid to the participant's estate. The amount payable under Section 7 or Section 8 shall be paid within sixty (60) days of the receipt by the Secretary of the Committee of a certified copy of the death certificate of the deceased participant. Any amount not paid within sixty (60) days of such receipt shall bear interest at the rate of interest announced from time to time as the corporate base rate announced from time to time by The First National Bank of Chicago or its successor by merger during the period from the date the payment shall have been made to the date it is made. The Corporation shall withhold from such payment any applicable federal, state or local taxes thereon. SECTION 10 - GENERAL (a) Neither the establishment of the Plan nor any provisions of the Plan or modification thereof shall be held or construed as giving any participant in the Plan the right to be retained in the service of the Corporation or its affiliated companies, and the Corporation and its affiliated companies expressly reserve the right to discharge any such participant whenever the interests of the Corporation and its affiliated companies may so require. (b) Notwithstanding any other provision in the Plan to the contrary, but subject to Paragraph (c) of this Section 10, and as determined solely by the Committee, (i) no benefit or coverage shall be provided under the Plan to any participant, including a retired participant or disabled participant, who engages in any activity that, in the opinion of the Committee, is competitive with any activity of the Corporation or any affiliated company (except that employment at the request of the Corporation with an entity in which the 4 Corporation has, directly or indirectly, a substantial ownership interest, or other employment specifically approved by the Committee, shall not be considered to be an activity that is competitive with any activity of the Corporation or any affiliated company) or otherwise acts, either prior to or after termination of employment, in any manner inimical or in any way contrary to the best interests of the Corporation; and (ii) no benefit or coverage under the Plan shall be provided to any participant, including a disabled participant or retired participant, if the participant's employment with the Corporation or an affiliated company terminates because of dishonesty, fraud, misappropriation of funds, the commission of a felony, or willful or gross misconduct or willful or gross negligence in the performance of such person's duties, or if during the course of such employment, the participant engages in, or had engaged in, such conduct. (c) Any right of a participant and his beneficiary hereunder shall be that of an unsecured general creditor of the Corporation, and no participant or beneficiary shall have any preferred claims on, or any beneficial ownership in, the assets of the Corporation, including any assets in which the Corporation may invest to aid in meeting its obligations under the Plan. (d) To the maximum extent permitted by law, a participant's or beneficiary's interest and rights shall not be assignable in law or in equity or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment, garnishment, levy, execution, or encumbrances of any kind, except that a participant shall have the right under Section 9 to designate irrevocably a beneficiary to receive the amounts hereunder upon the participant's death. (e) If the Committee determines that a beneficiary is legally incompetent to receive a distribution hereunder, the Committee may cause any distribution due to such beneficiary to be made to the guardian or other legal representative of such beneficiary, or in the absence of such guardian or other legal representative, to such other person or institution who is otherwise maintaining and has custody of such beneficiary. Such distribution, to the extent made, shall be a valid and complete discharge of liability therefor under the Plan. SECTION 11 - AMENDMENT, SUSPENSION AND TERMINATION The Board of Directors of the Corporation reserves the right at any time to amend, suspend or terminate the Plan; provided, however, no such amendment, suspension or termination shall adversely affect the rights hereunder of any participant in the Plan unless the prior written approval of the participant so affected is obtained. SECTION 12 - GOVERNING LAW The Plan and all determinations made and action taken pursuant thereto shall be governed by the laws of the State of Delaware and construed in accordance therewith. 5 EX-10.(S) 9 INDIVIDUAL CHANGE OF CONTROL EMPLOYMENT AGREMNT. EXHIBIT 10(S). FORM OF INDIVIDUAL CHANGE OF CONTROL EMPLOYMENT AGREEMENT Each of the following individuals is a party to a Change of Control Employment Agreement with the Corporation, the form and terms of which are substantially as attached. Frederick M. Adams, Jr. John W. Ballantine Gordon S. Crimmins Robert A. DeAlexandris Alan F. Delp Sherman I. Goldberg Thomas H. Hodges Verne G. Istock Thomas H. Jeffs II Philip S. Jones W.G. Jurgensen James R. Lancaster Scott P. Marks, Jr. Thomas J. McDowell Timothy P. Moen Susan S. Moody Andrew J. Paine, Jr. Robert A. Rosholt Richard L. Thomas David J. Vitale CHANGE OF CONTROL EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between First Chicago NBD Corporation, a Delaware corporation (the "Company"), and _______________ (the "Executive"), dated as of the 11th day of July, 1995. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"), provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, the corporation resulting from such Business Combination or the combined voting power of the then 2 outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the merger of the Company with First Chicago Corporation shall not constitute a Change of Control. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base 3 salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus in cash at least equal to the Executive's average bonus under the Company's annual incentive plans, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Average Bonus"). Each such annual bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the annual bonus is awarded, unless the Executive shall elect to defer the receipt of such annual bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the 4 Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full- time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the 5 Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 6 (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 7 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Recent Average Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and one-half (2.5) and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Recent Average Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for thirty months after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination. (ii) for thirty months after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be 8 considered to have remained employed until thirty months after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. 9 (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f) shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise 10 tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payment, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up 11 Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 12 (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no 13 force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: ------------------- Name of Executive Street Address City, Michigan 48XXX If to the Company: ------------------ Fred J. Johns Secretary to the Compensation Committee Board of Directors First Chicago NBD Corporation One First National Plaza Chicago, IL 60670 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 14 (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. FIRST CHICAGO NBD CORPORATION By: -------------------------------------- ----------------------------------------- [Name of Executive] 15 EX-10.(T) 10 INDIVIDUAL EXECUTIVE EMPLOYMENT AGREMNT. EXHIBIT 10(T). FORM OF INDIVIDUAL EXECUTIVE EMPLOYMENT AGREEMENT Each of the following individuals is a party to an Executive Employment Agreement with the Corporation, the form and terms of which are substantially as attached. Frederick M. Adams, Jr. John W. Ballantine Gordon S. Crimmins Robert A. DeAlexandris Alan F. Delp Sherman I. Goldberg Thomas H. Hodges Verne G. Istock Thomas H. Jeffs II Philip S. Jones W.G. Jurgensen James R. Lancaster Scott P. Marks, Jr. Thomas J. McDowell Timothy P. Moen Susan S. Moody Andrew J. Paine, Jr. Robert A. Rosholt Richard L. Thomas David J. Vitale EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between First Chicago NBD Corporation, a Delaware corporation (the "Company") and _________ (the "Executive"), dated as of the ______ day of December, 1995. In light of the merger of First Chicago Corporation and the Company ("Merger"), the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger. 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on December 1, 1997 (the "Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive shall serve as _______, with such authority, duties and responsibilities as are assigned to the Executive on the Effective Date and as may be consistent with such position as may be assigned to him by the Chief Executive Officer of the Company and (B) the Executive's services shall be performed at any Company office located in the Midwestern United States. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans applicable generally to other peer executives of the Company and its affiliated companies. (iii) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, accidental death and travel accident insurance plans) to the extent applicable generally to other peer executives of the Company and its affiliated companies. (iv) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company's policies. (v) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, in accordance with Company policy as in effect from time to time. (vi) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect generally at any time with respect to other peer executives of the Company and its affiliated companies. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment -2- Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or any other offense involving dishonesty or breach of trust, or entry of a guilty or nolo contendere plea by the Executive or participation in a pre-trial diversion with respect thereto, or (iv) a material breach of the covenants contained in Section 9. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three- -3- fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) any action by the Company which results in a diminution of officer title or a material diminution in the position, authority, duties or responsibilities associated with such officer title as are assigned to the Executive as of the Effective Date, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any material failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location outside of the Midwestern United States; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement. For purposes of this Section 4(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any -4- right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Executive's average bonus under the Company's annual incentive plans with respect to the last three full fiscal years prior to the Date of Termination (the "Average Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365; and B. the amount equal to the product of (1) two and one-half and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Average Annual Bonus; (ii) the Company shall pay the following to the Executive after the Date of Termination pursuant to the terms of the applicable plan and/or deferral election: A. any compensation previously deferred (other than pursuant to a qualified plan) by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (i)(A)(1), (i)(A)(2), and this (ii)(A) shall be hereinafter referred to as the "Accrued Obligations"); and B. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect -5- under the Company's Retirement Plan immediately prior to the Effective Date), and any excess and/or supplemental retirement plans in which the Executive participates (together, the "SERPs") which the Executive would receive if the Executive's employment continued for thirty months after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 3(b)(i) and assuming an annual bonus equal to the Average Annual Bonus, over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERPs as of the Date of Termination; (iii) for thirty months after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, described in Section 3(b)(iii) of this Agreement if the Executive's employment had not been terminated; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, the Executive shall be considered to have remained employed until thirty months after the Date of Termination and to have retired on the last day of such period; (iv) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services at a cost not to exceed $35,000; provided that the provider of such services must be approved by the Company; and (v) to the extent not theretofore paid or provided, the Company shall provide to the Executive for one year following the Date of Termination reasonable and appropriate office space, secretarial support and use of a Company provided automobile, but only if such automobile was provided prior to the Date of Termination. (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment of death benefits as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the -6- timely payment, after the Disability Effective Date, of disability benefits as in effect on the Disability Effective Date with respect to other peer executives of the Company and its affiliated companies. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive (such deferred amounts payable pursuant to the terms of the applicable plan or deferral election) and (z) any accrued vacation pay, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Set-Off; No Mitigation; Legal Expenses. Notwithstanding any provision of this Agreement, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder are subject to and may be reduced by all rights of set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 5(a)(iii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the application Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). -7- 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Grosse-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP or such other certified public accounting firm reasonably acceptable to the Company as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the surviving corporation following the Merger, the Executive may appoint another nationally recognized accounting firm reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax or (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. -8- As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for -9- a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. A violation of the provisions of this Section 9 shall constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) In the event of a breach or threatened breach of this Section 9, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach and the Executive acknowledges that damages would be inadequate and insufficient. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. -10- 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Non-Solicitation. The Executive acknowledges that the Executive has and will learn confidential information relating to the customers of the Company and its affiliated companies. The Executive further acknowledges that the Company's relationship with its customers are extremely valuable to them, are generally the result of the investment of substantial time and effort by them, and tend to be near permanent. Therefore, the Executive agrees that in the event Executive's employment terminates during the Employment Period for any reason whatsoever, the Executive shall not, for a period of one year after the occurrence of such termination, for himself, or as the agent of, on behalf of, or in conjunction with, any person or entity, solicit or attempt to solicit, whether directly or indirectly: (i) any employee of the Company or its affiliated companies to terminate such employee's employment relationship with the Company or its affiliated companies, or (ii) any business of the type provided by the Company or its affiliated companies from any person or entity that is or was a client, employee, or customer of the Company or its affiliated companies and had dealt with the Executive or any other employee of the Company or its affiliated companies under the supervision of the Executive. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -11- If to the Executive: ------------------- Name of Executive One First National Plaza Chicago, Illinois 60670 If to the Company: ----------------- First Chicago Corporation One First National Plaza Chicago, Illinois 60670 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will", and prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time for any reason, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof other than the Change of Control Employment Agreement dated July 11, 1995 between the parties, which shall, upon a Change of Control (as defined therein) supersede this Agreement. -12- (g) Notwithstanding any provision of this Agreement, the Company shall have no obligation to make any payments to the Executive if or to the extent such payments are prohibited by any applicable law or regulation, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and regulations regarding golden parachute and indemnification payments promulgated thereunder. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ------------------------- [Name of Executive] FIRST CHICAGO NBD CORPORATION By: ---------------------------- -13- EX-10.(W) 11 LETTER TO RICHARD L. THOMAS FIRST EXHIBIT 10(W). CHICAGO NBD CORPORATION One First National Plaza Chicago, Illinois 60670 Telephone: (312) 732-7200 Fax: (312) 732-5309 TIMOTHY P. MOEN Executive Vice President Human Resources December 18, 1995 Richard L. Thomas Chairman First Chicago NBD Corporation One First National Plaza, Suite 0518 Chicago, IL 60670 Dear Dick: The purpose of this letter is to confirm the recent compensation actions approved for you by the Boards of First Chicago and First Chicago NBD Corporation. On November 10, 1995, the First Chicago Corporation Board of Directors authorized the following: . Based on anticipated performance levels for 1995, your annual incentive award is to be $1,670,000. Your award is scheduled to be paid in late January, 1996. The award amount is subject to change based on any significant change in either individual performance and/or the performance of the Corporation. . A cash payment for your lifetime of service to First Chicago Corporation of $151,000 payable in January, 1996. . Other actions in anticipation of your retirement: - Office space and secretarial support for your lifetime - A car and driver while you serve as a director of the Corporation - Business travel and entertainment expenses up to $50,000 per year while you serve as a director of the Corporation - Continuation of the security system installed at your home while you serve as director of the Corporation On December 8, 1995, the First Chicago NBD Corporation Board approved a special service recognition of $1.0 million to be paid on, or about May 10, 1996. Yours sincerely, /s/ Tim TPM/yt EX-10.(X) 12 DIRECTOR STOCK PLAN EXHIBIT 10(X) FIRST CHICAGO NBD CORPORATION DIRECTOR STOCK PLAN 1. PURPOSE OF THE PLAN The purpose of the First Chicago NBD Corporation Director Stock Plan is to promote the long-term growth of First Chicago NBD Corporation by increasing the proprietary interest of non-employee directors in First Chicago NBD Corporation and to attract and retain highly qualified and capable directors. 2. DEFINITIONS Unless the context clearly indicates otherwise, the following terms shall have the following meanings: (a) "Annual Retainer" means the annual cash retainer fee payable during the Plan Year by the Corporation or any subsidiary or affiliate of the Corporation to a Director for services as a Director of the Corporation or any subsidiary or affiliate. To the extent a Director is also entitled to an additional retainer as a result of being the chairperson of a committee of the Board, Annual Retainer will also include such additional annual cash retainer. (b) "Award" means an award granted to a Director under the Plan in the form of Options, Shares, or Stock Units or any combination thereof. (c) "Award Grant Date" means the date upon which an Award is granted to the Director. (d) "Award Summary" means a written summary setting forth the terms and conditions of each Award made under this Plan. (e) "Board" means the Board of Directors of First Chicago NBD Corporation. (f) "Change of Control" means a change of control as defined in the First Chicago NBD Corporation Stock Performance Plan or any successor thereto. (g) "Committee" means the Organization, Compensation and Nominating Committee of the Board or such other Committee of the Board as may be designated by the Board from time to time to administer the Plan. (h) "Corporation" means First Chicago NBD Corporation, a Delaware Corporation. (i) "Director" means a director of the Corporation who is not an employee of the Corporation or any subsidiary of the Corporation. Director shall also include a director of any subsidiary or affiliate of the Corporation who is not an employee of the Corporation or a subsidiary or affiliate of the Corporation provided that the Board has approved adoption of the Plan by the subsidiary or affiliate. (j) "Fair Market Value" means the average of the highest and the lowest quoted selling prices on the New York Stock Exchange Composite Transactions Tape on the relevant valuation date or, if there were no sales on the valuation date, on the next preceding date on which such selling prices were recorded. (k) "Option" means an option to purchase Shares awarded under Section 9 which does not meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, or any successor law. (l) "Optionee" means a Director of the Corporation to whom an Option has been granted or, in the event of such Director's death prior to the expiration of an Option, such Director's executor, administrator, beneficiary or similar person. (m) "Plan" means the First Chicago NBD Corporation Director Stock Plan, as amended and restated from time to time. (n) "Plan Year" means the twelve month period from April 1 to March 31. (o) "Share" means a share of common stock, $1.00 par value per share, of the Corporation. (p) "Stock Unit" means the right to receive a Share on a date elected by the Director pursuant to rules established by the Committee along with such dividend or dividend equivalent rights as may be permitted hereunder. 1 3. ELIGIBILITY Directors shall be eligible to participate in the Plan in accordance with Sections 7, 8 and 9. 4. PLAN ADMINISTRATION (a) Administrator of Plan. The Plan shall be administered by the Committee. (b) Authority of Committee. The Committee shall have full power and authority to (i) interpret and construe the Plan and Award Summaries and adopt such rules as it shall deem necessary and advisable to implement and administer the Plan and (ii) designate persons other than members of the Committee to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee's best business judgment as to the best interests of the Corporation and its stockholders and in accordance with the purposes of the Plan. The Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable. (c) Determinations of Committee. A majority of the Committee shall constitute a quorum at any meeting of the Committee, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or a meeting of the Committee by a written consent signed by all members of the Committee. (d) Effect of Committee Determinations. No member of the Committee or the Board shall be personally liable for any action or determination made in good faith with respect to the Plan or any Award or to any settlement of any dispute between a Director and the Corporation. Any decision made or action taken by the Committee or the Board with respect to an Award or the administration or interpretation of the Plan shall be conclusive and binding upon all persons. 5. SHARES SUBJECT TO THE PLAN Subject to adjustments as provided in Section 14, the aggregate number of Shares which may be issued pursuant to Awards shall not exceed 1,000,000 Shares. To the extent that Shares subject to an outstanding Option are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such Option or by reason of the delivery of Shares to pay all or a portion of the exercise price of such Option, then such Shares shall again be available for issuance under the Plan. 6. AWARDS UNDER THE PLAN Awards in the form of Shares shall be granted to Directors in accordance with Section 7. Awards in the form of Options, Shares or Stock Units, or a combination thereof, may be granted to Directors in accordance with Section 8. Awards in the form of Stock Units may be granted to Directors in accordance with Section 9. Each Award granted under Section 8 and Section 9 shall be evidenced by an Award Summary. Delivery of an Award Summary shall constitute an agreement, subject to Section 3 and Section 11, between the Corporation and the Director as to the terms and conditions of the Award. 7. ANNUAL STOCK RETAINER Each Director shall be granted Shares, subject to the following terms and conditions: (a) Time of Grant. Each Director shall be granted, as of the date of each annual meeting of stockholders of the Corporation (except in 1996, as of August 1, 1996) the Director's annual stock retainer. In the case of a Director who is appointed to the Board on a date during the Plan Year which follows the date of an annual meeting of stockholders, the Director shall be granted, as of the date such Director is first appointed to the Board, the Director's annual stock retainer, as prorated in the manner described below. (b) Number of Shares. The number of Shares granted pursuant to this Section shall be the number of whole Shares equal to (i) one-half of the Annual Retainer (without taking into consideration any chairperson retainer) divided by (ii) the Fair Market Value per Share on the Award Grant Date (increased to the next whole share in case of any fractional share). In the case of a Director who is appointed to the Board on a date during the Plan Year which follows the date of an annual meeting of stockholders, the number of Shares granted pursuant to this Section for such Director shall be calculated in the manner described in the previous sentence, except that (i) the Fair Market Value per Share shall be determined as of the date the Director is appointed to the Board, and (ii) the number of Shares granted shall be prorated 2 based upon the number of calendar months during which such Director will serve on the Board prior to the beginning of the next Plan Year. (Any part of a calendar month will count as a whole month for purposes of these calculations.) 8. ELECTIVE OPTIONS, SHARES AND STOCK UNITS Each Director shall be granted Options, Shares or Stock Units, or a combination thereof, subject to the following terms and conditions: (a) Time of Grant. As of the date of each annual meeting of stockholders of the Corporation (except in 1996, as of August 1, 1996), an Award, shall be granted to each Director who, at least six months prior thereto, files with the Committee or its designee a written election to receive such Award, or a combination thereof, in lieu of all or a portion of such Director's Annual Retainer. Each Director's election shall remain in effect and be applicable with respect to subsequent years' Annual Retainers unless the Director files a revised election pursuant to the first sentence of this Section 8(a). In the event a Director does not file a written election in accordance with the first sentence by reason of becoming a Director after the date which is six months prior to the annual meeting of stockholders of the Corporation in any year, an Award, shall be granted to such Director pursuant to rules established by the Committee on the first day (the "Effective Date") which is six months after the date such Director files with the Committee or its designee a written election to receive such Award, in lieu of all or a portion of such Director's Annual Retainer; provided, however, that such election may apply only to the portion of such Director's Annual Retainer multiplied by a fraction, the numerator of which is the number of months from and including the Effective Date to and including the end of such Plan Year and the denominator of which is 12. An election pursuant to the first sentence of this Section 8(a) may be revoked or changed only on or prior to the date which is six months prior to the annual meeting of stockholders of the Corporation. An election pursuant to the third sentence of this Section 8(a) shall be irrevocable with respect to the Director's Annual Retainer paid during the Director's first Plan Year. (b) Number of Shares. The number of Shares granted pursuant to Section 8(a) shall be the number of whole Shares (increased to the next highest whole Share in case of any fractional Share) equal to (i) the portion of the Annual Retainer which the Director has elected pursuant to Section 8(a) to be payable in Shares, divided by (ii) the Fair Market Value per Share on the Award Grant Date. (c) Number and Purchase Price of Options. The number of Shares subject to an Option granted pursuant to Section 8(a) shall be the number of Shares equal to the product of three (3) times the number of Shares the Director would have received had the Director elected to receive Shares under Section 8(b) rather than Options under this Section 8(c). The purchase price per Share under each Option granted shall be 100% of the Fair Market Value per Share on the Award Grant Date. (d) Exercise of Options. Each Option shall be fully exercisable on and after that date which is six months after the Award Grant Date and, subject to Section 11, shall not be exercisable prior to such date. An Option may be exercised until the date which is ten years after the Award Grant Date of such Option. An Option, or portion thereof, may be exercised in whole or in part only with respect to whole Shares. Shares shall be issued to the Optionee pursuant to the exercise of an Option only upon receipt by the Corporation from the Optionee of payment in full either in cash or by submitting acceptable proof to the Committee of the ownership of Shares which have been owned by the Optionee for at least six months prior to the date of exercise of the Option, or a combination of cash and Shares, in an amount or having a combined value equal to the aggregate purchase price for the Shares subject to the Option or portion thereof being exercised. The Shares issued to an Optionee for the portion of any Option exercised by submitting proof of acceptable ownership of Shares shall not exceed the number of Shares issuable as a result of such exercise (determined as though payment in full therefor were being made in cash) less the number of Shares for which proof of ownership is submitted. The value of owned Shares for which proof of ownership is submitted in full or partial payment for the Shares purchased upon the exercise of an Option shall be equal to the aggregate Fair Market Value of such owned Shares on the date of the exercise of such Option. (e) Number of Stock Units. The number of Stock Units granted pursuant to Section 8(a) shall be the number of Stock Units equal to (i) the portion of the Annual Retainer which the Director has elected pursuant to Section 8(a) to be payable in Stock Units, divided by (ii) the Fair Market Value per Share on the Award Grant Date. A Director who has been awarded Stock Units shall be credited while such Stock Units remain outstanding with additional Stock Units equal to (1) the product of (i) the cash dividend per Share declared after the Stock Units are awarded and (ii) the number of Stock Units credited to the Director divided by (2) the Fair Market Value of a Share on the date the dividend is paid. Such additional Stock Units shall be issued as Shares at the same time and in the same manner as the underlying Stock Units to which they are attributable. 3 (f) Distribution of Stock Units. Upon the date elected by the Director, the Director will receive one Share for each Stock Unit including any fraction thereof. In the event of a Director's death prior to the issuance of Shares attributable to Stock Units, Shares attributable to such Director's Stock Units shall become immediately distributable to such Director's executor, administrator, beneficiary or similar person. 9. AWARD OF STOCK UNITS BASED UPON VALUE OF TERMINATED DIRECTOR RETIREMENT PLAN BENEFITS AND PRIOR DIRECTOR DEFERRALS (a) Terminated Retirement Plan Benefits. Pursuant to rules established by the Committee, a Director who participated in either the NBD Bancorp, Inc. Non- Employee Director Retirement Plan or the First Chicago Corporation Director Retirement Income Plan ("Retirement Plans"), both of which were terminated effective January 31, 1996, may elect pursuant to a six-month irrevocable election to receive all or a portion of the Director's benefit under the Retirement Plans in Stock Units payable in Shares upon the such Director's retirement from the Board. The number of Stock Units awarded pursuant to this Section 9(a) shall be determined consistent with Section 8(e). (b) Prior Director Deferrals of NBD Bancorp, Inc. Directors. Pursuant to rules established by the Committee, a Director who deferred annual retainers under the NBD Bancorp, Inc. Plan for Deferring the Payment of Directors' Fees may elect pursuant to a six-month irrevocable election to receive all or a portion of the Director's benefits under such plan in Stock Units payable in Shares pursuant to the election filed by the Director under such plan. The number of Stock Units awarded pursuant to this Section 9(b) shall be determined consistent with Section 8(e). (c) Prior Director Deferrals of First Chicago Corporation Directors. Pursuant to rules established by the Committee, each Director who deferred annual retainers under the First Chicago Corporation Compensation Agreement and The First National Bank of Chicago Compensation Agreement ("Agreements") may elect pursuant to a six-month irrevocable election to have the value of the deferred retainers under the Agreements as of a date determined by the Committee awarded in Stock Units payable in Shares at the time elected by such Directors under the Agreements. The number of Stock Units awarded pursuant to this Section 9(c) shall be determined consistent with Section 8(e). 10. ISSUANCE OF SHARES Upon an Award of Shares to a Director pursuant to this Plan, the Shares shall be credited to a book entry account in the name of the Director at a trust company designated by the Committee, whereupon the Director shall become a stockholder of the Corporation with respect to such Shares and shall be entitled to vote the Shares. 11. NON-TRANSFERABILITY OF OPTIONS AND STOCK UNITS All Options and Stock Units granted under the Plan shall not be transferable by a Director during his or her lifetime and may not be assigned, exchanged, pledged, transferred or otherwise encumbered or disposed of except by court order, will or by the laws of descent and distribution. Notwithstanding the foregoing, in the event Options may be transferable in accordance with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, then each Option shall be transferable to the extent set forth under the terms of each Award, as determined by the Committee. In the event that any Option is thereafter transferred as permitted by the preceding sentence, the permitted transferee thereof shall be deemed the Optionee hereunder. Options shall be exercisable during the Optionee's lifetime only by the Optionee or by the Optionee's guardian, legal representative or similar person. 12. CHANGE OF CONTROL Upon the occurrence of a Change of Control, any and all outstanding Options shall become immediately exercisable and all Stock Units shall become distributable in Shares. 13. AMENDMENT AND TERMINATION The Board may amend the Plan from time to time or terminate the Plan at any time; provided, however, than no action authorized by this Section shall adversely change the terms and conditions of an outstanding Option or Stock Unit without the Optionee's consent and, subject to Section 14, the number of Shares subject to an Option granted under Section 8, the purchase price therefor, the date of grant of any such Option and the termination provisions relating to such Option, and shall not be amended more than once every six months, other than to comply with changes in the Internal Revenue Code of 1986, as amended, or any successor law, or the Employee Retirement Income Security Act of 1974, as amended, or any successor law, or the rules and regulations thereunder. 4 14. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Directors, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional Shares resulting from any such adjustment shall be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Directors in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. 15. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the law of the State of Delaware. 16. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, Section 16 of the Securities Exchange Act of 1934 and Rule 16b-3 of the Securities and Exchange Commission. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. 17. EFFECTIVE DATE AND TERM The effective date of this Plan is January 2, 1996, subject to its approval by the stockholders of the Corporation at the annual meeting to be held on May 10, 1996, or any adjournment thereof. The Plan shall remain in effect until terminated by the Board. 5 EX-10.(Y) 13 STOCK PERFORMANCE PLAN EXHIBIT 10(Y) FIRST CHICAGO NBD CORPORATION STOCK PERFORMANCE PLAN 1. PURPOSE The purpose of the First Chicago NBD Corporation Stock Performance Plan is to provide incentives and rewards for Employees of the Corporation and its Subsidiaries (i) to support the execution of the Corporation's business and human resource strategies and the achievement of its goals and (ii) to associate the interests of Employees with those of the Corporation's stockholders. 2. DEFINITIONS (a) "Award" includes, without limitation, stock options (including incentive stock options under Section 422 of the Code), stock appreciation rights, performance share or unit awards, dividend or equivalent rights, stock awards, restricted share or unit awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Corporation's Common Stock ("other Common Stock-based Awards"), all on a stand alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Summary" means a written summary setting forth the terms and conditions of each Award made under this Plan. (c) "Board" means the Board of Directors of the Corporation, excluding any member who is an officer or Employee of the Corporation or who otherwise would not be considered a disinterested person within the meaning of Rule 16b-3 of the Securities and Exchange Commission. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the Organization, Compensation and Nominating Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (f) "Common Stock" means the Common Stock, par value $1.00 per share, of the Corporation. (g) "Corporation" means First Chicago NBD Corporation, a Delaware corporation. (h) "Employee" means an employee of First Chicago NBD Corporation or a Subsidiary. (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (j) "Fair Market Value" means the average of the highest and the lowest quoted selling prices on the New York Stock Exchange Composite Transactions Tape on the relevant valuation date or, if there were no sales on the valuation date, on the next preceding date on which such selling prices were recorded; provided, however, that the Committee may modify the definition of Fair Market Value with respect to any particular Award. (k) "Participant" means an Employee who has been granted an Award under the Plan. (l) "Plan" means this First Chicago NBD Corporation Stock Performance Plan. (m) "Plan Year" means a twelve-month period beginning with January 1 of each year. (n) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of at least 50% by reason of stock ownership or otherwise. 3. ELIGIBILITY Any Employee selected by the Committee is eligible to receive an Award. In addition, the Committee may select those former Employees who have a consulting arrangement with the Corporation or a Subsidiary whom the Committee determines have a significant responsibility for the success and future growth and profitability of the Corporation. 1 4. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and the Award Summaries and make determinations pursuant to any Plan provision or Award Summary which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. (c) The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. (d) The Committee shall have the authority at any time prior to a Change of Control (as defined in Section 12(b)) to cancel Awards for reasonable cause and to provide for the conditions and circumstances under which Awards shall be forfeited. 5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section 10, and subject to Section 5(b) below, the total number of shares of Common Stock available for grants of Awards in any Plan Year shall not exceed 2% of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year. (b) There shall be available for Awards under the Plan in any Plan Year, in addition to shares available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5 for any prior Plan Year; (ii) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations; (iv) any shares of Common Stock that are used to pay the purchase price or any withholding taxes associated therewith upon the exercise of an option, to the extent such shares result in the grant of a replacement option; provided, however, that the total number of shares of Common Stock which may be available for Awards under the Plan in any Plan Year may not exceed 5% of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to the applicable Plan Year. (c) The exercise of an option or stock appreciation right granted in tandem therewith will reduce proportionately the amount of shares subject to the tandem stock appreciation right or option. In addition, any shares ceasing to be subject to the related option or right because of such reduction shall not increase the number of shares of Common Stock available for future Awards granted under the Plan. The grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares available for Awards granted under the Plan. 6. AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand alone, combination or tandem basis: (a) Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of such Award; provided further that no more than 2,000,000 stock options and stock appreciation rights in the aggregate (except that a stock option issued in 2 tandem with a stock appreciation right shall be counted as one stock option for purposes of this maximum) may be granted to any Employee during any five-year period. (b) Incentive Stock Option. An Award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor Section of the Code as it may be amended from time to time. Subject to adjustment in accordance with the provisions of Section 10, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed 10,000,000 shares, subject in any Plan Year to the limitations of Section 5 of this Plan. (c) Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted; provided that no more than 2,000,000 stock options and stock appreciation rights in the aggregate (except that a stock appreciation right issued in tandem with a stock option shall be counted as one stock option for purposes of this maximum) may be granted to any Participant during any five-year period. (d) Restricted And Performance Shares. A transfer of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine; provided that no more than 700,000 performance shares (determined based upon the maximum number of shares of Common Stock that may be earned) may be granted to any Employee during any five-year period. (e) Restricted And Performance Share Unit. A fixed or variable share or dollar denominated unit subject to such conditions of vesting, performance and time of payment as the Committee may determine, which are valued at the Committee's discretion in whole or in part by reference to, or otherwise based on, the Fair Market Value of Common Stock and which may be paid in Common Stock, cash or a combination of both. (f) Dividend Or Equivalent Right. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (g) Stock Award. An unrestricted transfer of ownership of Common Stock which may only be made to Employees other than Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. (h) Other Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section 6. No Common Stock shall be issued pursuant to any Award unless consideration at least equal to the par value thereof has been received by the Corporation in the form of cash, services rendered or property. The Committee may from time to time, establish performance criteria with respect to an Award. The performance criteria or standards may be based upon (i) earnings per share, (ii) return on average assets or (iii) return on average equity. Performance standards shall be determined by the Committee in its sole discretion and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee, including earnings, earnings growth, revenues, expenses, stock price, market share, charge-offs, loan loss reserves, reductions in non-performing assets, return on assets, return on equity or return on investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisition expenses including goodwill, unplanned stock offerings and strategic loan loss provisions. Such performance standards may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Corporation generally. 7. AWARD SUMMARIES Each Award under the Plan shall be evidenced by an Award Summary. Delivery of an Award Summary to each Participant shall constitute an agreement, subject to Section 4(d) and Section 9 hereof, between the Corporation and the Participant as to the terms and conditions of the Award. 8. OTHER TERMS AND CONDITIONS (a) Assignability. Except to the extent permitted by Rule 16b-3 under the Exchange Act, or Section 422 of the Code, and as otherwise provided in the Award Summary, no Award shall be assignable or transferable except by will, by the laws 3 of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code, and during the lifetime of a Participant, the Award shall be exercisable only by such Participant or such Participant's guardian, legal representative or assignee pursuant to a qualified domestic relations order. In the event that any Award is thereafter transferred as permitted by the preceding sentence, the permitted transferee thereof shall be deemed the Award recipient hereunder. Stock options, incentive stock options and stock appreciation rights shall be exercisable during the transferee's lifetime only by the Award recipient or by the Award recipient's guardian, legal representative or similar person. (b) Termination Of Employment. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment. (c) Rights As A Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant or his nominee, guardian or legal representative is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) No Obligation To Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) Payments By Participants. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate. (f) Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. The Committee may provide for shares of Common Stock to be withheld for tax withholding purposes in excess of the required minimum amount but not in excess of a Participant's maximum marginal tax rate. (g) Restrictions On Sale and Exercise. With respect to Employees who are officers and directors for purposes of Section 16 of the Exchange Act, and if required to comply with rules promulgated thereunder, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of Common Stock by the Participant for at least six months from the date of grant, and (ii) Common Stock acquired pursuant to this Plan (other than Common Stock acquired as a result of the granting of a "derivative security") may not be sold for at least six months after acquisition. 9. AMENDMENTS The Board may alter, amend, suspend or discontinue the Plan or at any time prior to a Change of Control (as defined in Section 12(b)) alter or amend any or all Award Summaries granted under the Plan to the extent permitted by law. Any such action of the Board may be taken without the approval of the Corporation's stockholders, but only to the extent that such stockholder approval is not required by applicable law or regulation, including specifically Rule 16b-3 of the Securities and Exchange Commission. 10. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spinoff, extraordinary dividend or other distribution or similar transaction. 4 11. NO RIGHT TO EMPLOYMENT No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Summary issued hereunder. 12. CHANGE OF CONTROL (a) Notwithstanding anything contained in this Plan or any Award Summary to the contrary, in the event of a Change of Control, as defined below, the following shall occur with respect to any and all Awards outstanding as of such Change of Control: (i) automatic maximization of performance standards, lapse of all restrictions and acceleration of any time periods relating to the exercise, realization or vesting of such Awards so that such Awards may be immediately exercised, realized or vested in full on or before the relevant date fixed in the Award Summary; (ii) performance shares or performance units shall be paid entirely in cash; (iii) upon exercise of a stock option or an incentive stock option (collectively an "Option") during the 60-day period from and after the date of a Change of Control, the Participant exercising the Option may in lieu of the receipt of Common Stock upon the exercise of the Option, elect by written notice to the Corporation to receive an amount in cash equal to the excess of the aggregate Value (as defined below) of the shares of Common Stock covered by the Option or portion thereof surrendered determined on the date the Option is exercised, over the aggregate exercise price of the Option (such excess is referred to herein as the "Aggregate Spread"); provided, however, and notwithstanding any other provision of the Plan, if the end of such 60-day period from and after the date of a Change of Control is within six months of the date of grant of an Option held by a Participant who is an officer or director of the Corporation (within the meaning of Section 16(b) of the Exchange Act), such Option shall be cancelled in exchange for a cash payment to the Participant equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Option. As used in this Section 12(a)(iii) the term "Value" means the higher of (i) the highest Fair Market Value during the 60-day period from and after the date of a Change of Control and (ii) if the Change of Control is the result of a transaction or series of transactions described in paragraphs (I) or (III) of the definition of Change of Control set forth in Section 12(b), the highest price per share of the Common Stock paid in such transaction or series of transactions (which in the case of paragraph (I) shall be the highest price per share of the Common Stock as reflected in a Schedule 13D by the person having made the acquisition); (iv) if a Participant's employment terminates for any reason other than retirement or death following a Change of Control, any Options held by the Participant may be exercised by the Participant until the earlier of three months after such termination of employment or the expiration date of such Options; and (v) all Awards become noncancellable. (b) A "Change of Control" of the Corporation shall be deemed to have occurred upon the happening of any of the following events: (I) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"), provided, however, that for purposes of this subsection (I), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Corporation, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (III) of this Section 12(b); or (II) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption 5 of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (III) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (IV) Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. 13. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the law of the State of Delaware. 14. SUPPLEMENTAL PLANS The Board shall have the authority to adopt plans, supplemental to this Plan, covering Employees residing outside the United States, including but not limited to the United Kingdom. 15. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Employees who are officers or directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 of the Securities and Exchange Commission. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. 16. EFFECTIVE DATE AND TERM The effective date of this Plan is January 1, 1996, subject to its approval by the stockholders of the Corporation at the annual meeting to be held on May 10, 1996, or any adjournment thereof. The Plan shall remain in effect until terminated by the Board. 6 15. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Employees who are officers or directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 of the Securities and Exchange Commission. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. 16. EFFECTIVE DATE AND TERM The effective date of this Plan is January 1, 1996, subject to its approval by the stockholders of the Corporation at the annual meeting to be held on May 10 , 1996, or any adjournment thereof. The Plan shall remain in effect until terminated by the Board. 7 EX-10.(Z) 14 SENIOR MANAGEMENT ANNUAL INCENTIVE PLAN EXHIBIT 10(Z) FIRST CHICAGO NBD CORPORATION SENIOR MANAGEMENT ANNUAL INCENTIVE PLAN 1. PURPOSE The First Chicago NBD Corporation Senior Management Annual Incentive Plan is designed to (i) assist First Chicago NBD Corporation in attracting, retaining and motivating senior management employees, (ii) associate Participant's interests with those of the Corporation's stockholders and (iii) qualify annual incentive compensation paid to Participants who are "covered employees" as "other performance-based compensation" within the meaning of Section 162(m) of the Code or a successor provision. 2. DEFINITIONS Terms not otherwise defined herein shall have the following meanings: (a) "Board" means the Board of Directors of First Chicago NBD Corporation. (b) "Change of Control" means a change of control as defined in the First Chicago NBD Corporation Stock Performance Plan or any successor thereto. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the committee appointed by the Board to administer the Plan as provided herein. Unless otherwise determined by the Board, the Organization, Compensation and Nominating Committee of the Board shall be the Committee. (e) "Corporation" means First Chicago NBD Corporation and its successors and assigns and any corporation which shall acquire substantially all of its assets. In addition, Corporation shall include any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of at least 50% by reason of stock ownership or otherwise. (f) "Incentive Payment" means a payment under this Plan made in cash to a Participant, subject to Section 4 hereof. (g) "Incentive Period" means the calendar year, except to the extent the Committee determines otherwise. (h) "Participant" means an employee of the Corporation who is a member of senior management and is designated by the Committee as eligible to receive an Incentive Payment under the Plan for an Incentive Period. (i) "Performance Goals" mean (i) earnings per share, (ii) return on average equity, (iii) return on average assets, or (iv) any other objective performance goals as may be established by the Committee for an Incentive Period. Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee for an Incentive Period, including earnings, earnings growth, revenues, expenses, stock price, market share, charge-offs, loan loss reserves, reductions in non- performing assets, return on assets, return on equity or return on investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisition expenses including goodwill, unplanned stock offerings and strategic loan loss provisions. Such Performance Goals may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Corporation generally. Such Performance Goals may cover such period as may be specified by the Committee. (j) "Plan" means the First Chicago NBD Corporation Senior Management Annual Incentive Plan. 3. ADMINISTRATION (a) The Plan shall be administered by the Committee. The Committee shall have authority to determine the terms of all Incentive Payments hereunder, including, without limitation, the Participants to whom, and the time or times at which, payments are made, the amount of a Participant's Incentive Payments, the Incentive Period to which each Incentive Payment shall relate, the actual dollar amount to be paid, and when the Incentive Payments shall be made (which payments may, without limitation, be made during or after an Incentive Period, on a deferred basis or in installments). 1 (b) Subject to the express provisions of the Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of the Plan. The determinations of the Committee pursuant to its authority under the Plan shall be conclusive and binding. (c) The Committee may, in its discretion, authorize the Chief Executive Officer of the Corporation to act on its behalf, except with respect to matters relating to such Chief Executive Officer or any executive vice president or above of the Corporation. 4. DETERMINATION OF PERFORMANCE GOALS AND INCENTIVE PAYMENTS (a) Prior to the completion of 25% of the Incentive Period or such earlier date as required under Section 162(m) of the Code, the Committee shall, in its sole discretion, for each such Incentive Period determine and establish in writing the following: (i) The Performance Goals applicable to the Incentive Period; and (ii) The performance/payout schedule detailing the total amount which may be available for payout to all Participants as Incentive Payments based upon the relative level of attainment of the Performance Goals. (b) After the end of each Incentive Period, the Committee shall: (i) Certify in writing, prior to the unconditional payment of any Incentive Payment, whether the Performance Goals for the Incentive Period were satisfied and to what extent they were satisfied; (ii) Determine the total amount available for Incentive Payments pursuant to the performance/payout schedule established in Section 4(a)(ii) above, which amount shall be based upon the extent to which the Performance Goals established by the Committee for the Incentive Period have been achieved; (iii) In its sole discretion, reduce the size of or eliminate the total amount available for payment for an Incentive Period; and (iv) In its sole discretion, determine the share, if any, of the available amount to be paid to each Participant as that Participant's Incentive Payment and authorize payment of such amount; except, however, in the case of a Participant who is at or above the level of vice chairman of First Chicago NBD Corporation, the Board shall approve (but only to the extent permitted under Section 162(m) of the Code and underlying regulations) the Committee's determination of such Participant's share before the Committee may authorize payment. (v) Anything in this Plan to the contrary notwithstanding, if the minimum Performance Goals established by the Committee for the Incentive Period under Section 4(a)(i) are attained and certified by the Committee in accordance with Section 4(b)(i), the Committee may award the maximum amount (or in its sole discretion any lesser amount) set forth in Section 4(f) as a Participant's Incentive Payment for the Incentive Period. (c) The Committee may authorize a conditional payment of a Participant's Incentive Payment prior to the end of an Incentive Period based upon the Committee's good faith determination of the projected size of (i) the total amount which will become available for payout as Incentive Payments for the Incentive Period pursuant to Section 4(b)(ii) above, and (ii) a Participant's Incentive Payment. (d) Unless otherwise determined by the Committee or required by applicable law, no payment pursuant to this Plan shall be made to a Participant unless the Participant is employed by the Corporation as of the date of payment. (e) Incentive Payments shall be subject to applicable federal, state and local withholding taxes and other applicable withholding in accordance with the Corporation's payroll practices as from time-to-time in effect. (f) The Incentive Payment for any Incentive Period for each Participant who is a "covered employee" under Section 162(m) of the Code and/or a member of the senior management committee (as designated by the Chief Executive Officer of the Corporation) shall in no event exceed $4,000,000. 5. TRANSFERABILITY Incentive Payments shall not be subject to the claims of creditors and may not be assigned, alienated, transferred or encumbered in any way by a Participant prior to the payment thereof. 2 6. TERMINATION OR AMENDMENT The Board may amend, modify or terminate the Plan in any respect at any time without the consent of Participants. Any such action of the Board may be taken without the approval of the Corporation's stockholders, but only to the extent that such stockholder approval is not required by applicable law or regulation, including specifically Section 162(m) of the Code. 7. CHANGE OF CONTROL Notwithstanding anything contained in this Plan, in the event of a Change of Control, the following provisions shall be applicable: (a) The Incentive Period will be deemed to have concluded on the date of the Change of Control and the total amount available pursuant to Section 4(b) will fund on a pro-rata basis (based upon the number of days in such Incentive Period elapsed through the date of Change of Control) assuming the Corporation had attained Performance Goals at a level generating funding at 200% of target funding; and (b) The Committee in its sole discretion will determine the share of the available amount payable to each Participant as that Participant's Incentive Payment (provided that in all events the entire available amount as calculated pursuant to Section 7(a) shall be paid to Participants as Incentive Payments) and payments shall be made to each Participant as soon thereafter as is practicable. 8. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Participants who are "covered employees," Section 162(m) of the Code. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Code Section 162(m)), so as to foster the intent of this Plan. 9. CONFER NO OTHER RIGHTS The establishment of the Plan shall not confer upon any Participant any legal or equitable right against the Corporation, except as expressly provided in the Plan. 10. NO RIGHT TO EMPLOYMENT The Plan, an Incentive Payment, or the designation of an employee as a Participant for an Incentive Period do not constitute an inducement or consideration for the employment of any Participant, nor is the Plan or any Incentive Payment a contract between the Corporation and any Participant. Participation in the Plan shall not give a Participant any right to be retained in the employ of the Corporation. 11. OTHER PLANS Nothing contained in this Plan shall prevent the Board or Committee from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required, and such arrangements may benefit Participants and may be either generally applicable or applicable only in specific cases. 12. GOVERNING LAW The Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware except where such laws may be superseded by federal law. 3 13. EFFECTIVE DATE; TERM OF THE PLAN The Plan shall be effective as of January 1, 1996 subject to its approval by the stockholders of the Corporation at the annual meeting of stockholders to be held May 10, 1996, or any adjournment thereof. Unless sooner terminated by the Board pursuant to Section 6, to the extent necessary to ensure that Incentive Payments made to "covered employees" as defined under Section 162(m) of the Code may be deductible for federal income tax purposes, the Plan shall terminate as of the date of the first meeting of the Corporation's stockholders occurring during the year 2001, unless the term of the Plan is extended and reapproved at such stockholders' meeting. No additional Incentive Payments may be paid after termination of the Plan. Termination of the Plan shall not affect any Incentive Payments due and outstanding on the date of termination and such Incentive Payments shall continue to be subject to the terms of the Plan notwithstanding its termination. 4 EX-10.(AA) 15 MERGER AGREEMENT AGREEMENT AND PLAN OF MERGER BETWEEN FIRST CHICAGO CORPORATION AND NBD BANCORP, INC. AS AMENDED ---------------- DATED AS OF JULY 11, 1995 TABLE OF CONTENTS AGREEMENT AND PLAN OF MERGER ARTICLE I The Merger
PAGE ---- 1.1 The Merger......................................................... 1 1.2 Effective Time..................................................... 1 1.3 Effects of the Merger.............................................. 1 1.4 Conversion of First Chicago Common Stock; First Chicago Preferred Stock.............................................................. 1 1.5 NBD Common Stock................................................... 3 1.6 Options............................................................ 3 1.7 Certificate of Incorporation....................................... 4 1.8 By-Laws............................................................ 4 1.9 Tax Consequences................................................... 4 1.10 Management Succession.............................................. 4 1.11 Board of Directors................................................. 4 1.12 Headquarters of Surviving Corporation.............................. 4 ARTICLE II Exchange of Shares 2.1 NBD to Make Shares Available....................................... 5 2.2 Exchange of Shares................................................. 5 ARTICLE III Representations and Warranties of NBD 3.1 Corporate Organization............................................. 6 3.2 Capitalization..................................................... 7 3.3 Authority; No Violation............................................ 8 3.4 Consents and Approvals............................................. 8 3.5 Reports............................................................ 9 3.6 Financial Statements............................................... 9 3.7 Broker's Fees...................................................... 9 3.8 Absence of Certain Changes or Events............................... 9 3.9 Legal Proceedings.................................................. 10 3.10 Taxes and Tax Returns.............................................. 10 3.11 Employees.......................................................... 11 3.12 SEC Reports........................................................ 12 3.13 Compliance with Applicable Law..................................... 12 3.14 Certain Contracts.................................................. 12 3.15 Agreements with Regulatory Agencies................................ 13 3.16 Other Activities of NBD and its Subsidiaries....................... 13 3.17 Investment Securities.............................................. 14 3.18 Interest Rate Risk Management Instruments.......................... 14 3.19 Undisclosed Liabilities............................................ 14
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PAGE ---- 3.20 Environmental Liability............................................. 14 3.21 State Takeover Laws................................................. 14 3.22 Pooling of Interests................................................ 14 ARTICLE IV Representations and Warranties of First Chicago 4.1 Corporate Organization.............................................. 15 4.2 Capitalization...................................................... 15 4.3 Authority; No Violation............................................. 16 4.4 Consents and Approvals.............................................. 17 4.5 Reports............................................................. 17 4.6 Financial Statements................................................ 17 4.7 Broker's Fees....................................................... 18 4.8 Absence of Certain Changes or Events................................ 18 4.9 Legal Proceedings................................................... 18 4.10 Taxes and Tax Returns............................................... 18 4.11 Employees........................................................... 19 4.12 SEC Reports......................................................... 20 4.13 Compliance with Applicable Law...................................... 20 4.14 Certain Contracts................................................... 21 4.15 Agreements with Regulatory Agencies................................. 21 4.16 Other Activities of First Chicago and its Subsidiaries.............. 21 4.17 Investment Securities............................................... 22 4.18 Interest Rate Risk Management Instruments........................... 22 4.19 Undisclosed Liabilities............................................. 22 4.20 Environmental Liability............................................. 22 4.21 State Takeover Laws................................................. 23 4.22 Rights Agreement.................................................... 23 4.23 Pooling of Interests................................................ 23 ARTICLE V Covenants Relating to Conduct of Business 5.1 Conduct of Businesses Prior to the Effective Time................... 23 5.2 Forbearances........................................................ 23 ARTICLE VI Additional Agreements 6.1 Regulatory Matters.................................................. 25 6.2 Access to Information............................................... 26 6.3 Stockholders' Approvals............................................. 26 6.4 Legal Conditions to Merger.......................................... 26 6.5 Affiliates; Publication of Combined Financial Results............... 26 6.6 Stock Exchange Listing.............................................. 27 6.7 Employee Benefit Plans.............................................. 27 6.8 Indemnification; Directors' and Officers' Insurance................. 27
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PAGE ---- 6.9 Additional Agreements............................................... 29 6.10 Advice of Changes................................................... 29 6.11 Dividends........................................................... 29 ARTICLE VII Conditions Precedent 7.1 Conditions to Each Party's Obligation To Effect the Merger.......... 29 7.2 Conditions to Obligations of First Chicago.......................... 30 7.3 Conditions to Obligations of NBD.................................... 30 ARTICLE VIII Termination and Amendment 8.1 Termination......................................................... 31 8.2 Effect of Termination............................................... 31 8.3 Amendment........................................................... 31 8.4 Extension; Waiver................................................... 31 ARTICLE IX General Provisions 9.1 Closing............................................................. 32 9.2 Nonsurvival of Representations, Warranties and Agreements........... 32 9.3 Expenses............................................................ 32 9.4 Notices............................................................. 32 9.5 Interpretation...................................................... 33 9.6 Counterparts........................................................ 33 9.7 Entire Agreement.................................................... 33 9.8 Governing Law....................................................... 33 9.9 Severability........................................................ 33 9.10 Publicity........................................................... 33 9.11 Assignment; Third Party Beneficiaries............................... 33
Exhibit A--First Chicago Option Agreement Exhibit B--NBD Option Agreement Exhibit 6.5(a)(1)--Form of Affiliate Letter Addressed to NBD Exhibit 6.5(a)(2)--Form of Affiliate Letter Addressed to First Chicago iii INDEX OF DEFINED TERMS BHC Act..................................................................... 7 CERCLA...................................................................... 14 Certificate................................................................. 3 Certificate of Merger....................................................... 1 Claim....................................................................... 28 Closing..................................................................... 32 Closing Date................................................................ 32 Code........................................................................ 4 Common Certificate.......................................................... 2 Confidentiality Agreement................................................... 26 Delaware Secretary.......................................................... 1 DGCL........................................................................ 1 DPC Shares.................................................................. 3 Effective Time.............................................................. 1 ERISA....................................................................... 11 Exchange Act................................................................ 9 Exchange Agent.............................................................. 5 Exchange Fund............................................................... 5 Exchange Ratio.............................................................. 2 Federal Reserve Board....................................................... 8 First Chicago............................................................... 1 First Chicago Bank Subsidiary............................................... 22 First Chicago Benefit Plans................................................. 19 First Chicago Capital Stock................................................. 2 First Chicago Common Stock.................................................. 2 First Chicago Contract...................................................... 21 First Chicago Convertible Preferred Stock................................... 15 First Chicago Disclosure Schedule........................................... 15 First Chicago DRIP.......................................................... 15 First Chicago ERISA Affiliate............................................... 19 First Chicago ESPSP......................................................... 16 First Chicago 8.45% Series E Cumulative Fixed Rate Preferred Stock.......... 15 First Chicago March 31, 1995 Form 10-Q...................................... 17 First Chicago Option Agreement.............................................. 1 First Chicago Preferred Stock............................................... 15 First Chicago Regulatory Agreement.......................................... 21 First Chicago Reports....................................................... 20 First Chicago Rights........................................................ 15 First Chicago Rights Agreement.............................................. 15 First Chicago Series A Cumulative Adjustable Rate Preferred Stock........... 15 First Chicago Series B Cumulative Adjustable Rate Preferred Stock........... 15 First Chicago Series C Cumulative Adjustable Rate Preferred Stock........... 15 First Chicago Stock Plans................................................... 3 GAAP........................................................................ 9 Governmental Entity......................................................... 8 HOLA........................................................................ 7 Indemnified Parties......................................................... 27 Injunction.................................................................. 29 Insurance Amount............................................................ 28 IRS......................................................................... 10
i Joint Proxy Statement....................................................... 8 Liens....................................................................... 7 LSARS....................................................................... 27 Material Adverse Effect..................................................... 6 Merger...................................................................... 1 NBD......................................................................... 1 NBD Bank Subsidiary......................................................... 13 NBD Benefit Plans........................................................... 11 NBD Capital Stock........................................................... 2 NBD Common Stock............................................................ 2 NBD Contract................................................................ 13 NBD Convertible Preferred Stock............................................. 2 NBD Disclosure Schedule..................................................... 6 NBD 8.45% Series E Cumulative Fixed Rate Preferred Stock.................... 2 NBD ERISA Affiliate......................................................... 11 NBD March 31, 1995 Form 10-Q................................................ 9 NBD New Preferred Stock..................................................... 2 NBD Option Agreement........................................................ 1 NBD Preferred Stock......................................................... 7 NBD Regulatory Agreement.................................................... 13 NBD Reports................................................................. 12 NBD Series A Cumulative Adjustable Rate Preferred Stock..................... 2 NBD Series B Cumulative Adjustable Rate Preferred Stock..................... 2 NBD Series C Cumulative Adjustable Rate Preferred Stock..................... 2 NBD Stock Plans............................................................. 27 NBD Units................................................................... 7 New Benefit Plans........................................................... 27 NYSE........................................................................ 6 OCC......................................................................... 9 Option Agreements........................................................... 1 OTS......................................................................... 8 Preferred Stock Certificate................................................. 3 Regulatory Agencies......................................................... 9 Requisite Regulatory Approvals.............................................. 29 S-4......................................................................... 8 SBA......................................................................... 8 SEC......................................................................... 8 Securities Act.............................................................. 12 Significant Subsidiary...................................................... 13 SRO......................................................................... 8 State Approvals............................................................. 8 State Regulator............................................................. 9 Subsidiary.................................................................. 7 Surviving Corporation....................................................... 1 Taxes....................................................................... 11 Trust Account Shares........................................................ 3 Trust Activities............................................................ 13
ii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of July 11, 1995, as amended by and between FIRST CHICAGO CORPORATION, a Delaware corporation ("First Chicago") and NBD BANCORP, INC., a Delaware corporation ("NBD"). WHEREAS, the Boards of Directors of NBD and First Chicago have determined that it is in the best interests of their respective companies and their stockholders to consummate the business combination transaction provided for herein in which First Chicago will, subject to the terms and conditions set forth herein, merge with and into NBD (the "Merger"), so that NBD is the surviving corporation (hereinafter sometimes called the "Surviving Corporation") in the Merger; and WHEREAS, it is the intent of the respective Boards of Directors of First Chicago and NBD that the Merger be structured as a "merger of equals" of First Chicago and NBD and that the Surviving Corporation be governed and operated on this basis; and WHEREAS, as a condition to, and immediately after the execution of, this Agreement, First Chicago and NBD are entering into a First Chicago stock option agreement (the "First Chicago Option Agreement") attached hereto as Exhibit A; and WHEREAS, as a condition to, and immediately after the execution of, this Agreement, First Chicago and NBD are entering into a NBD stock option agreement (the "NBD Option Agreement"; and together with the First Chicago Option Agreement, the "Option Agreements") attached hereto as Exhibit B; and WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE I The Merger 1.1 The Merger. Subject to the terms and conditions of this Agreement, in accordance with the Delaware General Corporation Law (the "DGCL"), at the Effective Time (as defined in Section 1.2), First Chicago shall merge with and into NBD. NBD shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of Delaware. Upon consummation of the Merger, the separate corporate existence of First Chicago shall terminate. 1.2 Effective Time. The Merger shall become effective as set forth in the certificate of merger (the "Certificate of Merger") which shall be filed with the Secretary of State of the State of Delaware (the "Delaware Secretary") on the Closing Date (as defined in Section 9.1). The term "Effective Time" shall be the date and time when the Merger becomes effective, as set forth in the Certificate of Merger. 1.3 Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in Section 261 of the DGCL. 1.4 Conversion of First Chicago Common Stock; First Chicago Preferred Stock. At the Effective Time, in each case, subject to Section 2.2(e), by virtue of the Merger and without any action on the part of First Chicago, NBD or the holder of any of the following securities: (a) Each share of the common stock, par value $5.00 per share, of First Chicago (the "First Chicago Common Stock"; and together with the First Chicago Preferred Stock (as defined in Section 4.2(a)), the "First Chicago Capital Stock") issued and outstanding immediately prior to the Effective Time (other than shares of First Chicago Capital Stock held (x) in First Chicago's treasury or (y) directly or indirectly by First Chicago or NBD or any of their respective wholly owned Subsidiaries (as defined in Section 3.1) (except for Trust Account Shares and DPC shares, as such terms are defined in Section 1.4(i) and as set forth in the First Chicago Disclosure Schedule)) shall be converted into the right to receive 1.81 shares (the "Exchange Ratio") of the common stock, par value $1.00 per share, of NBD (the "NBD Common Stock"; the NBD Common Stock, the NBD Preferred Stock (as defined in Section 3.2) and the NBD New Preferred Stock (as defined Section 1.4(f)) being referred to herein as the "NBD Capital Stock"). (b) Each share of First Chicago Series A Cumulative Adjustable Rate Preferred Stock (as defined in Section 4.2(a)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of preferred stock with cumulative and adjustable dividends of NBD (the "NBD Series A Cumulative Adjustable Rate Preferred Stock"). The terms of the NBD Series A Cumulative Adjustable Rate Preferred Stock shall be substantially the same as the terms of the First Chicago Series A Cumulative Adjustable Rate Preferred Stock. (c) Each share of First Chicago Series B Cumulative Adjustable Rate Preferred Stock (as defined in Section 4.2(a)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of preferred stock with cumulative and adjustable dividends of NBD (the "NBD Series B Cumulative Adjustable Rate Preferred Stock"). The terms of the NBD Series B Cumulative Adjustable Rate Preferred Stock shall be substantially the same as the terms of the First Chicago Series B Cumulative Adjustable Rate Preferred Stock. (d) Each share of First Chicago Series C Cumulative Adjustable Rate Preferred Stock (as defined in Section 4.2(a)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of preferred stock with cumulative and adjustable dividends of NBD (the "NBD Series C Cumulative Adjustable Rate Preferred Stock"). The terms of the NBD Series C Cumulative Adjustable Rate Preferred Stock shall be substantially the same as the terms of the First Chicago Series C Cumulative Adjustable Rate Preferred Stock. (e) Each share of First Chicago 8.45% Series E Cumulative Fixed Rate Preferred Stock (as defined in Section 4.2(a)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of preferred stock with a fixed rate dividend of NBD (the "NBD 8.45% Series E Cumulative Fixed Rate Preferred Stock"). The terms of the NBD 8.45% Series E Cumulative Fixed Rate Preferred Stock shall be substantially the same as the terms of the First Chicago 8.45% Series E Cumulative Fixed Rate Preferred Stock. (f) Each share of First Chicago Convertible Preferred Stock (as defined in Section 4.2(a)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of convertible preferred stock with a fixed rate dividend of NBD (the "NBD Convertible Preferred Stock", and together with the NBD Series A Cumulative Adjustable Rate Preferred Stock, NBD Series B Cumulative Adjustable Rate Preferred Stock, NBD Series C Cumulative Adjustable Rate Preferred Stock, and NBD 8.45% Series E Cumulative Fixed Rate Preferred Stock, the "NBD New Preferred Stock"). The terms of the NBD Convertible Preferred Stock shall be substantially the same as the terms of the First Chicago Convertible Preferred Stock. (g) At the Effective Time, any deposit agreements pursuant to which shares of First Chicago Preferred Stock are held subject to depositary receipts shall automatically, and without further action on the part of the Surviving Corporation, be assumed by the Surviving Corporation. (h) All of the shares of First Chicago Common Stock converted into NBD Common Stock pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each a "Common Certificate") previously representing any such shares of First Chicago Common Stock shall thereafter represent the right to receive (i) a certificate 2 representing the number of whole shares of NBD Common Stock and (ii) cash in lieu of fractional shares into which the shares of First Chicago Common Stock represented by such Common Certificate have been converted pursuant to this Section 1.4 and Section 2.2(e). Common Certificates previously representing shares of First Chicago Common Stock shall be exchanged for certificates representing whole shares of NBD Common Stock and cash in lieu of fractional shares issued in consideration therefor upon the surrender of such Common Certificates in accordance with Section 2.2, without any interest thereon. If, prior to the Effective Time, the outstanding shares of NBD Common Stock or First Chicago Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, then an appropriate and proportionate adjustment shall be made to the Exchange Ratio. (i) At the Effective Time, all shares of First Chicago Common Stock that are owned by First Chicago as treasury stock and all shares of First Chicago Common Stock that are owned, directly or indirectly, by First Chicago or NBD or any of their respective wholly owned Subsidiaries (other than shares of First Chicago Common Stock held, directly or indirectly, in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity that are beneficially owned by third parties (any such shares, and shares of NBD Common Stock which are similarly held, whether held directly or indirectly by First Chicago or NBD, as the case may be, being referred to herein as "Trust Account Shares") and other than any shares of First Chicago Common Stock held by First Chicago or NBD or any of their respective Subsidiaries in respect of a debt previously contracted (any such shares of First Chicago Common Stock, and shares of NBD Common Stock which are similarly held, whether held directly or indirectly by First Chicago or NBD or any of their respective Subsidiaries, being referred to herein as "DPC Shares") and as set forth in the First Chicago Disclosure Schedule) shall be cancelled and shall cease to exist and no stock of NBD or other consideration shall be delivered in exchange therefor. All shares of NBD Common Stock that are owned by First Chicago or any of its wholly owned Subsidiaries (other than Trust Account Shares and DPC Shares) shall become treasury stock of NBD. (j) All of the shares of First Chicago Preferred Stock converted into NBD New Preferred Stock pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each a "Preferred Stock Certificate"; and together with a Common Certificate, a "Certificate") previously representing any such shares of First Chicago Preferred Stock shall thereafter represent the right to receive a certificate representing the number of whole shares of corresponding NBD New Preferred Stock into which the shares of First Chicago Preferred Stock represented by such Preferred Stock Certificate have been converted pursuant to this Section 1.4. Preferred Stock Certificates previously representing shares of First Chicago Preferred Stock shall be exchanged for certificates representing whole shares of corresponding NBD New Preferred Stock issued in consideration therefor upon the surrender of such Preferred Stock Certificates in accordance with Section 2.2 hereof, without any interest thereon. 1.5 NBD Common Stock. At and after the Effective Time, each share of NBD Common Stock issued and outstanding immediately prior to the Closing Date shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger. 1.6 Options. (a) At the Effective Time, each option granted by First Chicago to purchase shares of First Chicago Common Stock which is outstanding and unexercised immediately prior thereto shall cease to represent a right to acquire shares of First Chicago Common Stock and shall be converted automatically into an option to purchase shares of NBD Common Stock in an amount and at an exercise price determined as provided below (and otherwise, in the case of options, subject to the terms of the First Chicago benefit plans under which they were issued (collectively, the "First Chicago Stock Plans") and the agreements evidencing grants thereunder)): (i) The number of shares of NBD Common Stock to be subject to the new option shall be equal to the product of the number of shares of First Chicago Common Stock subject to the original option and the Exchange Ratio, provided that any fractional shares of NBD Common Stock resulting from such multiplication shall be rounded to the nearest whole share; and 3 (ii) The exercise price per share of NBD Common Stock under the new option shall be equal to the exercise price per share of First Chicago Common Stock under the original option divided by the Exchange Ratio, provided that such exercise price shall be rounded down to the nearest whole cent. (b) The adjustment provided herein with respect to any options which are "incentive stock options" (as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) shall be and is intended to be effected in a manner which is consistent with Section 424(a) of the Code. The duration and other terms of the new option shall be the same as the original option except that all references to First Chicago shall be deemed to be references to NBD. 1.7 Certificate of Incorporation. Subject to the terms and conditions of this Agreement, at the Effective Time, the Certificate of Incorporation of NBD shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law, except that such Certificate of Incorporation shall be amended to provide: (a) that the number of shares of authorized Common Stock of the Surviving Corporation shall be increased to 750,000,000; (b) that the name of the Surviving Corporation shall be "First Chicago NBD Corporation"; (c) for the deletion of the Series A Preferred Stock, par value $1.00 per share; and (d) for the NBD New Preferred Stock. 1.8 By-Laws. Subject to the terms and conditions of this Agreement, at the Effective Time, the By-Laws of NBD, shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with applicable law. 1.9 Tax Consequences. It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a)(i)(A) of the Code, and that this Agreement shall constitute a "plan of reorganization" for the purposes of Section 368 of the Code. 1.10 Management Succession. (a) At the Effective Time, Mr. Richard L. Thomas shall be Chairman of the Board of the Surviving Corporation, and shall serve in such capacity until the annual meeting of stockholders of the Surviving Corporation (anticipated to be held on May 20, 1996). At the Effective Time, Mr. Verne G. Istock shall be the President and Chief Executive Officer of the Surviving Corporation. Mr. Istock shall immediately and without further action of the Board of Directors become Chairman of the Board of the Surviving Corporation on the date (which in no event shall be later than May 31, 1996) upon which Mr. Thomas ceases to be Chairman of the Board. (b) At the annual meeting of stockholders of the Surviving Corporation (anticipated to be held on May 20, 1996), Mr. Thomas shall retire from all positions he then holds as an officer of the Surviving Corporation or as an officer or employee of any of its Subsidiaries. 1.11 Board of Directors. (a) From and after the Effective Time, the Board of Directors of the Surviving Corporation shall consist of 22 persons, including Messrs. Thomas and Istock, 10 additional persons, two of whom may be executive officers of First Chicago, to be named by Mr. Thomas and the Board of Directors of First Chicago, and 10 additional persons, one of whom may be an executive officer of NBD, to be named by Mr. Istock and the Board of Directors of NBD. (b) The representatives selected by First Chicago and NBD, respectively, shall be divided as equally as practicable among the three classes of directors in proportion to the aggregate representation set forth above. From and after the Effective Time, the representatives of First Chicago and NBD shall also be represented in proportion to the aggregate representation set forth above on all committees of the Board of Directors of the Surviving Corporation. 1.12 Headquarters of Surviving Corporation. At the Effective Time, the headquarters and principal executive offices of the Surviving Corporation shall be Chicago, Illinois. 4 ARTICLE II Exchange of Shares 2.1 NBD to Make Shares Available. At or prior to the Effective Time, NBD shall deposit, or shall cause to be deposited, with First Chicago Trust Company of New York, or another bank or trust company reasonably acceptable to each of First Chicago and NBD (the "Exchange Agent"), for the benefit of the holders of Certificates, for exchange in accordance with this Article II, certificates representing the shares of NBD Common Stock and NBD New Preferred Stock and cash in lieu of any fractional shares (such cash and certificates for shares of NBD Common Stock and NBD New Preferred Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of First Chicago Common Stock. 2.2 Exchange of Shares. (a) As soon as practicable after the Effective Time, and in no event later than five business days thereafter, the Exchange Agent shall mail to each holder of record of one or more Certificates a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for certificates representing, the shares of NBD Common Stock, NBD New Preferred Stock and any cash in lieu of fractional shares into which the shares of First Chicago Common Stock or First Chicago Preferred Stock represented by such Certificate or Certificates shall have been converted pursuant to this Agreement. Upon proper surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor, as applicable, (i) a certificate representing that number of whole shares of NBD Common Stock or NBD New Preferred Stock to which such holder of First Chicago Common Stock or First Chicago Preferred Stock shall have become entitled pursuant to the provisions of Article I, and (ii) a check representing the amount of any cash in lieu of fractional shares which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any cash in lieu of fractional shares or on any unpaid dividends and distributions payable to holders of Certificates. (b) No dividends or other distributions declared with respect to NBD Common Stock or NBD New Preferred Stock with a record date following the 30th day to occur after the Effective Time shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II. Subject to Section 6.11 and to the effect of applicable laws, (i) until such 30th day, there shall be paid to each former holder of shares of First Chicago Common Stock or First Chicago Preferred Stock, the amount of dividends or other distributions with a record date after the Effective Time but on or before such 30th day payable with respect to the shares of NBD Common Stock or NBD New Preferred into which such First Chicago Common Stock or First Chicago Preferred Stock has been converted pursuant to this Article II and (ii) after the surrender of a Certificate in accordance with this Article II, the record holder thereof shall be entitled to receive any such dividends or other distributions with a record date following the 30th day to occur after the Effective Time, without any interest thereon, which theretofore had become payable with respect to shares of NBD Common Stock or NBD New Preferred Stock represented by such Certificate. (c) If any certificate representing shares of NBD Common Stock or NBD New Preferred Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of a certificate representing shares of NBD Common Stock or NBD New Preferred Stock in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. 5 (d) After the Effective Time, there shall be no transfers on the stock transfer books of First Chicago of the shares of First Chicago Common Stock or First Chicago Preferred Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for certificates representing shares of NBD Common Stock or NBD New Preferred Stock as provided in this Article II. (e) Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of NBD Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to NBD Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of First Chicago. In lieu of the issuance of any such fractional share, NBD shall pay to each former stockholder of First Chicago who otherwise would be entitled to receive such fractional share an amount in cash determined by multiplying (i) the average of the closing-sale prices of NBD Common Stock on the New York Stock Exchange, Inc. (the "NYSE") as reported by The Wall Street Journal for the five trading days immediately preceding the date of the Effective Time by (ii) the fraction of a share (rounded to the nearest thousandth when expressed as an Arabic number) of NBD Common Stock to which such holder would otherwise be entitled to receive pursuant to Section 1.4. (f) Any portion of the Exchange Fund that remains unclaimed by the stockholders of First Chicago for 12 months after the Effective Time shall be paid to NBD. Any stockholders of First Chicago who have not theretofore complied with this Article II shall thereafter look only to NBD for payment of the shares of NBD Common Stock or NBD New Preferred Stock, cash in lieu of any fractional shares and any unpaid dividends and distributions on the NBD Common Stock or NBD New Preferred Stock deliverable in respect of each share of First Chicago Common Stock or First Chicago Preferred Stock, as the case may be, such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of First Chicago, NBD, the Exchange Agent or any other person shall be liable to any former holder of shares of First Chicago Common Stock or First Chicago Preferred Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws. (g) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by NBD, the posting by such person of a bond in such amount as NBD may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of NBD Capital Stock and any cash in lieu of fractional shares deliverable in respect thereof pursuant to this Agreement. ARTICLE III Representations and Warranties of NBD Except as disclosed in the NBD disclosure schedule delivered to First Chicago concurrently herewith (the "NBD Disclosure Schedule") NBD hereby represents and warrants to First Chicago as follows: 3.1 Corporate Organization. (a) NBD is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. NBD has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a Material Adverse Effect on NBD. As used in this Agreement, the term "Material Adverse Effect" means, with respect to First Chicago, NBD or the 6 Surviving Corporation, as the case may be, a material adverse effect on the business, results of operations, financial condition, or (insofar as they can reasonably be foreseen) prospects of such party and its Subsidiaries taken as a whole. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any bank, corporation, partnership, limited liability company, or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes. NBD is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act") and as a savings and loan holding company under the Home Owners' Loan Act ("HOLA"). True and complete copies of the Certificate of Incorporation and By-Laws of NBD, as in effect as of the date of this Agreement, have previously been made available by NBD to First Chicago. (b) Each NBD Subsidiary (i) is duly organized and validly existing as a bank, corporation, partnership or limited liability company under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and in which the failure to be so qualified would have a Material Adverse Effect on NBD, and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted. (c) The minute books of NBD accurately reflect in all material respects all corporate actions held or taken since January 1, 1993 of its stockholders and Board of Directors (including committees of the Board of Directors of NBD). 3.2 Capitalization. (a) The authorized capital stock of NBD consists of (i) 500,000,000 shares of NBD Common Stock, of which as of June 30, 1995, 157,139,395 shares were issued and outstanding and 3,743,613 shares were held in treasury, and (ii) 10,460,000 shares of Preferred Stock (the "NBD Preferred Stock"), of which as of June 30, 1995, (A) 10,000,000 shares were designated and no shares were issued and outstanding as Preferred Stock, no par value, and (B) 460,000 shares were designated and no shares were issued and outstanding as Series A Preferred Stock, par value $1.00 per share. All of the issued and outstanding shares of NBD Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except pursuant to the terms of NBD's issued and outstanding Preferred Stock Purchase Units ("NBD Units") and for the NBD Option Agreement, NBD does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of NBD Capital Stock or any other equity securities of NBD or any securities representing the right to purchase or otherwise receive any shares of NBD Common Stock or NBD Preferred Stock. As of June 30, 1995, no shares of NBD Common Stock were reserved for issuance, except for (i) 2,152,022 shares reserved for issuance upon the exercise of stock options pursuant to the NBD Stock Plans (as defined in Section 6.7), (ii) 32,243 shares reserved for issuance as awards under the NBD Directors Stock Award Plans and (iii) 546,170 shares reserved for issuance upon the exercise of options granted in substitution for options assumed in prior NBD acquisitions. The only shares of NBD Preferred Stock reserved for issuance were 1,500,000 shares reserved pursuant to NBD Units. Since June 30, 1995, NBD has not issued any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, other than pursuant to the exercise of employee stock options granted prior to such date. The shares of NBD Capital Stock to be issued pursuant to the Merger will be duly authorized and validly issued and, at the Effective Time, all such shares will be fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. (b) NBD owns, directly or indirectly, all of the issued and outstanding shares of capital stock of each of the NBD Subsidiaries, free and clear of any liens, pledges, charges, encumbrances and security interests whatsoever ("Liens"), and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No NBD Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. 7 3.3 Authority; No Violation. (a) NBD has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of NBD. The Board of Directors of NBD has directed that this Agreement and the transactions contemplated hereby be submitted to NBD's stockholders for approval at a meeting of such stockholders and, except for the adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of NBD Common Stock, no other corporate proceedings on the part of NBD are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by NBD and (assuming due authorization, execution and delivery by First Chicago) constitutes a valid and binding obligation of NBD, enforceable against NBD in accordance with its terms. (b) Neither the execution and delivery of this Agreement by NBD nor the consummation by NBD of the transactions contemplated hereby, nor compliance by NBD with any of the terms or provisions hereof, will (i) violate any provision of the Certificate of Incorporation or By-Laws of NBD or (ii) assuming that the consents and approvals referred to in Section 3.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to NBD or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of NBD or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which NBD or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults which, either individually or in the aggregate, will not have or be reasonably likely to have a Material Adverse Effect on NBD or the Surviving Corporation. 3.4 Consents and Approvals. Except for (i) the filing of applications and notices, as applicable, with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the BHC Act and approval of such applications and notices, (ii) the filing of any required applications with the Office of Thrift Supervision (the "OTS") (iii) the filing of any required applications or notices with any state or foreign agencies and approval of such applications and notices (the "State Approvals"), (iv) the filing with the Securities and Exchange Commission (the "SEC") of a joint proxy statement in definitive form relating to the meetings of First Chicago's and NBD's stockholders to be held in connection with this Agreement and the transactions contemplated hereby (the "Joint Proxy Statement") and the registration statement on Form S-4 (the "S-4") in which the Joint Proxy Statement will be included as a prospectus, (v) the filing of the Certificate of Merger with the Delaware Secretary pursuant to the DGCL, (vi) any notices to or filings with the Small Business Administration ("SBA"), (vii) any consent, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers or investment advisers, and federal commodities laws relating to the regulation of futures commission merchants and the rules and regulations thereunder and of any applicable industry self-regulatory organization ("SRO"), and the rules of the NYSE, or which are required under consumer finance, mortgage banking and other similar laws, (viii) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of NBD Common Stock pursuant to this Agreement, and (ix) the approval of this Agreement by the requisite vote of the stockholders of First Chicago and NBD, no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a "Governmental Entity") or with any third party are necessary in connection with (A) the execution and delivery by NBD of this Agreement and (B) the consummation by NBD of the Merger and the other transactions contemplated hereby. 8 3.5 Reports. NBD and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 1993 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation, (iii) any state regulatory authority (each a "State Regulator"), (iv) the Office of the Comptroller of the Currency (the "OCC"), (v) the OTS, (vi) the SEC and (vii) any SRO (collectively "Regulatory Agencies"), and all other reports and statements required to be filed by them since January 1, 1993, including, without limitation, any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, any state, or any Regulatory Agency and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, will not have a Material Adverse Effect on NBD. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of NBD and its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best knowledge of NBD, investigation into the business or operations of NBD or any of its Subsidiaries since January 1, 1993, except where such proceedings or investigation are not likely, either individually or in the aggregate, to have a Material Adverse Effect on NBD. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of NBD or any of its Subsidiaries which, in the reasonable judgment of NBD, is likely, either individually or in the aggregate, to have a Material Adverse Effect on NBD. 3.6 Financial Statements. NBD has previously made available to First Chicago copies of (a) the consolidated balance sheets of NBD and its Subsidiaries as of December 31, for the fiscal years 1993 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal years 1992 through 1994, inclusive, as reported in NBD's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 filed with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case accompanied by the audit report of Deloitte & Touche LLP, independent public accountants with respect to NBD, and (b) the unaudited consolidated balance sheet of NBD and its Subsidiaries as of March 31, 1994 and March 31, 1995 and the related unaudited consolidated statements of income, cash flows and changes in stockholders' equity for the three-month periods then ended as reported in NBD's Quarterly Report on Form 10-Q for the period ended March 31, 1995 filed with the SEC under the Exchange Act (the "NBD March 31, 1995 Form 10-Q"). The December 31, 1994 consolidated balance sheet of NBD (including the related notes, where applicable) fairly presents the consolidated financial position of NBD and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 3.6 (including the related notes, where applicable) fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount) the results of the consolidated operations and changes in stockholders' equity and consolidated financial position of NBD and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been prepared in all material respects in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of NBD and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. 3.7 Broker's Fees. Neither NBD nor any NBD Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by this Agreement or the Option Agreements. 3.8 Absence of Certain Changes or Events. (a) Except as publicly disclosed in NBD Reports (as defined in Section 3.12) filed prior to the date hereof, since March 31, 1995, (i) NBD and its Subsidiaries taken as a whole have not incurred any material liability, except in the ordinary course of their business, and (ii) no event has occurred which has had, individually or in the aggregate, a Material Adverse Effect on NBD or the Surviving Corporation. 9 (b) Except as publicly disclosed in NBD Reports filed prior to the date hereof, since March 31, 1995, NBD and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary and usual course. (c) Since December 31, 1994, neither NBD nor any of its Subsidiaries has (i) except for such actions as are in the ordinary course of business consistent with past practice or except as required by applicable law, (A) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of December 31, 1994, or (B) granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonuses aggregating in excess of 5% of NBD's 1994 salary and employee benefits expenses, other than customary year-end bonuses for fiscal 1994 and 1995, or (ii) suffered any strike, work stoppage, slowdown, or other labor disturbance which, in the reasonable judgment of NBD, is likely, either individually or in the aggregate, to have a Material Adverse Effect on NBD. 3.9 Legal Proceedings. (a) Neither NBD nor any of its Subsidiaries is a party to any, and there are no pending or, to the best of NBD's knowledge, threatened, material legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against NBD or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement or the NBD Option Agreement as to which there is a reasonable probability of an adverse determination and which, if adversely determined, would, individually or in the aggregate, have a Material Adverse Effect on NBD. (b) There is no injunction, order, judgment, decree, or regulatory restriction (other than those that apply to similarly situated bank holding companies or banks) imposed upon NBD, any of its Subsidiaries or the assets of NBD or any of its Subsidiaries which has had, or might reasonably be expected to have, a Material Adverse Effect on NBD. 3.10 Taxes and Tax Returns. (a) Each of NBD and its Subsidiaries has duly filed all federal, state, county, foreign and, to the best of NBD's knowledge, local information returns and tax returns required to be filed by it on or prior to the date hereof (all such returns being accurate and complete in all material respects) and has duly paid or made provisions for the payment of all Taxes (as defined in Section 3.10(b)) and other governmental charges which have been incurred or are due or claimed to be due from it by federal, state, county, foreign or local taxing authorities on or prior to the date of this Agreement (including, without limitation, if and to the extent applicable, those due in respect of its properties, income, business, capital stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes or other charges which are not yet delinquent or are being contested in good faith and have not been finally determined, or (ii) information returns, tax returns, Taxes or other governmental charges the failure to file, pay or make provision for, either individually or in the aggregate, are not likely, in the reasonable judgment of NBD, to have a Material Adverse Effect on NBD. The income tax returns of NBD and its Subsidiaries have been examined by the Internal Revenue Service (the "IRS") and any liability with respect thereto has been satisfied for all years to and including 1987, and either no material deficiencies were asserted as a result of such examination for which NBD does not have adequate reserves or all such deficiencies were satisfied. To the best of NBD's knowledge, there are no material disputes pending, or claims asserted for, Taxes or assessments upon NBD or any of its Subsidiaries for which NBD does not have adequate reserves, nor has NBD or any of its Subsidiaries given any currently effective waivers extending the statutory period of limitation applicable to any federal, state, county or local income tax return for any period. In addition, (A) proper and accurate amounts have been withheld by NBD and its Subsidiaries from their employees for all prior periods in compliance in all material respects with the tax withholding provisions of applicable federal, state and local laws, except where failure to do so would not have a Material Adverse Effect on NBD, (B) federal, state, county and local returns which are accurate and complete in all material respects have been filed by NBD and its Subsidiaries for all periods for which returns were due with respect to income tax withholding, Social Security and unemployment taxes, except where failure to do so would not have a Material Adverse Effect on NBD, (C) the amounts shown on such federal, state, local or county returns to be due and payable have been paid in full or adequate provision therefor has been included by NBD in its consolidated 10 financial statements as of December 31, 1994, except where failure to do so would not have a Material Adverse Effect on NBD and (D) there are no Tax liens upon any property or assets of NBD or its Subsidiaries except liens for current taxes not yet due or liens that would not have a Material Adverse Effect on NBD. Neither NBD nor any of its Subsidiaries has been required to include in income any adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method initiated by NBD or any of its Subsidiaries, and the IRS has not initiated or proposed any such adjustment or change in accounting method, in either case which has had or is reasonably likely to have a Material Adverse Effect on NBD. Except as set forth in the financial statements described in Section 3.6, neither NBD nor any of its Subsidiaries has entered into a transaction which is being accounted for as an installment obligation under Section 453 of the Code, which would be reasonably likely to have a Material Adverse Effect on NBD. (b) As used in this Agreement, the term "Tax" or "Taxes" means all federal, state, county, local, and foreign income, excise, gross receipts, gross income, ad valorem, profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup withholding, and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon. (c) Any amount that is reasonably likely to be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of NBD or any of its affiliates who is a "Disqualified Individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or NBD Benefit Plan (as defined in Section 3.11(a)) currently in effect should not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). (d) No disallowance of a deduction under Section 162(m) of the Code for employee remuneration of any amount paid or payable by NBD or any Subsidiary of NBD under any contract, plan, program, arrangement or understanding would be reasonably likely to have a Material Adverse Effect on NBD. 3.11 Employees. (a) The NBD Disclosure Schedule sets forth a true and complete list of each material employee benefit plan, arrangement or agreement that is maintained as of the date of this Agreement (the "NBD Benefit Plans") by NBD or any of its Subsidiaries or by any trade or business, whether or not incorporated (an "NBD ERISA Affiliate"), all of which together with NBD would be deemed a "single employer" within the meaning of Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) NBD has heretofore delivered to First Chicago true and complete copies of each of the NBD Benefit Plans and certain related documents, including, but not limited to, (i) the actuarial report for such NBD Benefit Plan (if applicable) for each of the last two years, and (ii) the most recent determination letter from the IRS (if applicable) for such Plan. (c) (i) Each of the NBD Benefit Plans has been operated and administered in all material respects with applicable laws, including, but not limited to, ERISA and the Code, (ii) each of the NBD Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, (iii) with respect to each Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Plan's actuary with respect to such Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Plan allocable to such accrued benefits, (iv) no NBD Benefit Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured), with respect to current or former employees of NBD, its Subsidiaries or any ERISA Affiliate beyond their retirement or other termination of service, other than (A) coverage mandated by applicable law, (B) death benefits or retirement benefits under any "employee pension plan" (as such term is defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the books of NBD, its Subsidiaries or the ERISA Affiliates or (D) benefits the full cost of which is borne by the current or former employee (or his beneficiary), (v) no material liability under Title IV of ERISA has been incurred by NBD, its Subsidiaries or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to NBD, its Subsidiaries or any ERISA Affiliate of incurring 11 a material liability thereunder, (vi) no Plan is a "multiemployer pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all contributions or other amounts payable by NBD or its Subsidiaries as of the Effective Time with respect to each NBD Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) neither NBD, its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in connection with which NBD, its Subsidiaries or any ERISA Affiliate reasonably could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the best knowledge of NBD there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the NBD Benefit Plans or any trusts related thereto which are, in the reasonable judgment of NBD, likely, either individually or in the aggregate, to have a Material Adverse Effect on NBD. (d) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any material payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director or any employee of NBD or any of its affiliates from NBD or any of its affiliates under any NBD Benefit Plan or otherwise, (ii) materially increase any benefits otherwise payable under any NBD Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits to any material extent. 3.12 SEC Reports. NBD has previously made available to First Chicago an accurate and complete copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 1993 by NBD with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act (the "NBD Reports") and prior to the date hereof and (b) communication mailed by NBD to its stockholders since January 1, 1993 and prior to the date hereof, and no such registration statement, prospectus, report, schedule, proxy statement or communication contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date. Since January 1, 1993, NBD has timely filed all NBD Reports and other documents required to be filed by it under the Securities Act and the Exchange Act, and, as of their respective dates, all NBD Reports complied in all material respects with the published rules and regulations of the SEC with respect thereto. 3.13 Compliance with Applicable Law. NBD and each of its Subsidiaries hold all material licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied in all material respects with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to NBD or any of its Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default would not, individually or in the aggregate, have a Material Adverse Effect on NBD. 3.14 Certain Contracts. (a) Neither NBD nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers or employees other than in the ordinary course of business consistent with past practice, (ii) which, upon the consummation of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from First Chicago, NBD, the Surviving Corporation, or any of their respective Subsidiaries to any officer or employee thereof, (iii) which is a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement that has not been filed or incorporated by reference in the NBD Reports, (iv) which materially restricts the conduct of any line of business by NBD, (v) with or to a labor union or guild (including any collective bargaining agreement) or (vi) (including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan) any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be 12 calculated on the basis of any of the transactions contemplated by this Agreement. NBD has previously made available to First Chicago true and correct copies of all employment and deferred compensation agreements which are in writing and to which NBD is a party. Each contract, arrangement, commitment or understanding of the type described in this Section 3.14(a), whether or not set forth in the NBD Disclosure Schedule, is referred to herein as an "NBD Contract", and neither NBD nor any of its Subsidiaries knows of, or has received notice of, any violation of the above by any of the other parties thereto which, individually or in the aggregate, would have a Material Adverse Effect on NBD. (b) (i) Each NBD Contract is valid and binding on NBD or any of its Subsidiaries, as applicable, and in full force and effect, (ii) NBD and each of its Subsidiaries has in all material respects performed all obligations required to be performed by it to date under each NBD Contract, except where such noncompliance, individually or in the aggregate, would not have a Material Adverse Effect on NBD, and (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a material default on the part of NBD or any of its Subsidiaries under any such NBD Contract, except where such default, individually or in the aggregate, would not have a Material Adverse Effect on NBD. 3.15 Agreements with Regulatory Agencies. Neither NBD nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 1993, a recipient of any supervisory letter from, or since January 1, 1993, has adopted any board resolutions at the request of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its credit policies, its management or its business (each, whether or not set forth in the NBD Disclosure Schedule, an "NBD Regulatory Agreement"), nor has NBD or any of its Subsidiaries been advised since January 1, 1993, by any Regulatory Agency or other Governmental Entity that it is considering issuing or requesting any such Regulatory Agreement. 3.16 Other Activities of NBD and its Subsidiaries. (a) Neither NBD nor any of its Subsidiaries that is neither a bank, a bank operating subsidiary or a bank service corporation, directly or indirectly, engages in any activity prohibited by the Federal Reserve Board. Without limiting the generality of the foregoing, any equity investment of NBD and each Subsidiary that is not a bank, a bank operating subsidiary or a bank service corporation, is not prohibited by the Federal Reserve Board. (b) To NBD's knowledge, each NBD Subsidiary which is a bank (a "NBD Bank Subsidiary") currently performs all personal trust, corporate trust and other fiduciary activities ("Trust Activities") with requisite authority under applicable law of Governmental Entities and in accordance in all material respects with the agreed-upon terms of the agreements and instruments governing such Trust Activities, sound fiduciary principles and applicable law and regulation (specifically including, but not limited to, Section 9 of Title 12 of the Code of Federal Regulations); there is no investigation or inquiry by any Governmental Entity pending, or to the knowledge of NBD, threatened, against or affecting NBD, or any Significant Subsidiary thereof relating to the compliance by NBD or any such Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X of the SEC) with sound fiduciary principles and applicable regulations; and except where any such failure would not have a Material Adverse Effect on NBD, each employee of a NBD Bank Subsidiary had the authority to act in the capacity in which he or she acted with respect to Trust Activities, in each case, in which such employee held himself or herself out as a representative of a NBD Bank Subsidiary; and each NBD Bank Subsidiary has established policies and procedures for the purpose of complying with applicable laws of Governmental Entities relating to Trust Activities, has followed such policies and procedures in all material respects and has performed appropriate internal audit reviews of, and has engaged independent accountants to perform audits of, Trust Activities, which audits since January 1, 1993 have disclosed no material violations of applicable laws of Governmental Entities or such policies and procedures. 13 3.17 Investment Securities. Each of NBD and its Subsidiaries has good and marketable title to all securities held by it (except securities sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Lien, except to the extent such securities are pledged in the ordinary course of business consistent with prudent banking practices to secure obligations of NBD or any of its Subsidiaries. Such securities are valued on the books of NBD in accordance with GAAP. 3.18 Interest Rate Risk Management Instruments. All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements, whether entered into for the account of NBD or for the account of a customer of NBD or one of its Subsidiaries, were entered into in the ordinary course of business and, to NBD's knowledge, in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of NBD or one of its Subsidiaries enforceable in accordance with their terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force and effect. NBD and each of its Subsidiaries have duly performed in all material respects all of their material obligations thereunder to the extent that such obligations to perform have accrued; and, to NBD's knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 3.19 Undisclosed Liabilities. Except for those liabilities that are fully reflected or reserved against on the consolidated balance sheet of NBD included in the NBD March 31, 1995 Form 10-Q and for liabilities incurred in the ordinary course of business consistent with past practice, since March 31, 1995, neither NBD nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due) that, either alone or when combined with all similar liabilities, has had, or could reasonably be expected to have, a Material Adverse Effect on NBD. 3.20 Environmental Liability. Except as set forth in the NBD Disclosure Schedule, there are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could reasonably result in the imposition, on NBD of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation or ordinance including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), pending or threatened against NBD, which liability or obligation could reasonably be expected to have a Material Adverse Effect on NBD. To the knowledge of NBD, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any material liability or obligation that could reasonably be expected to have a Material Adverse Effect on NBD. NBD is not subject to any agreement, order, judgment, decree, letter or memorandum by or with any court, governmental authority, regulatory agency or third party imposing any material liability or obligation that could reasonably be expected to have a Material Adverse Effect on NBD. 3.21 State Takeover Laws. The Board of Directors of NBD has approved the transactions contemplated by this Agreement and the Option Agreements such that the provisions of Section 203 of the DGCL will not apply to this Agreement or the Option Agreements or any of the transactions contemplated hereby or thereby. 3.22 Pooling of Interests. As of the date of this Agreement, NBD has no reason to believe that the Merger will not qualify as a "pooling of interests" for accounting purposes. 14 ARTICLE IV Representations and Warranties of First Chicago Except as disclosed in the First Chicago disclosure schedule delivered to NBD concurrently herewith (the "First Chicago Disclosure Schedule") First Chicago hereby represents and warrants to NBD as follows: 4.1 Corporate Organization. (a) First Chicago is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. First Chicago has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a Material Adverse Effect on First Chicago. First Chicago is duly registered as a bank holding company under the BHC Act. True and complete copies of the Certificate of Incorporation and By- Laws of First Chicago, as in effect as of the date of this Agreement, have previously been made available by First Chicago to NBD. (b) Each First Chicago Subsidiary (i) is duly organized and validly existing as a bank, corporation, partnership or limited liability company under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether Federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and in which the failure to be so qualified would have a Material Adverse Effect on First Chicago, and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted. (c) The minute books of First Chicago accurately reflect in all material respects all corporate actions held or taken since January 1, 1993 of its stockholders and Board of Directors (including committees of the Board of Directors of First Chicago). 4.2 Capitalization. (a) The authorized capital stock of First Chicago consists of 150,000,000 shares of First Chicago Common Stock, of which, as of June 30, 1995, 89,719,497 were issued and outstanding, and 15,000,000 shares of Preferred Stock, no par value (the "First Chicago Preferred Stock", of which (i) 2,500,000 shares were designated and 2,410,000 shares were issued and outstanding as Preferred Stock with Cumulative and Adjustable Dividends ("First Chicago Series A Cumulative Adjustable Rate Preferred Stock"), (ii) 1,250,000 shares were designated and 1,191,000 shares were issued and outstanding as Preferred Stock with Cumulative and Adjustable Dividends, Series B ("First Chicago Series B Cumulative Adjustable Rate Preferred Stock"), (iii) 750,000 shares were designated and 713,800 were issued and outstanding as Preferred Stock with Cumulative and Adjustable Dividends, Series C ("First Chicago Series C Cumulative Adjustable Rate Preferred Stock"), (iv) 160,000 shares were designated and 160,000 shares were issued and outstanding as 8.45% Cumulative Preferred Stock, Series E ("First Chicago 8.45% Series E Cumulative Fixed Rate Preferred Stock"), and (v) 40,000 shares were designated and 40,000 shares were issued and outstanding as 5 3/4% Cumulative Convertible Preferred Stock, Series B ("First Chicago Convertible Preferred Stock"). As of June 30, 1995, 3,710,822 shares of First Chicago Common Stock were held in First Chicago's treasury. On June 30, 1995, no shares of First Chicago Common Stock or First Chicago Preferred Stock were reserved for issuance, except for (i) 5,877,204 shares of First Chicago Common Stock reserved for issuance upon the exercise of stock options pursuant to the First Chicago Stock Plans, (ii) shares of First Chicago Series A Junior Participating Preferred Stock were reserved for issuance upon exercise of the rights (the "First Chicago Rights") distributed to holders of First Chicago Common Stock pursuant to the Rights Agreement, dated as of November 18, 1988, between First Chicago and Bankers Trust Company, as Rights Agent (the "First Chicago Rights Agreement"), (iii) the shares of First Chicago Common Stock issuable pursuant to the First Chicago Option Agreement, (iv) shares of First Chicago Common Stock reserved for issuance pursuant to the First Chicago Dividend Reinvestment and Stock Purchase Plan (the "First Chicago DRIP"), (v) shares of First Chicago Common Stock reserved for issuance pursuant to the 1994 offering of the First Chicago Employee Stock Purchase and Savings Plan (as in 15 effect as of the Effective Time, the "First Chicago ESPSP"), and (vi) shares of First Chicago Common Stock reserved for issuance upon conversion of First Chicago Convertible Preferred Stock. All of the issued and outstanding shares of First Chicago Common Stock and First Chicago Preferred Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except for the First Chicago Rights Agreement, the First Chicago Option Agreement, the First Chicago Convertible Preferred Stock, the First Chicago DRIP, the First Chicago ESPSP and the First Chicago Stock Plans, First Chicago does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of First Chicago Common Stock or First Chicago Preferred Stock or any other equity securities of First Chicago or any securities representing the right to purchase or otherwise receive any shares of First Chicago Common Stock or First Chicago Preferred Stock. Assuming compliance by NBD with Article I of this Agreement, after the Effective Time, there will not be any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character by which First Chicago or any of its Subsidiaries will be bound calling for the purchase or issuance of any shares of the capital stock of First Chicago. First Chicago has previously provided NBD with a list of the option holders, the date of each option to purchase First Chicago Common Stock granted, the number of shares subject to each such option, the expiration date of each such option, and the price at which each such option may be exercised under an applicable First Chicago Stock Plan. Since June 30, 1995, First Chicago has not issued any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, other than pursuant to (i) the exercise of employee stock options granted prior to such date, (ii) the First Chicago DRIP, and (iii) the First Chicago ESPSP. (b) First Chicago owns, directly or indirectly, all of the issued and outstanding shares of capital stock of each of the First Chicago Subsidiaries, free and clear of any Liens, and all of such shares are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No First Chicago Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. 4.3 Authority; No Violation. (a) First Chicago has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of First Chicago. The Board of Directors of First Chicago has directed that this Agreement and the transactions contemplated hereby be submitted to First Chicago's stockholders for approval at a meeting of such stockholders and except for the adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of First Chicago Common Stock, no other corporate proceedings on the part of First Chicago are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by First Chicago and (assuming due authorization, execution and delivery by NBD) constitutes a valid and binding obligation of First Chicago, enforceable against First Chicago in accordance with its terms. (b) Neither the execution and delivery of this Agreement by First Chicago, nor the consummation by First Chicago of the transactions contemplated hereby, nor compliance by First Chicago with any of the terms or provisions hereof, will (i) violate any provision of the Certificate of Incorporation or By-Laws of First Chicago or (ii) assuming that the consents and approvals referred to in Section 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to First Chicago or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of First Chicago or any of its Subsidiaries under, any of the terms, conditions 16 or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which First Chicago or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults which either individually or in the aggregate will not have or be reasonably likely to have a Material Adverse Effect on First Chicago. 4.4 Consents and Approvals. Except for (i) the filing of applications and notices, as applicable, with the Federal Reserve Board under the BHC Act and approval of such applications and notices, (ii) the State Approvals, (iii) the filing with the SEC of the Joint Proxy Statement and the S-4, (iv) the filing of the Certificate of Merger with the Delaware Secretary pursuant to the DGCL, (v) any notices to or filings with the SBA, (vi) any consent, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers or investment advisers, and federal commodities laws relating to the regulation of futures commission merchants and the rules and regulations thereunder and of any applicable SRO, and the rules of the NYSE, or which are required under consumer finance, mortgage banking and other similar laws and (vii) the approval of this Agreement by the requisite vote of the stockholders of First Chicago and NBD, no consents or approvals of or filings or registrations with any Governmental Entity or with any third party are necessary in connection with (A) the execution and delivery by First Chicago of this Agreement and (B) the consummation by First Chicago of the Merger and the other transactions contemplated hereby. 4.5 Reports. First Chicago and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 1993 with the Regulatory Agencies, and all other reports and statements required to be filed by them since January 1, 1993, including, without limitation, any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, any state, or any Regulatory Agency and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, will not have a Material Adverse Effect on First Chicago. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of First Chicago and its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best knowledge of First Chicago, investigation into the business or operations of First Chicago or any of its Subsidiaries since January 1, 1993, except where such proceedings or investigation are not likely, either individually or in the aggregate, to have a Material Adverse Effect on First Chicago. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of First Chicago or any of its Subsidiaries which, in the reasonable judgment of First Chicago, is likely, either individually or in the aggregate, to have a Material Adverse Effect on First Chicago. 4.6 Financial Statements. First Chicago has previously made available to NBD copies of (a) the consolidated balance sheets of First Chicago and its Subsidiaries as of December 31, for the fiscal years 1993 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the fiscal years 1992 through 1994, inclusive, as reported in First Chicago's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 filed with the SEC under the Exchange Act, in each case accompanied by the audit report of Arthur Andersen LLP, independent public accountants with respect to First Chicago, and (b) the unaudited consolidated balance sheet of First Chicago and its Subsidiaries as of March 31, 1994 and March 31, 1995 and the related unaudited consolidated statements of income, cash flows and changes in stockholders' equity for the three-month periods then ended as reported in First Chicago's Quarterly Report on Form 10-Q for the period ended March 31, 1995 filed with the SEC under the Exchange Act (the "First Chicago March 31, 1995 Form 10-Q"). The December 31, 1994 consolidated balance sheet of First Chicago (including the related notes, where applicable) fairly presents the consolidated financial position of First Chicago and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 4.6 (including the related notes, where applicable) fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount) the results of the consolidated operations and changes in stockholders' equity and consolidated financial position of First Chicago and its Subsidiaries for the respective 17 fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except in each case as indicated in such statements or in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and records of First Chicago and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. 4.7 Broker's Fees. Neither First Chicago nor any First Chicago Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by this Agreement or the Option Agreements. 4.8 Absence of Certain Changes or Events. (a) Except as publicly disclosed in First Chicago Reports (as defined in Section 4.12) filed prior to the date hereof, since March 31, 1995, (i) First Chicago and its Subsidiaries taken as a whole have not incurred any material liability, except in the ordinary course of their business and (ii) no event has occurred which has had, individually or in the aggregate, a Material Adverse Effect on First Chicago. (b) Except as publicly disclosed in First Chicago Reports filed prior to the date hereof, since March 31, 1995, First Chicago and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary and usual course. (c) Since December 31, 1994, neither First Chicago nor any of its Subsidiaries has (i) except for such actions as are in the ordinary course of business consistent with past practice or except as required by applicable law, (A) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of December 31, 1994, or (B) granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonuses aggregating in excess of 5% of First Chicago's 1994 salary and employee benefit expenses, other than customary year-end bonuses for fiscal 1994 and 1995, or (ii) suffered any strike, work stoppage, slowdown, or other labor disturbance which, in the reasonable judgment of First Chicago is likely, either individually or in the aggregate, to have a Material Adverse Effect on First Chicago. 4.9 Legal Proceedings. (a) Neither First Chicago nor any of its Subsidiaries is a party to any and there are no pending or, to the best of First Chicago's knowledge, threatened, material legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against First Chicago or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement or the First Chicago Option Agreement as to which there is a reasonable probability of an adverse determination and which, if adversely determined, would, individually or in the aggregate, have a Material Adverse Effect on First Chicago. (b) There is no injunction, order, judgment, decree, or regulatory restriction (other than those that apply to similarly situated bank holding companies or banks) imposed upon First Chicago, any of its Subsidiaries or the assets of First Chicago or any of its Subsidiaries which has had, or might reasonably be expected to have, a Material Adverse Effect on First Chicago or the Surviving Corporation. 4.10 Taxes and Tax Returns. (a) Each of First Chicago and its Subsidiaries has duly filed all federal, state, county, foreign and, to the best of First Chicago's knowledge, local information returns and tax returns required to be filed by it on or prior to the date hereof (all such returns being accurate and complete in all material respects) and has duly paid or made provisions for the payment of all Taxes and other governmental charges which have been incurred or are due or claimed to be due from it by federal, state, county, foreign or local taxing authorities on or prior to the date of this Agreement (including, without limitation, if and to the extent applicable, 18 those due in respect of its properties, income, business, capital stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes or other charges which are not yet delinquent or are being contested in good faith and have not been finally determined, or (ii) information returns, tax returns, Taxes or other governmental charges the failure to file, pay or make provision for, either individually or in the aggregate, is not likely, in the reasonable judgment of First Chicago, to have a Material Adverse Effect on First Chicago. The income tax returns of First Chicago and its Subsidiaries have been examined by the IRS through 1991 and any liability with respect thereto has been satisfied for all years to and including 1976, and either no material deficiencies were asserted as a result of such examination for which First Chicago does not have adequate reserves or all such deficiencies were satisfied. To the best of First Chicago's knowledge, there are no material disputes pending, or claims asserted for, Taxes or assessments upon First Chicago or any of its Subsidiaries for which First Chicago does not have adequate reserves, nor has First Chicago or any of its Subsidiaries given any currently effective waivers extending the statutory period of limitation applicable to any federal, state, county or local income tax return for any period. In addition, (A) proper and accurate amounts have been withheld by First Chicago and its Subsidiaries from their employees for all prior periods in compliance in all material respects with the tax withholding provisions of applicable federal, state and local laws, except where failure to do so would not have a Material Adverse Effect on First Chicago, (B) federal, state, county and local returns which are accurate and complete in all material respects have been filed by First Chicago and its Subsidiaries for all periods for which returns were due with respect to income tax withholding, Social Security and unemployment taxes, except where failure to do so would not have a Material Adverse Effect on First Chicago, (C) the amounts shown on such federal, state, local or county returns to be due and payable have been paid in full or adequate provision therefor has been included by First Chicago in its consolidated financial statements as of December 31, 1994, except where failure to do so would not have a Material Adverse Effect on First Chicago and (D) there are no Tax liens upon any property or assets of First Chicago or its Subsidiaries except liens for current taxes not yet due or liens that would not have a Material Adverse Effect on First Chicago. Neither First Chicago nor any of its Subsidiaries has been required to include in income any adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method initiated by First Chicago or any of its Subsidiaries, and the IRS has not initiated or proposed any such adjustment or change in accounting method, in either case, which has had or is reasonably likely to have a Material Adverse Effect on First Chicago. Except as set forth in the financial statements described in Section 4.6, neither First Chicago nor any of its Subsidiaries has entered into a transaction which is being accounted for as an installment obligation under Section 453 of the Code, which would be reasonably likely to have a Material Adverse Effect on First Chicago. (b) Any amount that is reasonably likely to be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of First Chicago or any of its affiliates who is a "Disqualified Individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or First Chicago Benefit Plan currently in effect should not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). (c) No disallowance of a deduction under Section 162(m) of the Code for employee remuneration of any amount paid or payable by First Chicago or any Subsidiary of First Chicago under any contract, plan, program, arrangement or understanding would be reasonably likely to have a Material Adverse Effect on First Chicago. 4.11 Employees. (a) The First Chicago Disclosure Schedule sets forth a true and complete list of each material employee benefit plan, arrangement or agreement that is maintained as of the date of this Agreement (the "First Chicago Benefit Plans") by First Chicago, any of its Subsidiaries or by any trade or business, whether or not incorporated (a "First Chicago ERISA Affiliate"), all of which together with First Chicago would be deemed a "single employer" within the meaning of Section 4001 of ERISA. (b) First Chicago has heretofore delivered to NBD true and complete copies of each of the First Chicago Benefit Plans and certain related documents, including, but not limited to, (i) the actuarial report for such First Chicago Plan (if applicable) for each of the last two years, and (ii) the most recent determination letter from the IRS (if applicable) for such First Chicago Plan. 19 (c) (i) Each of the First Chicago Benefit Plans has been operated and administered in all material respects with applicable laws, including, but not limited to, ERISA and the Code, (ii) each of the First Chicago Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, (iii) with respect to each First Chicago Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such First Chicago Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such First Chicago Plan's actuary with respect to such First Chicago Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such First Chicago Plan allocable to such accrued benefits, (iv) no First Chicago Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured), with respect to current or former employees of First Chicago, its Subsidiaries or any First Chicago ERISA Affiliate beyond their retirement or other termination of service, other than (A) coverage mandated by applicable law, (B) death benefits or retirement benefits under any "employee pension plan" (as such term is defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the books of First Chicago, its Subsidiaries or the First Chicago ERISA Affiliates or (D) benefits the full cost of which is borne by the current or former employee (or his beneficiary), (v) no material liability under Title IV of ERISA has been incurred by First Chicago, its Subsidiaries or any First Chicago ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to First Chicago, its Subsidiaries or any First Chicago ERISA Affiliate of incurring a material liability thereunder, (vi) no First Chicago Plan is a "multiemployer pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all contributions or other amounts payable by First Chicago or its Subsidiaries as of the Effective Time with respect to each First Chicago Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) neither First Chicago, its Subsidiaries nor any First Chicago ERISA Affiliate has engaged in a transaction in connection with which First Chicago, its Subsidiaries or any First Chicago ERISA Affiliate reasonably could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the best knowledge of First Chicago there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the First Chicago Benefit Plans or any trusts related thereto which are, in the reasonable judgment of First Chicago, likely, either individually or in the aggregate, to have a Material Adverse Effect on NBD. (d) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any material payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director or any employee of First Chicago or any of its affiliates from First Chicago or any of its affiliates under any First Chicago Benefit Plan or otherwise, (ii) materially increase any benefits otherwise payable under any First Chicago Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits to any material extent. 4.12 SEC Reports. First Chicago has previously made available to NBD an accurate and complete copy of each (a) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 1993 by First Chicago with the SEC pursuant to the Securities Act or the Exchange Act (the "First Chicago Reports") and prior to the date hereof and (b) communication mailed by First Chicago to its stockholders since January 1, 1993 and prior to the date hereof, and no such registration statement, prospectus, report, schedule, proxy statement or communication contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date. Since January 1, 1993, First Chicago has timely filed all First Chicago Reports and other documents required to be filed by it under the Securities Act and the Exchange Act, and, as of their respective dates, all First Chicago Reports complied in all material respects with the published rules and regulations of the SEC with respect thereto. 4.13 Compliance with Applicable Law. First Chicago and each of its Subsidiaries hold all material licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses 20 under and pursuant to all, and have complied in all material respects with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to First Chicago or any of its Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default would not, individually or in the aggregate, have a Material Adverse Effect on First Chicago. 4.14 Certain Contracts. (a) Neither First Chicago nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers or employees other than in the ordinary course of business consistent with past practice, (ii) which, upon the consummation of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from First Chicago, NBD, the Surviving Corporation, or any of their respective Subsidiaries to any officer or employee thereof, (iii) which is a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement that has not been filed or incorporated by reference in the First Chicago Reports, (iv) which materially restricts the conduct of any line of business by First Chicago, (v) with or to a labor union or guild (including any collective bargaining agreement) or (vi) (including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan) any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. First Chicago has previously made available to NBD true and correct copies of all employment and deferred compensation agreements which are in writing and to which First Chicago is a party. Each contract, arrangement, commitment or understanding of the type described in this Section 4.14(a), whether or not set forth in the First Chicago Disclosure Schedule, is referred to herein as a "First Chicago Contract", and neither First Chicago nor any of its Subsidiaries knows of, or has received notice of, any violation of the above by any of the other parties thereto which, individually or in the aggregate, would have a Material Adverse Effect on First Chicago. (b) (i) Each First Chicago Contract is valid and binding on First Chicago or any of its Subsidiaries, as applicable, and in full force and effect, (ii) First Chicago and each of its Subsidiaries has in all material respects performed all obligations required to be performed by it to date under each First Chicago Contract, except where such noncompliance, individually or in the aggregate, would not have a Material Adverse Effect on First Chicago, and (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a material default on the part of First Chicago or any of its Subsidiaries under any such First Chicago Contract, except where such default, individually or in the aggregate, would not have a Material Adverse Effect on First Chicago. 4.15 Agreements with Regulatory Agencies. Neither First Chicago nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 1993, a recipient of any supervisory letter from, or since January 1, 1993, has adopted any board resolutions at the request of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its credit policies, its management or its business (each, whether or not set forth in the First Chicago Disclosure Schedule, a "First Chicago Regulatory Agreement"), nor has First Chicago or any of its Subsidiaries been advised since January 1, 1993, by any Regulatory Agency or other Governmental Entity that it is considering issuing or requesting any such Regulatory Agreement. 4.16 Other Activities of First Chicago and its Subsidiaries. (a) Neither First Chicago nor any of its Subsidiaries that is neither a bank, a bank operating subsidiary or a bank service corporation, directly or indirectly engages in any activity prohibited by the Federal Reserve Board. Without limiting the generality of the foregoing, any equity investment of First Chicago and each Subsidiary that is not a bank, a bank operating subsidiary or a bank service corporation, is not prohibited by the Federal Reserve Board. 21 (b) To First Chicago's knowledge, each First Chicago Subsidiary which is a bank (a "First Chicago Bank Subsidiary") currently performs all Trust Activities with requisite authority under applicable law of Governmental Entities and in accordance in all material respects with the agreed-upon terms of the agreements and instruments governing such Trust Activities, sound fiduciary principles and applicable law and regulation (specifically including, but not limited to, Section 9 of Title 12 of the Code of Federal Regulations); there is no investigation or inquiry by any Governmental Entity pending, or, to the knowledge of First Chicago, threatened, against or affecting First Chicago or any Significant Subsidiary thereof relating to the compliance by First Chicago or any such Significant Subsidiary with sound fiduciary principles and applicable regulations; and except where any such failure would not have a Material Adverse Effect on First Chicago, each employee of a First Chicago Bank Subsidiary had the authority to act in the capacity in which he or she acted with respect to Trust Activities, in each case, in which such employee held himself or herself out as a representative of a First Chicago Bank Subsidiary; and each First Chicago Bank Subsidiary has established policies and procedures for the purpose of complying with applicable laws of Governmental Entities relating to Trust Activities, has followed such policies and procedures in all material respects and has performed appropriate internal audit reviews of, and has engaged independent accountants to perform audits of, Trust Activities, which audits have disclosed no material violations of applicable laws of Governmental Entities or such policies and procedures. 4.17 Investment Securities. Each of First Chicago and its Subsidiaries has good and marketable title to all securities held by it (except securities sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Lien, except to the extent such securities are pledged in the ordinary course of business consistent with prudent banking practice to secure obligations of First Chicago or any of its Subsidiaries. Such securities are valued on the books of First Chicago in accordance with GAAP. 4.18 Interest Rate Risk Management Instruments. All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements, whether entered into for the account of First Chicago or for the account of a customer of First Chicago or one of its Subsidiaries, were entered into in the ordinary course of business and, to First Chicago's knowledge, in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of First Chicago or one of its Subsidiaries enforceable in accordance with their terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force and effect. First Chicago and each of its Subsidiaries has duly performed in all material respects all of its material obligations thereunder to the extent that such obligations to perform have accrued; and to First Chicago's knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 4.19 Undisclosed Liabilities. Except for those liabilities that are fully reflected or reserved against on the consolidated balance sheet of First Chicago included in the First Chicago March 31, 1995 Form 10-Q and for liabilities incurred in the ordinary course of business consistent with past practice, since March 31, 1995, neither First Chicago nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due) that, either alone or when combined with all similar liabilities, has had, or could reasonably be expected to have, a Material Adverse Effect on First Chicago. 4.20 Environmental Liability. Except as set forth in the First Chicago Disclosure Schedule, there are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that reasonably could result in the imposition, on First Chicago of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation or ordinance including, without limitation, CERCLA, pending or threatened against First Chicago, which liability or obligation could reasonably be expected to have a Material Adverse Effect on First Chicago. To the knowledge of First Chicago, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any 22 material liability or obligation that could reasonably be expected to have a Material Adverse Effect on First Chicago. First Chicago is not subject to any agreement, order, judgment, decree, letter or memorandum by or with any court, governmental authority, regulatory agency or third party imposing any material liability or obligation that could reasonably be expected to have a Material Adverse Effect on First Chicago. 4.21 State Takeover Laws. The Board of Directors of First Chicago has approved the transactions contemplated by this Agreement and the Option Agreements such that the provisions of Section 203 of the DGCL will not apply to this Agreement or the Option Agreements or any of the transactions contemplated hereby or thereby. 4.22 Rights Agreement. First Chicago has taken all action (including, if required, redeeming all of the outstanding preferred stock purchase rights issued pursuant to the First Chicago Rights Agreement or amending or terminating the First Chicago Rights Agreement) so that the entering into of this Agreement and the Option Agreements, the Merger, the acquisition of shares pursuant to the Option Agreements and the other transactions contemplated hereby and thereby do not and will not result in the grant of any rights to any person under the First Chicago Rights Agreement or enable or require the First Chicago Rights to be exercised, distributed or triggered. 4.23 Pooling of Interests. As of the date of this Agreement, First Chicago has no reason to believe that the Merger will not qualify as a "pooling of interests" for accounting purposes. ARTICLE V Covenants Relating to Conduct of Business 5.1 Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time, except as expressly contemplated or permitted by this Agreement (including the NBD Disclosure Schedule and the First Chicago Disclosure Schedule) or the Option Agreements, each of First Chicago and NBD shall, and shall cause each of their respective Subsidiaries to, (a) conduct its business in the usual, regular and ordinary course consistent with past practice, (b) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its key officers and key employees and (c) take no action which would adversely affect or delay the ability of either First Chicago or NBD to obtain any necessary approvals of any Regulatory Agency or other governmental authority required for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or the Option Agreements. 5.2 Forbearances. During the period from the date of this Agreement to the Effective Time, except as set forth in the First Chicago Disclosure Schedule or the NBD Disclosure Schedule, as the case may be, and, except as expressly contemplated or permitted by this Agreement or the Option Agreements, neither First Chicago nor NBD shall, and neither First Chicago nor NBD shall permit any of their respective Subsidiaries to, without the prior written consent of the other: (a) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness and indebtedness of NBD or any of its Subsidiaries to NBD or any of its Subsidiaries, on the one hand, or of First Chicago or any of its Subsidiaries to First Chicago or any of its Subsidiaries, on the other hand), assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, or make any loan or advance (it being understood and agreed that incurrence of indebtedness in the ordinary course of business shall include, without limitation, the creation of deposit liabilities, purchases of Federal funds, sales of certificates of deposit and entering into repurchase agreements); 23 (b) (i) adjust, split, combine or reclassify any capital stock; (ii) make, declare or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock (except, (A) in the case of NBD, for regular quarterly cash dividends at a rate not in excess of $.33 per share of NBD Common Stock, (B) in the case of First Chicago, for regular quarterly cash dividends on First Chicago Common Stock at a rate not in excess of $.60 per share of First Chicago Common Stock, (C) in the case of First Chicago Preferred Stock, for regular quarterly or semiannual cash dividends thereon at the rates set forth in the applicable certificate of incorporation or certificate of designation for such securities and except for dividends paid by any of the Subsidiaries of each of First Chicago and NBD to First Chicago or NBD or any of their Subsidiaries, respectively, and (D) except for dividends paid in the ordinary course of business by any subsidiaries (whether or not wholly owned) of each of First Chicago and NBD), (iii) grant any stock appreciation rights or grant any individual, corporation or other entity any right to acquire any shares of its capital stock (except for options to purchase stock granted in the ordinary course of business consistent with past practice pursuant to the First Chicago Stock Plans, the First Chicago ESPSP, and the NBD Stock Plans) or (iv) issue any additional shares of capital stock except pursuant to (A) the exercise of stock options or warrants outstanding as of the date hereof, (B) the First Chicago Convertible Preferred Stock, (C) the Option Agreements, (D) the First Chicago Rights Agreement, (E) the First Chicago DRIP, or (F) the First Chicago ESPSP; (c) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets to any individual, corporation or other entity other than a Subsidiary, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, except in the ordinary course of business consistent with past practice or pursuant to contracts or agreements in force at the date of this Agreement; (d) except for transactions in the ordinary course of business consistent with past practice or pursuant to contracts or agreements in force at the date of this Agreement, make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other individual, corporation or other entity other than a Subsidiary thereof; (e) except for transactions in the ordinary course of business consistent with past practice, enter into or terminate any material contract or agreement, or make any change in any of its material leases or contracts, other than renewals of contracts and leases without material adverse changes of terms; (f) increase in any manner the compensation or fringe benefits of any of its employees or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee other than in the ordinary course of business consistent with past practice or accelerate the vesting of any stock options or other stock-based compensation; (g) solicit, encourage or authorize any individual, corporation or other entity to solicit from any third party any inquiries or proposals relating to the disposition of its business or assets, or the acquisition of its voting securities, or the merger of it or any of its Subsidiaries with any corporation or other entity other than as provided by this Agreement (and each party shall promptly notify the other of all of the relevant details relating to all inquiries and proposals which it may receive relating to any of such matters); (h) settle any claim, action or proceeding involving money damages, except in the ordinary course of business consistent with past practice; (i) take any action that would prevent or impede the Merger from qualifying (i) for "pooling of interests" accounting treatment or (ii) as a reorganization within the meaning of Section 368 of the Code; provided, however, that nothing contained herein shall limit the ability of First Chicago or NBD to exercise its rights under the NBD Option Agreement or the First Chicago Option Agreement, as the case may be; (j) amend its certificate of incorporation or articles of incorporation, as the case may be, or its bylaws; or 24 (k) other than in prior consultation with the other party to this Agreement, restructure or materially change its investment securities portfolio or its gap position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported; (l) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VII not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law; or (m) agree to, or make any commitment to, take any of the actions prohibited by this Section 5.2. ARTICLE VI Additional Agreements 6.1 Regulatory Matters. (a) First Chicago and NBD shall promptly prepare and file with the SEC the Joint Proxy Statement and NBD shall promptly prepare and file with the SEC the S-4, in which the Joint Proxy Statement will be included as a prospectus. Each of First Chicago and NBD shall use all reasonable efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing, and First Chicago and NBD shall thereafter mail or deliver the Joint Proxy Statement to their respective stockholders. NBD shall also use all reasonable efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement, and First Chicago shall furnish all information concerning First Chicago and the holders of First Chicago Capital Stock as may be reasonably requested in connection with any such action. (b) The parties hereto shall cooperate with each other and use their best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement (including, without limitation, the Merger), and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such Governmental Entities. First Chicago and NBD shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to NBD or First Chicago, as the case may be, and any of their respective Subsidiaries, which appear in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (c) First Chicago and NBD shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Joint Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on behalf of First Chicago, NBD or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (d) First Chicago and NBD shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained or that the receipt of any such approval will be materially delayed. 25 6.2 Access to Information. (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, each of First Chicago and NBD shall, and shall cause each of their respective Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of the other party, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records and, during such period, each of First Chicago and NBD shall, and shall cause their respective Subsidiaries to, make available to the other party (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws or federal or state banking laws, savings and loan or savings association laws (other than reports or documents which First Chicago or NBD, as the case may be, is not permitted to disclose under applicable law) and (ii) all other information concerning its business, properties and personnel as such party may reasonably request. Neither First Chicago nor NBD nor any of their respective Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of First Chicago's or NBD's, as the case may be, customers, jeopardize the attorney-client privilege of the institution in possession or control of such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. (b) Each of First Chicago and NBD shall hold all information furnished by or on behalf of the other party or any of such party's Subsidiaries or representatives pursuant to Section 6.2(a) in confidence to the extent required by, and in accordance with, the provisions of the confidentiality agreement, dated June 25, 1995, between First Chicago and NBD (the "Confidentiality Agreement"). (c) No investigation by either of the parties or their respective representatives shall affect the representations and warranties of the other set forth herein. 6.3 Stockholders' Approvals. Each of First Chicago and NBD shall call a meeting of its stockholders to be held as soon as reasonably practicable for the purpose of voting upon the requisite stockholder approvals required in connection with this Agreement and the Merger, and each shall use its best efforts to cause such meetings to occur on the same date. 6.4 Legal Conditions to Merger. Each of First Chicago and NBD shall, and shall cause its Subsidiaries to, use their best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in Article VII hereof, to consummate the transactions contemplated by this Agreement and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party which is required to be obtained by NBD or First Chicago or any of their respective Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement. 6.5 Affiliates; Publication of Combined Financial Results. (a) Each of First Chicago and NBD shall use its best efforts to cause each director, executive officer and other person who is an "affiliate" (for purposes of Rule 145 under the Securities Act and for purposes of qualifying the Merger for "pooling of interests" accounting treatment) of such party to deliver to the other party hereto, as soon as practicable after the date of this Agreement, and prior to the date of the stockholders meetings called by First Chicago and NBD to approve this Agreement, a written agreement, in the form of Exhibit 6.5(a)(1) or (2), as applicable, hereto, providing that such person will not sell, pledge, transfer or otherwise dispose of any shares of First Chicago Capital Stock or NBD Capital Stock held by such "affiliate" and, in the case of the "affiliates" of First Chicago, the shares of NBD Capital Stock to be received by such "affiliate" in the Merger: (i) in the case of shares of NBD Capital Stock to be received by "affiliates" of First Chicago in the Merger, except in compliance with the applicable provisions of the Securities Act and the rules and regulations thereunder; and (ii) except to the extent and under the conditions permitted therein, during the period commencing 30 days prior to the Merger and ending at the time of the publication of financial results covering at least 30 days of combined operations of First Chicago and NBD. 26 (b) The Surviving Corporation shall use its best efforts to publish as promptly as reasonably practical but in no event later than 90 days after the end of the first month after the Effective Time in which there are at least 30 days of post-Merger combined operations (which month may be the month in which the Effective Time occurs), combined sales and net income figures as contemplated by and in accordance with the terms of SEC Accounting Series Release No. 135. 6.6 Stock Exchange Listing. NBD shall cause the shares of NBD Common Stock to be issued in the Merger to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time and shall use its best efforts to cause the shares of NBD Preferred Stock to be so approved. 6.7 Employee Benefit Plans. (a) From and after the Effective Time, unless otherwise mutually determined, the NBD Benefit Plans and First Chicago Benefit Plans in effect as of the date of this Agreement shall remain in effect with respect to employees of NBD or First Chicago (or their Subsidiaries) covered by such plans at the Effective Time until such time as the Surviving Corporation shall, subject to applicable law, the terms of this Agreement and the terms of such plans, adopt new benefit plans with respect to employees of the Surviving Corporation and its Subsidiaries (the "New Benefit Plans"). Prior to the Closing Date, NBD and First Chicago shall cooperate in reviewing, evaluating and analyzing the First Chicago Benefit Plans and NBD Benefit Plans with a view towards developing appropriate New Benefit Plans for the employees covered thereby subsequent to the Merger. It is the intention of NBD and First Chicago to develop New Benefit Plans, effective as of the Effective Time, which, among other things, (i) treat similarly situated employees on a substantially equivalent basis, taking into account all relevant factors, including, without limitation, duties, geographic location, tenure, qualifications and abilities, and (ii) do not discriminate between employees of the Surviving Corporation who were covered by NBD Benefit Plans, on the one hand, and those covered by First Chicago Benefit Plans, on the other, at the Effective Time. (b) The foregoing nothwithstanding, the Surviving Corporation agrees to honor in accordance with their terms all benefits vested as of the date hereof under the First Chicago Benefit Plans or the NBD Benefit Plans or under other contracts, arrangements, commitments, or understandings described in the First Chicago Disclosure Schedule and the NBD Disclosure Schedule. (c) Nothing in this Section 6.7 shall be interpreted as preventing the Surviving Corporation from amending, modifying or terminating any First Chicago Benefit Plans, NBD Benefit Plans, or other contracts, arrangements, commitments or understandings, in accordance with their terms and applicable law. (d) NBD and First Chicago shall take all actions necessary, including securing the consent of optionees, to amend the terms of NBD Benefits Plans pursuant to which options to purchase NBD Common Stock have been issued or granted ("NBD Stock Plans") and the First Chicago Stock Plans and any severance or other agreements that provide for the surrender of stock options issued thereunder in exchange for a cash payment ("LSARs") as a result of or in connection with the Merger to provide that such LSARs shall be settled in stock with a fair market value equal to the cash that would otherwise have been payable thereunder. 6.8 Indemnification; Directors' and Officers' Insurance. (a) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any individual who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer or employee of First Chicago or any of its Subsidiaries, including any entity specified in the First Chicago Disclosure Schedule (the "Indemnified Parties"), is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director, officer or employee of First Chicago, any of the First Chicago Subsidiaries or any entity specified in the First Chicago Disclosure Schedule or any of their respective predecessors or (ii) this Agreement, the Option Agreements or any of the transactions contemplated hereby or thereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their best efforts to defend against and respond thereto. It is understood and agreed that after the Effective Time, NBD shall indemnify and hold harmless, as 27 and to the fullest extent permitted by law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney's fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law upon receipt of any undertaking required by applicable law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted of arising before or after the Effective Time), the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with NBD; provided, however, that (A) NBD shall have the right to assume the defense thereof and upon such assumption NBD shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if NBD elects not to assume such defense or counsel for the Indemnified Parties reasonably advises the Indemnified Parties that there are issues which raise conflicts of interest between NBD and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with NBD, and NBD shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (B) NBD shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, unless an Indemnified Party shall have reasonably concluded, based on the advice of counsel, that in order to be adequately represented, separate counsel is necessary for such Indemnified Party, in which case, NBD shall be obligated to pay for such separate counsel, (C) NBD shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld) and (D) NBD shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Any Indemnified Party wishing to claim Indemnification under this Section 6.8, upon learning of any such claim, action, suit, proceeding or investigation, shall notify NBD thereof, provided that the failure to so notify shall not affect the obligations of NBD under this Section 6.8 except to the extent such failure to notify materially prejudices NBD. NBD's obligations under this Section 6.8 continue in full force and effect for a period of six years from the Effective Time (or the period of the applicable statute of limitations, if longer); provided, however, that all rights to indemnification in respect of any claim (a "Claim") asserted or made within such period shall continue until the final disposition of such Claim. (b) NBD shall use its best efforts to cause the individuals serving as officers and directors of First Chicago, its Subsidiaries or any entity specified in the First Chicago Disclosure Schedule immediately prior to the Effective Time to be covered for a period of six (6) years from the Effective Time (or the period of the applicable statute of limitations, if longer) by the directors' and officers' liability insurance policy maintained by First Chicago (provided that NBD may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy) with respect to acts or omissions occurring prior to the Effective Time which were committed by such officers and directors in their capacity as such; provided, however, that in no event shall NBD be required to expend more than 200% of the current amount expended by First Chicago (the "Insurance Amount") to maintain or procure insurance coverage pursuant hereto and provided further that if NBD is unable to maintain or obtain the insurance called for by this Section 6.8(b), NBD shall use its best efforts to obtain as much comparable insurance as available for the Insurance Amount. (c) In the event NBD or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of NBD assume the obligations set forth in this section. (d) The provisions of this Section 6.8 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives. 28 6.9 Additional Agreements. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement (including, without limitation, any merger between a Subsidiary of NBD and a Subsidiary of First Chicago) or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by, and at the sole expense of, NBD. 6.10 Advice of Changes. First Chicago and NBD shall promptly advise the other party of any change or event having a Material Adverse Effect on it or which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein. 6.11 Dividends. After the date of this Agreement, each of First Chicago and NBD shall coordinate with the other the declaration of any dividends in respect of First Chicago Common Stock and NBD Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties hereto that holders of First Chicago Common Stock or NBD Common Stock shall not receive two dividends, or fail to receive one dividend, for any quarter with respect to their shares of First Chicago Common Stock and/or NBD Common Stock and any shares of NBD Capital Stock any such holder receives in exchange therefor in the Merger. ARTICLE VII Conditions Precedent 7.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement and the transactions contemplated hereby shall have been approved and adopted by the respective requisite affirmative votes of the holders of NBD Common Stock and First Chicago Common Stock entitled to vote thereon. (b) NYSE Listing. The shares of NBD Common Stock which shall be issued to the stockholders of First Chicago upon consummation of the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance. (c) Other Approvals. All regulatory approvals required to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired (all such approvals and the expiration of all such waiting periods being referred to herein as the "Requisite Regulatory Approvals"). (d) S-4. The S-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (e) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the Merger or any of the other transactions contemplated by this Agreement shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, materially restricts or makes illegal consummation of the Merger. (f) Federal Tax Opinion. First Chicago and NBD each shall have received an opinion of Wachtell, Lipton, Rosen & Katz, in form and substance reasonably satisfactory to First Chicago and NBD, dated as of the Effective Time, substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion which are consistent with the state of facts existing at the Effective Time: 29 (i) The Merger will constitute a tax free reorganization under Section 368(a)(1)(A) of the Code and First Chicago and NBD will each be a party to the reorganization; (ii) No gain or loss will be recognized by First Chicago or NBD as a result of the Merger; (iii) No gain or loss will be recognized by the stockholders of First Chicago who exchange their First Chicago Capital Stock solely for NBD Capital Stock pursuant to the Merger (except with respect to cash received in lieu of a fractional share interest in NBD Capital Stock); (iv) The tax basis of the NBD Capital Stock received by stockholders who exchange all of their First Chicago Capital Stock solely for NBD Capital Stock in the Merger will be the same as the tax basis of the First Chicago Capital Stock surrendered in exchange therefor (reduced by any amount allocable to a fractional share interest for which cash is received); and (v) The holding period of NBD Capital Stock received by stockholders of First Chicago in the Merger will include the period during which the shares of First Chicago Capital Stock surrendered in exchange therefor were held; provided, such First Chicago Capital Stock was held as a capital asset by the holder of such First Chicago Capital Stock at the Effective Time. In rendering such opinion, counsel may require and rely upon representations contained in certificates of officers of First Chicago, NBD and others. (g) Pooling of Interests. First Chicago and NBD shall each have received a letter from their respective independent accountants addressed to NBD or First Chicago, as the case may be, to the effect that the Merger will qualify for "pooling of interests" accounting treatment. 7.2 Conditions to Obligations of First Chicago. The obligation of First Chicago to effect the Merger is also subject to the satisfaction or waiver by First Chicago at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. The representations and warranties of NBD set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. First Chicago shall have received a certificate signed on behalf of NBD by the Chief Executive Officer and the Chief Financial Officer of NBD to the foregoing effect. (b) Performance of Obligations of NBD. NBD shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and First Chicago shall have received a certificate signed on behalf of NBD by the Chief Executive Officer and the Chief Financial Officer of NBD to such effect. 7.3 Conditions to Obligations of NBD. The obligation of NBD to effect the Merger is also subject to the satisfaction or waiver by NBD at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. The representations and warranties of First Chicago set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. NBD shall have received a certificate signed on behalf of First Chicago by the Chief Executive Officer and the Chief Financial Officer of First Chicago to the foregoing effect. (b) Performance of Obligations of First Chicago. First Chicago shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and NBD shall have received a certificate signed on behalf of First Chicago by the Chief Executive Officer and the Chief Financial Officer of First Chicago to such effect. (c) First Chicago Rights Agreement. The rights issued pursuant to the First Chicago Rights Agreement shall not have become nonredeemable, exercisable, distributed or triggered pursuant to the terms of such agreement. 30 ARTICLE VIII Termination and Amendment 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the stockholders of First Chicago or NBD: (a) by mutual consent of First Chicago and NBD in a written instrument, if the Board of Directors of each so determines by a vote of a majority of the members of its entire Board; (b) by either the Board of Directors of First Chicago or the Board of Directors of NBD if any Governmental Entity which must grant a Requisite Regulatory Approval has denied approval of the Merger and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) by either the Board of Directors of First Chicago or the Board of Directors of NBD if the Merger shall not have been consummated on or before the first anniversary of the date of this Agreement, unless the failure of the Closing (as defined in Section 9.1) to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; (d) by either the Board of Directors of First Chicago or the Board of Directors of NBD (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within 45 days following written notice to the party committing such breach, or which breach, by its nature or timing, cannot be cured prior to the Closing Date; or (e) by either First Chicago or NBD if any approval of the stockholders of First Chicago or NBD required for the consummation of the Merger shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of stockholders or at any adjournment or postponement thereof. 8.2 Effect of Termination. In the event of termination of this Agreement by either First Chicago or NBD as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, and none of First Chicago, NBD, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby, except that (i) Sections 6.2(b), 8.2, 9.2 and 9.3, shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, neither First Chicago nor NBD shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. 8.3 Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of NBD; provided, however, that after any approval of the transactions contemplated by this Agreement by the respective stockholders of First Chicago or NBD, there may not be, without further approval of such stockholders, any amendment of this Agreement which changes the amount or the form of the consideration to be delivered to the holders of First Chicago Common Stock hereunder other than as contemplated by this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 8.4 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the 31 representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein; provided, however, that after any approval of the transactions contemplated by this Agreement by the respective stockholders of First Chicago or NBD, there may not be, without further approval of such stockholders, any extension or waiver of this Agreement or any portion thereof which reduces the amount or changes the form of the consideration to be delivered to the holders of First Chicago Common Stock hereunder other than as contemplated by this Agreement. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. ARTICLE IX GENERAL PROVISIONS 9.1 Closing. Subject to the terms and conditions of this Agreement and the Option Agreements, the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date and at a place to be specified by the parties, which shall be no later than five business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Article VII hereof, unless extended by mutual agreement of the parties (the "Closing Date"). 9.2 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement (other than pursuant to the Option Agreements, which shall terminate in accordance with its terms) shall survive the Effective Time, except for those covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time. 9.3 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, provided, however, that the costs and expenses of printing and mailing the Joint Proxy Statement, and all filing and other fees paid to the SEC in connection with the Merger, shall be borne equally by First Chicago and NBD. 9.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to First Chicago, to: First Chicago Corporation One First National Plaza, Suite O276 Chicago, Illinois 60670 Attn: General Counsel Fax: (312) 732-1069 and (b) if to NBD, to: NBD Bancorp, Inc. 611 Woodward Avenue Detroit, Michigan 48226 Attn: General Counsel Fax: (313) 225-2070 32 9.5 Interpretation. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". No provision of this Agreement shall be construed to require NBD, First Chicago or any of their respective Subsidiaries or affiliates to take any action which would violate any applicable law, rule or regulation. 9.6 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 9.7 Entire Agreement. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof other than the Option Agreements and the Confidentiality Agreement. 9.8 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. 9.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 9.10 Publicity. Except as otherwise required by applicable law or the rules of the NYSE, neither First Chicago nor NBD shall, or shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. 9.11 Assignment; Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.8, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. IN WITNESS WHEREOF, First Chicago and NBD have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NBD Bancorp, Inc. First Chicago Corporation /s/ Verne G. Istock /s/ Richard L. Thomas By: _________________________________ By: _________________________________ Verne G. Istock Richard L. Thomas Chairman and Chief Executive Chairman and Chief Executive Officer Officer 33 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER AMENDMENT NO. 1, dated as of September 18, 1995, to the AGREEMENT AND PLAN OF MERGER, dated as of July 11, 1995 (the "Merger Agreement"), by and between FIRST CHICAGO CORPORATION, a Delaware corporation ("First Chicago") and NBD BANCORP, INC., a Delaware corporation ("NBD"). 1. Pursuant to Section 8.3 of the Merger Agreement, NBD and First Chicago hereby amend and restate Section 1.7 thereof in its entirety as follows: "1.7 Certificate of Incorporation. Subject to the terms and conditions of this Agreement, at the Effective Time, the Certificate of Incorporation of NBD shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law, except that such Certificate of Incorporation shall be amended to provide: (a) that the number of shares of authorized Common Stock of the Surviving Corporation shall be increased to 750,000,000; (b) that the name of the Surviving Corporation shall be "First Chicago NBD Corporation"; (c) for the deletion of the Series A Preferred Stock, par value $1.00 per share; and (d) for the NBD New Preferred Stock." 2. The Merger Agreement, as hereby amended, is ratified and confirmed in all respects and remains in full force and effect. IN WITNESS WHEREOF, First Chicago and NBD have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NBD BANCORP, INC. FIRST CHICAGO CORPORATION By: /s/ Verne G. Istock By: /s/ Richard L. Thomas ------------------------- ------------------------- Verne G. Istock Richard L. Thomas Chairman and Chairman, President and Chief Executive Officer Chief Executive Officer AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER AMENDMENT NO. 2, dated as of October 20, 1995, to the AGREEMENT AND PLAN OF MERGER, dated as of July 11, 1995, as amended as of September 18, 1995 (the "Merger Agreement"), by and between FIRST CHICAGO CORPORATION, a Delaware corporation ("First Chicago") and NBD BANCORP, INC., a Delaware corporation ("NBD"). 1. Pursuant to Section 8.3 of the Merger Agreement, NBD and First Chicago hereby amend and restate Section 1.11(a) thereof in its entirety as follows: "1.11 Board of Directors. (a) At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of 20 persons, including Messrs. Thomas and Istock, 9 additional persons, two of whom may be executive officers of First Chicago, to be named by Mr. Thomas and the Board of Directors of First Chicago, and 9 additional persons, one of whom may be an executive officer of NBD, to be named by Mr. Istock and the Board of Directors of NBD." 2. The Merger Agreement, as hereby amended, is ratified and confirmed in all respects and remains in full force and effect. IN WITNESS WHEREOF, First Chicago and NBD have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NBD BANCORP, INC. FIRST CHICAGO CORPORATION By: /s/ Verne G. Istock By: /s/ Richard L. Thomas ------------------------- ------------------------- Verne G. Istock Richard L. Thomas Chairman and Chairman, President and Chief Executive Officer Chief Executive Officer AMENDMENT NO. 3 TO AGREEMENT AND PLAN OF MERGER AMENDMENT NO. 3, dated as of November 20, 1995, to the AGREEMENT AND PLAN OF MERGER, dated as of July 11, 1995, as amended as of September 18, 1995 and October 20, 1995 (the "Merger Agreement"), by and between FIRST CHICAGO CORPORATION, a Delaware corporation ("First Chicago") and NBD BANCORP, INC., a Delaware corporation ("NBD"). 1. Pursuant to Section 8.3 of the Merger Agreement, NBD and First Chicago hereby amend Section 1.7 thereof by adding a second sentence as follows: "Notwithstanding the foregoing, the amendment to the Certificate of Incorporation increasing the number of shares of authorized Common Stock of the Surviving Corporation may be made effective on any date within 60 days after the Effective Time." 2. The Merger Agreement, as hereby amended, is ratified and confirmed in all respects and remains in full force and effect. IN WITNESS WHEREOF, First Chicago and NBD have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NBD BANCORP, INC. FIRST CHICAGO CORPORATION By: /s/ Verne G. Istock By: /s/ Richard L. Thomas ------------------------- ------------------------- Verne G. Istock Richard L. Thomas Chairman and Chairman, President and Chief Executive Officer Chief Executive Officer EX-12 16 STATEMENTS RE COMPUTATION OF RATIOS EXHIBIT 12. STATEMENTS RE COMPUTATION OF RATIOS The ratios of income to fixed charges have been computed on the basis of the total enterprise (as defined by the Commission) by dividing income before fixed charges and income taxes by fixed charges. Fixed charges consist of interest expense on all long-term and short-term borrowings, excluding or including interest on deposits as indicated. The computations of other ratios are evident from the information presented in this Form 10-K. EX-21 17 FIRST CHICAGO NBD CORP. SUBSIDIARIES EXHIBIT 21. FIRST CHICAGO NBD CORPORATION SUBSIDIARIES As of March 1, 1996, the Corporation had the subsidiaries listed below, all of which were wholly-owned except for directors' qualifying shares or as otherwise indicated. The consolidated financial statements of the Corporation include the accounts of all such subsidiaries. Jurisdiction of Names of Corporation and Subsidiaries Organization - ------------------------------------- ------------ First Chicago NBD Corporation Delaware Subsidiaries: American National Bank and Trust Company United States of Chicago ANB Mezzanine Corporation Delaware FCC National Bank United States First Chicago Financial Corporation Delaware Subsidiaries: First Chicago Capital Corporation Delaware First Chicago Capital Markets, Inc. Delaware First Chicago Equity Corporation Illinois First Chicago Hedging Services Corporation Delaware First Chicago Investment Corporation Delaware First Chicago Leasing Corporation Delaware First Chicago Trust Company of New York New York The First National Bank of Chicago United States Subsidiaries: First Chicago Building Corporation Illinois First Chicago Futures, Inc. Delaware First Chicago International United States First Chicago International Finance Corporation United States First Chicago Investment Management Company Delaware Subsidiary: ANB Investment Management and Illinois Trust Company First Chicago National Processing Corporation Delaware First Chicago Neighborhood Development Delaware Corporation First NBD Investment Services, Inc. Delaware G-W Life Insurance Company Arizona National Bank of Detroit-Dearborn United States NBD Bank (Venice, Florida) Florida NBD Bank (Wheaton, Illinois) Illinois NBD Bank (Detroit, Michigan) Michigan Subsidiaries: NBD Bank, Canada Canada NBD Equipment Finance, Inc. Delaware Seed-Roberts Agency, Inc. Michigan NBD Bank, N.A. (Fox River Grove, Illinois) United States Subsidiary: Deer Insurance Services, Inc. Illinois NBD Community Development Corporation Michigan NBD Indiana, Inc. Delaware Subsidiaries: NBD Brokerage Services, Inc. Indiana NBD Bank (Elkhart, Indiana) Indiana NBD Bank, N.A. (Indianapolis, Indiana) United States NBD Neighborhood Revitalization Corporation Indiana NBD Real Estate Services, Inc. Indiana NBD Insurance Agency, Inc. Michigan NBD Insurance Company Arizona NBD Mortgage Company Delaware NBD Service Corp. Delaware The names of certain other subsidiaries of the Corporation have been omitted because such subsidiaries, considered in the aggregate, would not constitute a significant subsidiary. 2 EX-23 18 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To First Chicago NBD Corporation: As independent public accountants, we hereby consent to the incorporation of our report dated January 16, 1996, included in this Form 10-K, into the Corporation's previously filed Form S-8 Registration Statement No. 33-62713, Form S-3 Registration Statement No. 33-64755, Form S-3 Registration Statement No. 33-65431, Form S-8 Registration Statement No. 33-21036, Form S-8 Registration Statement No. 33-48773, Form S-8 Registration Statement No. 33- 46906, Form S-8 Registration Statement No. 33-50300, Form S-8 Registration Statement No. 33-53928, Form S-3 Registration Statement No. 33-60788, and Form S-8 Registration Statement No. 33-17494. /s/ Arthur Andersen LLP Chicago, Illinois, March 25, 1996 EX-27 19 FINANCIAL DATA SCHEDULE
9 1,000,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 7,297 10,241 11,698 8,150 9,449 0 0 64,434 (1,338) 122,002 69,106 25,513 10,041 8,163 319 0 489 7,642 122,002 5,260 821 1,542 8,090 2,581 4,882 3,208 510 (16) 3,535 1,754 1,150 0 0 1,150 3.45 3.41 3.14 344 197 19 0 1,158 409 145 1,338 1,281 57 0 Treasury stock of $121 million is included as a reduction of other stockholders' equity. Investment securities gains/losses do not include the Corporation's equity securities gains which totaled $253 million. Other expenses include: salaries and employee benefit expense of $1,692 million, occupancy expense of $252 million, equipment rentals, depreciation and maintenance expense of $225 million, amortization of intangible assets of $88 million, merger-related charges of $267 million and other expenses which totaled $1,011 million.
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