SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x] Filed by a Party other than the Registrant [] Check
the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Murfreesboro Bancorp, Inc.
-------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
--------------------------------------------------------
(Name of Person(s) Filling Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common stock, par value $5.00 per share
.......................................................................
2) Aggregate number of securities to which transaction applies:
1,262,359
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
907,609 shares x $21.25 (cash consideration) plus 114,750 options x
$10.561 (option cash out value) plus 240,000 debentures x $21.25
(debenture cash out value), and multiplying that sum by 1/50th of 1%
.......................................................................
4) Proposed maximum aggregate value of transaction:
$25,613,253
.......................................................................
5) Total fee paid:
$5,123
.......................................................................
[ ] Fee previously paid with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[Murfreesboro Bancorp, Inc. Letterhead]
A MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT
Dear Fellow Shareholder:
We cordially invite you to attend a special meeting of the shareholders
of Murfreesboro Bancorp, Inc. The special meeting will be held at the executive
offices of Murfreesboro Bancorp, Inc., at 615 Memorial Boulevard, Murfreesboro,
Tennessee on __________, ___________, 2003 at 5:00 p.m., local time.
At the special meeting, you will be asked to approve and adopt the
merger agreement which provides for Murfreesboro Bancorp, Inc. to be acquired by
First South BanCorp, Inc., and Bank of Murfreesboro, a wholly owned subsidiary
of Murfreesboro Bancorp, Inc. to be acquired by FirstBank, a wholly owned
subsidiary of First South BanCorp, Inc. If the merger is completed, you will be
entitled to receive a cash payment of $21.25 for each share of Murfreesboro
Bancorp, Inc. common stock that you own. Upon completion of the merger, you will
not own any common stock or other interest in Murfreesboro Bancorp, Inc. or
First South BanCorp, Inc.
Completion of the merger is subject to certain conditions, including
receipt of various regulatory approvals and adoption of the merger agreement by
the affirmative vote of a majority of the issued and outstanding shares of
Murfreesboro Bancorp, Inc. common stock. As of _________, 2003, the directors
and executive officers of Murfreesboro Bancorp, Inc. owned ___% of the
outstanding shares of Murfreesboro Bancorp, Inc. common stock entitled to vote
at the special meeting of shareholders. Our directors have agreed to vote all of
their shares of Murfreesboro Bancorp, Inc. common stock in favor of the merger
agreement.
We urge you to read the attached proxy statement carefully. It
describes the merger agreement in detail and includes a copy of the merger
agreement.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. OUR BOARD
OF DIRECTORS BELIEVES THE MERGER AGREEMENT TO BE IN THE BEST INTERESTS OF OUR
SHAREHOLDERS.
It is very important that your shares be represented at the special
meeting. Whether or not you plan to attend the special meeting, please complete,
date and sign the enclosed proxy card and return it promptly in the postage-paid
envelope provided.
On behalf of the Board of Directors, we thank you for your prompt
attention to this important matter.
William E. Rowland Joyce Ewell
President and Chief Executive Officer Executive Vice President
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
MURFREESBORO BANCORP, INC.
615 Memorial Boulevard
Murfreesboro, Tennessee 37129
(615) 890-1111
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MURFREESBORO BANCORP, INC.
To Be Held On February , 2003
A special meeting of shareholders of Murfreesboro Bancorp, Inc., a
Tennessee corporation, will be held at 5:00 p.m., local time on ___________,
_______________, 2003 at the executive offices of Murfreesboro Bancorp, Inc.,
615 Memorial Boulevard, Murfreesboro, Tennessee for the following purpose:
To vote upon a proposal to approve and adopt the Agreement and Plan of
Merger dated as of December 11, 2002 by and among First South BanCorp, Inc.,
FirstBank, Bank of Murfreesboro (referred to herein as the "merger agreement")
and Murfreesboro Bancorp, Inc. (referred to herein as "Murfreesboro Bancorp,"
"us" or "we") as more fully described in this proxy statement.
Our Board of Directors has fixed _________, 2003 as the record date for
determination of shareholders entitled to notice of, and to vote at, the special
meeting of shareholders, and only holders of Murfreesboro Bancorp common stock
of record at the close of business on that day will be entitled to vote.
A complete list of shareholders entitled to vote at the special meeting
will be available at the offices of Murfreesboro Bancorp during ordinary
business hours beginning two days after the date of this notice and continuing
through the date of the special meeting for examination by any shareholder for
any purpose related to the special meeting. This list will also be available at
the special meeting.
Whether or not you expect to be present at the special meeting, please
complete, date, sign and return the enclosed proxy, which is solicited by the
Board of Directors of Murfreesboro Bancorp. The shares represented by the proxy
will be voted according to your specified response. The proxy is revocable and
will not affect your right to vote in person if you attend the special meeting.
Please do not send your stock certificates with your proxy card.
The Board of Directors and executive officers of Murfreesboro Bancorp
hold ____% of the issued and outstanding shares of Murfreesboro Bancorp common
stock entitled to vote at the special meeting. The directors have agreed to vote
all of their shares in favor of adoption of the merger agreement.
By Order of the Board of Directors
William E. Rowland
President and Chief Executive Officer
Murfreesboro, Tennessee
, 2003
This proxy statement is first being mailed to our shareholders
on or about _____________, 2003.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
TABLE OF CONTENTS
SUMMARY........................................................................1
WHERE YOU CAN FIND MORE INFORMATION............................................3
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
AND THE SPECIAL MEETING.....................................................4
THE SPECIAL MEETING............................................................6
Time, Date and Place........................................................6
Matter to be Considered.....................................................6
Record Date; Vote Required..................................................6
Beneficial Ownership of Murfreesboro Bancorp Common Stock...................6
Murfreesboro Common Stock...................................................7
Proxies.....................................................................7
THE MERGER.....................................................................9
General.....................................................................9
The Companies...............................................................9
Background of the Merger...................................................10
Reasons for the Merger; Recommendation of Our Board of Directors...........11
Opinion of The BankersBanc Capital Corporation.............................12
You Will Receive Cash for Your Murfreesboro Bancorp Common Stock...........15
Treatment of Options.......................................................15
Treatment of Debentures....................................................16
Procedure for Surrendering Your Common Stock Certificates..................16
Representations and Warranties.............................................17
Conduct of Business prior to Completion of the Merger......................17
Conditions to the Merger...................................................19
Termination of the Merger Agreement........................................20
Waiver and Amendment of the Merger Agreement...............................21
Approvals Needed to Complete the Merger....................................21
Interests of Directors and Officers in the Merger..........................22
You Have Dissenters' Rights of Appraisal...................................26
Federal Income Tax Consequences of the Merger to You.......................29
Accounting Treatment of the Merger.........................................30
RELATED AGREEMENTS............................................................30
Voting Agreement...........................................................30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS...............................30
AND MANAGEMENT................................................................30
Future Shareholder Proposals...............................................33
Other Matters..............................................................33
Appendix A Agreement and Plan of Merger
Appendix B Opinion of The BankersBanc Capital Corporation
Appendix C Chapter 48-23 of the Tennessee Business Corporation Code
SUMMARY
This summary highlights material information in this proxy statement.
You should carefully read the entire proxy statement and the other documents to
which we refer, including the merger agreement, attached as Appendix A, to fully
understand the merger.
IF THE MERGER IS COMPLETED, YOU WILL BE ENTITLED TO RECEIVE $21.25 IN CASH FOR
EACH SHARE OF MURFREESBORO BANCORP COMMON STOCK THAT YOU OWN (SEE PAGE ___).
If the merger is completed, each Murfreesboro Bancorp shareholder will
be entitled to receive $21.25 in cash for each share of Murfreesboro Bancorp
common stock owned. For example, if you own 50 shares of Murfreesboro Bancorp
common stock, you will be entitled to receive $1,062.50 upon the surrender of
your stock certificate representing those shares.
OUR REASONS FOR THE MERGER; RECOMMENDATION OF OUR BOARD OF DIRECTORS (SEE PAGE
___).
Our Board of Directors believes that the merger is in the best
interests of Murfreesboro Bancorp and its shareholders and recommends that the
shareholders vote "FOR" the proposal to adopt the merger agreement. The merger
will enable our shareholders to realize significant value on their investment in
Murfreesboro Bancorp. In reaching its decision to approve the merger agreement,
our Board of Directors considered various factors, which are discussed in detail
in this proxy statement.
SOME MATERIAL TERMS OF THE MERGER AGREEMENT.
The merger cannot be consummated unless (i) our shareholders approve
and adopt the merger agreement by the affirmative vote of a majority of the
issued and outstanding shares of our common stock entitled to vote at the
special meeting of shareholders and (ii) we receive approvals from the banking
regulators (see page ___).
We have agreed to conduct our business according to particular
requirements in the period prior to the consummation of the merger (see page
___).
The completion of the merger depends on several conditions being
satisfied or waived (see page __).
Each of our directors and executive officers has entered into a voting
agreement with First South BanCorp, Inc. ("First South"). Under the voting
agreement, our directors and executive officers agreed to vote all shares that
they beneficially own in favor of the merger agreement at the special meeting of
shareholders (see page __).
We have agreed not to solicit or encourage a competing transaction to
acquire us or the Bank of Murfreesboro, except where the failure to do so would
cause our Board of Directors to breach its fiduciary duties (see page __).
We and First South have each agreed to pay the other party a
termination fee of $2,500,000 upon the occurrence of certain events that lead to
a termination of the merger agreement (see page __).
If the merger is not completed by September 30, 2003, the merger
agreement may be terminated by either us or First South, unless the failure to
complete the merger is due to a breach of the party seeking to terminate (see
page __).
OUR FINANCIAL ADVISOR SAYS THE MERGER CONSIDERATION IS FAIR FROM A FINANCIAL
POINT OF VIEW TO OUR SHAREHOLDERS (SEE PAGE _____).
Our financial advisor, The BankersBanc Capital Corporation, has given
us a written opinion dated _________, 200_ that states the cash consideration to
be paid to our shareholders is fair from a financial point of view. A copy of
the opinion is attached to this proxy statement as Appendix B. You should read
it completely to understand the assumptions made, matters considered and
limitations of the review performed by our financial advisor in issuing its
opinion. We have agreed to pay BankersBanc a fee of $100,000 plus an additional
one percent (1%) of the total consideration paid in the merger, which will be
paid upon consummation of the merger.
FINANCIAL INTERESTS OF MURFREESBORO BANCORP OFFICERS AND DIRECTORS IN THE MERGER
(SEE PAGE ___).
Our directors and executive officers have interests in the merger as
individuals in addition to, or different from, their interests as shareholders
of Murfreesboro Bancorp, such as entering into employment agreements with First
South, indemnification and insurance coverage provided by First South and other
benefits. Our Board of Directors was aware of these interests and considered
them in its decision to approve the merger agreement.
YOU HAVE DISSENTERS' RIGHTS (SEE PAGE ___).
Under Chapter 48-23 of Tennessee Business Corporation Code, you have
dissenters' appraisal rights with respect to your shares of Murfreesboro Bancorp
common stock. If you do not wish to accept the $21.25 per share merger
consideration, you can dissent from the merger and instead choose to have the
fair value of your shares judicially determined and paid to you in cash.
However, in order to exercise your rights, you must follow specific procedures.
You should read carefully Chapter 48-23 of the Tennessee Business Corporation
Code, which is attached to this proxy statement as Appendix C.
THE MERGER WILL BE TAXABLE TO OUR SHAREHOLDERS (SEE PAGE ___).
Generally, your exchange of your Murfreesboro Bancorp common stock for
cash will be a taxable event under Federal, and possibly state and local, tax
laws. Your gain or loss recognized will equal the difference between the amount
of cash you receive and your tax basis in your common stock. You should consult
your personal tax advisor for a full understanding of the merger's specific tax
consequences to you.
2
THE MERGER IS EXPECTED TO BE COMPLETED IN THE SECOND QUARTER OF 2003 (SEE PAGE
___).
The merger will be consummated only after all the conditions to its
completion have been satisfied or properly waived. Currently, we anticipate that
the merger will be completed in the second quarter of 2003.
WHERE YOU CAN FIND MORE INFORMATION
As a company whose common stock is registered with the Securities and
Exchange Commission (the "SEC") pursuant to 12(g) of the Securities Exchange Act
of 1934, we are obligated to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that we file with the SEC at the SEC's
public reference rooms located at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public at the
SEC's website at http://www.sec.gov.
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QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
AND THE SPECIAL MEETING
Q. What do I need to do now?
A. After you have carefully read this proxy statement, indicate on your proxy
card how you want your shares to be voted. Then sign, date and mail your proxy
card in the enclosed prepaid return envelope as soon as possible. This will
enable your vote to be counted at the special meeting.
Q. Why is my vote important?
A. The merger agreement must be approved by a majority of the issued and
outstanding shares of Murfreesboro Bancorp common stock entitled to vote. If you
do not return your proxy card or vote in person at the special meeting, it will
have the same effect as a vote against the merger agreement.
Q. If my shares are held in street name by my broker, will my broker
automatically vote my shares for me?
A. No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker as to the vote your shares, following
the directions your broker provides.
Q. What happens if I fail to instruct my broker?
A. If you fail to instruct your broker to vote your shares, it will have the
same effect as a vote against the merger agreement.
Q. Can I attend the special meeting and vote in person?
A. Yes. All shareholders are invited to attend the special meeting. Shareholders
of record can vote in person at the special meeting. If your shares are held in
street name, you are not the shareholder of record and you must ask your broker
or other nominee how you can vote at the special meeting.
Q. Can I change my vote?
A. Yes. If you have not voted through your broker or other nominee, there are
three ways you can change your vote after you have sent in your proxy card.
o First, you may send a written notice of revocation to the Corporate
Secretary of Murfreesboro Bancorp.
4
o Second, you may complete, date and submit a new proxy card. Any earlier
proxies will be revoked automatically.
o Third, you may attend the special meeting and vote in person. Any earlier
proxies will be revoked. However, simply attending the special meeting
without voting will not revoke your proxy.
Q. Should I send in my stock certificates now?
A. No, you should not send in your stock certificates with your proxy.
Instructions for surrendering your Murfreesboro Bancorp common stock
certificates will be sent to you upon completion of the merger.
Q. Whom should I call if I have questions?
A. You should call our Corporate Secretary, Debbie Ferrell at (615) 890-1111.
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THE SPECIAL MEETING
Time, Date and Place
The special meeting of shareholders is scheduled to be held at 5:00
p.m., local time, on [Day], [Date], 2003, at our executive offices, 615 Memorial
Boulevard, Murfreesboro, Tennessee.
Matter to be Considered
At the special meeting, you will be asked to approve a proposal to
adopt the merger agreement. As of the date of this proxy statement, we know of
no other matters to be presented at the special meeting.
Record Date; Vote Required
Only our shareholders of record at the close of business on __________,
2003 are entitled to notice of and to vote at the special meeting of
shareholders. As of __________, 2003, there were [907,609] shares of our common
stock issued and outstanding and entitled to vote at the special meeting. Each
issued and outstanding share of our common stock will be entitled to cast one
vote per share at the special meeting.
You may vote in person or by submitting a properly executed proxy. The
presence, in person or by properly executed proxy, of the holders of at least a
majority of all the shares entitled to vote at the special meeting of
shareholders will constitute a quorum. Abstentions and broker non-votes will be
treated as shares present at the special meeting for purposes of determining the
presence of a quorum. A broker non-vote is an unvoted proxy submitted by a
broker. Under applicable rules, brokers or other nominees who hold shares in
street name for customers who are the beneficial owners of such shares may not
vote those shares with respect to the merger agreement unless they have received
specific instructions from their customers.
To approve and adopt the merger agreement, the holders of a majority of
the outstanding shares of Murfreesboro Bancorp's common stock entitled to vote
must vote in favor of the merger agreement. Consequently, a failure to vote, an
abstention or a broker non-vote will have the same effect as voting against the
merger agreement.
Approval of the merger agreement by our shareholders is one of the
conditions that must be satisfied in order to complete the merger. See "The
Merger - Conditions to the Merger."
Beneficial Ownership of Murfreesboro Bancorp Common Stock
As of _________, 2003, our directors and executive officers and their
affiliates owned an aggregate of __________ shares (excluding stock options) of
our common stock, or ___% of the issued and outstanding shares of our common
stock entitled to vote at the special meeting. Our directors have entered into a
voting agreement with First South agreeing to vote their shares of Murfreesboro
Bancorp's common stock in favor of the merger agreement.
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Murfreesboro Common Stock
Murfreesboro Bancorp's common stock is not listed on any national
securities exchange.
Proxies
Shares of our common stock represented by properly executed proxies
received prior to or at the special meeting of shareholders will, unless they
have been revoked, be voted at the special meeting in accordance with the
instructions indicated in the proxies. If no instructions are indicated on a
properly executed proxy, the shares will be voted "FOR" the adoption of the
merger agreement.
You should complete and return the proxy card accompanying this proxy
statement to ensure that your vote is counted at the special meeting, regardless
of whether you plan to attend the special meeting. If you are a record holder of
shares of our common stock, you can revoke your proxy at any time before the
vote is taken at the special meeting by:
o submitting written notice of revocation to our Corporate
Secretary;
o submitting a properly executed proxy bearing a later date; or
o voting in person at the special meeting.
Written notice of revocation and other communications about revoking
your proxy should be addressed to:
Address for overnight delivery: Address for regular mail:
Murfreesboro Bancorp, Inc. Murfreesboro Bancorp, Inc,
615 Memorial Boulevard Box 20700
Murfreesboro, Tennessee 37129 Murfreesboro, Tennessee 37129-0700
Attention: Corporate Secretary Attention: Corporate Secretary
(615) 890-1111
If your Murfreesboro Bancorp common stock is held in street name, you
will receive instructions from your broker, bank or other nominee that you must
follow to have your shares voted. Your broker, bank or other nominee may allow
you to deliver your voting instructions via telephone or the Internet. Please
review the instruction form provided by your broker, bank or other nominee that
accompanies this proxy statement.
If any other matters are properly presented at the special meeting of
shareholders for consideration, the proxy holders will have discretion to vote
on such matters in accordance with their best judgment. As of the date of this
proxy statement, we know of no other matters to be presented at the special
meeting.
Certain material events or changes in circumstances including a
material amendment to the merger agreement or a material revision of the
fairness opinion issued by The BankersBanc Capital Corporation may result in a
resolicitation of your vote. Under those circumstances, we will provide you with
supplemental information about the material event or change in circumstances and
give you an opportunity to recast your vote.
7
In addition to solicitation by mail, our directors, officers and
employees, who will not receive additional compensation for such services, may
solicit proxies from our shareholders, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
the proxy material to beneficial owners. We will bear our own expenses in
connection with the solicitation of proxies for the special meeting of
shareholders.
You are requested to complete, date and sign the accompanying proxy
card and return it promptly in the enclosed postage-paid envelope.
You should not forward your stock certificates with your proxy card.
8
THE MERGER
The following information describes the material terms of the proposed
merger. All shareholders are urged to read the merger agreement, which is
attached as Appendix A, in its entirety, as well as the opinion of our financial
advisor attached as Appendix B.
General
As soon as practicable after the conditions to completion of the merger
described below, have been satisfied or waived, and unless the merger agreement
has been terminated as discussed below, Murfreesboro Bancorp and Bank of
Murfreesboro will be acquired by First South and FirstBank, respectively. The
acquisition of Murfreesboro Bancorp and Bank of Murfreesboro will be
accomplished through two separate, but related merger transactions. First,
Murfreesboro Bancorp will merge with and into First South with First South as
the surviving corporation. At the effective time of the merger, each share of
Murfreesboro Bancorp common stock will be converted into the right to receive
$21.25 in cash paid by First South. Second, immediately after the merger of
Murfreesboro Bancorp and First South, Bank of Murfreesboro will merge with and
into FirstBank with FirstBank as the surviving entity.
References in this proxy statement to the "merger" means both the
merger of Murfreesboro Bancorp and First South and the merger of Bank of
Murfreesboro and FirstBank, collectively. References to the "Company Merger" and
the "Bank Merger" shall refer to the acquisitions of Murfreesboro Bancorp and
Bank of Murfreesboro, respectively.
The Companies
Murfreesboro Bancorp, Inc.
Bank of Murfreesboro
615 Memorial Boulevard
Murfreesboro, Tennessee 37129
(615) 890-1111
Murfreesboro Bancorp is a Tennessee corporation and the parent bank
holding company of Bank of Murfreesboro and its non-banking subsidiaries. Bank
of Murfreesboro is a Tennessee-chartered stock savings bank, which is
headquartered in Murfreesboro, Tennessee. Bank of Murfreesboro currently has
three banking offices in Tennessee, with two located in Murfreesboro and one
located in Smyrna.
First South BanCorp, Inc.
FirstBank
53 East Church Street
Lexington, Tennessee 38351
(731) 968-5711
First South is a Tennessee corporation and the parent bank holding
company of FirstBank, a Tennessee-chartered banking association and other direct
or indirect non-banking subsidiaries. FirstBank currently has 26 banking offices
in Tennessee, located in Bruceton, Camden (2), Clarksburg, Dickson, Hollow Rock,
Lexington (6), Huntingdon (3), Jackson (3), Linden, Memphis (2), Nashville,
Paris, Parsons, Scotts Hill and Waverly.
9
Background of the Merger
As part of its ongoing strategic planning, Murfreesboro Bancorp has
periodically reviewed various strategic options for enhancing shareholder value,
including, among other things, continued independence, expansion of the
franchise through the acquisition of banking and banking-related businesses, and
a merger with or acquisition by another financial institution. In early 2002,
Murfreesboro Bancorp's President and Chief Executive Officer, William E.
Rowland, initiated discussions with a representative of The BankersBanc Capital
Corporation concerning a process to confidentially explore Murfreesboro
Bancorp's affiliation and merger options. These discussions led to BankersBanc's
participation in Murfreesboro Bancorp's Board of Directors meeting held on April
12, 2002 addressing this topic. Subsequent to this meeting, BankersBanc was
engaged as Murfreesboro Bancorp of Directors' financial advisor to manage a
process to develop specific affiliation or sale alternatives for the Board's
consideration. During April 2002, BankersBanc prepared a confidential
information memorandum describing Murfreesboro Bancorp, its markets, business,
competitive posture and financial position to aid prospective acquirers in their
evaluation of the acquisition opportunity offered by Murfreesboro Bancorp.
In May 2002, BankersBanc began systematically contacting prospective
acquirers and merger partners on behalf of Murfreesboro Bancorp. The
confidential information memorandum was provided to institutions expressing an
affiliation interest in Murfreesboro Bancorp. This process continued through the
middle of October 2002, at which point the confidential information memorandum
had been distributed to thirteen prospective acquirers and merger partners. As a
result of this process, by the middle of November 2002, Murfreesboro Bancorp had
received nonbinding expressions of acquisition interest from four institutions,
including First South. The proposal from First South was the most economically
attractive to Murfreesboro Bancorp and its shareholders. In late November 2002,
Murfreesboro Bancorp permitted First South and one of the other four
institutions to conduct a detailed, on-site due diligence investigation of
Murfreesboro Bancorp. At the conclusion of their due diligence evaluation, First
South reaffirmed the terms of its earlier acquisition proposal to Murfreesboro
Bancorp of $21.25 per share, payable in cash. This proposal remained the most
economically attractive acquisition offer that Murfreesboro Bancorp received.
From May through November 2002, Murfreesboro Bancorp's Board had
received detailed updates on the status of BankersBanc's process. At a special
meeting of the Board of Directors held on December 6, 2002, the Board of
Directors of Murfreesboro Bancorp continued to discuss the alternatives
available to Murfreesboro Bancorp, including remaining independent or pursuing
one of the specific sale alternatives identified by BankersBanc. The Board of
Directors instructed Murfreesboro Bancorp's management, the BankersBanc
representative and legal counsel to continue to proceed with First South by
pursuing the negotiation of a definitive merger agreement and its related
documents for the Board's consideration.
10
Murfreesboro Bancorp's Board of Directors met again in special session
with its financial advisor and legal counsel on December 11, 2002. In this
meeting, the representative from BankersBanc reviewed in detail the results of
the process undertaken to develop acquisition proposals for Murfreesboro Bancorp
as well as their specific analysis of the terms of the First South acquisition
proposal. BankersBanc also reviewed its analysis of the per share values which
might be available to shareholders should Murfreesboro Bancorp elect to remain
an independent institution. BankersBanc's presentation to the Board of Directors
of Murfreesboro Bancorp is described in detail under "Opinion of The BankersBanc
Capital Corporation". BankersBanc concluded its report to the Board by
delivering its opinion that the price and terms of the First South proposal
contained in the definitive merger agreement were fair to Murfreesboro Bancorp
shareholders from a financial point of view.
Murfreesboro Bancorp's legal counsel then reviewed in detail the
provisions of the proposed definitive merger agreement. Counsel also discussed
the fiduciary obligations of a board of directors when considering a sale of
control transaction. After extensive discussion, Murfreesboro Bancorp's Board of
Directors voted unanimously to accept the acquisition offer from First South
contained in the definitive merger agreement and instructed management to
execute the agreement and its related documents. On December 11, 2002,
Murfreesboro Bancorp issued a press release announcing the merger transaction.
Reasons for the Merger; Recommendation of Our Board of Directors
Our Board of Directors believes that the terms of the merger agreement,
which are the result of arm's length negotiations between representatives of
First South and Murfreesboro Bancorp, are in the best interests of our
shareholders. In the course of reaching its determination, our Board of
Directors considered the following factors:
o the merger consideration to be paid to our shareholders in
relation to the market value, book value and earnings per
share of our common stock;
o information concerning our financial condition, results of
operations, capital levels, asset quality and prospects;
o industry and economic conditions;
o our assessment of First South's ability to pay the aggregate
merger consideration;
o the opinion of our financial advisor as to the fairness of the
merger consideration from a financial point of view to the
holders of our common stock;
o the general structure of the transaction and the compatibility
of management and business philosophy;
o the greater resources that the combined entities will have
after the merger than we currently have;
o the impact of the merger on the depositors, employees,
customers and communities served by us;
o the results of our due diligence investigation of First South,
including the likelihood of receiving the requisite regulatory
approvals in a timely manner; and
o our strategic alternatives to the merger, including the
continued operation of Murfreesboro Bancorp as an independent
financial institution.
In making its determination, our Board of Directors did not ascribe any
relative or specific weights to the factors which it considered. The foregoing
discussion of the factors considered by our Board of Directors is not intended
to be exhaustive, but it does include the material factors considered by our
Board of Directors.
11
Our Board of Directors believes that the merger is in the best
interests of Murfreesboro Bancorp and its shareholders. The Board of Directors
unanimously recommends that our shareholders vote "FOR" the adoption of the
merger agreement.
Opinion of The BankersBanc Capital Corporation
Murfreesboro Bancorp retained BankersBanc in early 2002 to act as its
financial advisor in connection with a formal process to explore sale or
affiliation options that might be available to Murfreesboro Bancorp. A
representative of BankersBanc reported on the status of this project in several
meetings of the Murfreesboro Bancorp Board of Directors held between March 27,
2002 and December 11, 2002. At the December 11, 2002 Murfreesboro Bancorp Board
of Directors meeting, BankersBanc rendered its oral opinion that, based upon its
review of the merger agreement, conversion of each share of Murfreesboro
Bancorp's common stock into the right to receive $21.25 in cash and the
additional terms provided for by the merger agreement (the "Per Share Purchase
Price and Terms") were fair to the shareholders and optionholders of
Murfreesboro Bancorp from a financial point of view. BankersBanc has also
rendered a written opinion to the Murfreesboro Bancorp Board of Directors that,
on the date of this proxy statement, based on the information set forth therein,
the Per Share Purchase Price and Terms were fair to the Murfreesboro Bancorp
shareholders and optionholders from a financial point of view.
The full text of BankersBanc's written opinion is attached as Exhibit B
to this proxy statement and is incorporated herein by reference. The description
of the opinion set forth herein is qualified in its entirety by reference to
Exhibit B. Murfreesboro Bancorp shareholders are urged to read the opinion in
its entirety for a description of the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
by BankersBanc in connection therewith.
BankersBanc's opinion is directed to the Murfreesboro Bancorp Board
only and is directed only to the Per Share Purchase Price and Terms and does not
constitute a recommendation to any Murfreesboro Bancorp shareholder regarding
how such shareholder should vote at the special meeting of shareholders.
In arriving as its written opinion, BankersBanc, among other things:
(i) analyzed certain audited and unaudited financial statements and other
information of Murfreesboro Bancorp; (ii) reviewed and discussed with
appropriate management personnel, Murfreesboro Bancorp's past and current
business activities and financial results and the future business and financial
outlook for Murfreesboro Bancorp; (iii) considered certain financial and stock
market data of publicly held banking institutions similar to Murfreesboro
Bancorp; (iv) reviewed the prices paid in certain comparable acquisition
transactions of community banking institutions and the multiples of earnings and
book value and the level of deposit base premium received by the selling
institutions; (v) reviewed the merger agreement and certain related documents;
(vi) considered the financial implications of certain other strategic
alternatives available to Murfreesboro Bancorp; and (vii) performed such other
analyses as BankersBanc deemed appropriate.
12
In conducting its analysis and arriving at its opinion, BankersBanc
assumed and relied upon, without independent verification, the accuracy and
completeness of the information it reviewed for the purposes of the opinion.
BankersBanc also relied upon the management of Murfreesboro Bancorp with respect
to the reasonableness and achievability of the financial forecast (and the
assumptions and bases underlying such forecast) provided to it. Murfreesboro
Bancorp instructed BankersBanc that, for the purposes of its opinion,
BankersBanc should assume that such forecast will be realized in the amounts and
in the time periods currently estimated by the management of Murfreesboro
Bancorp. BankersBanc also assumed, with Murfreesboro Bancorp's consent, that the
aggregate allowance for loan losses for Murfreesboro Bancorp is adequate to
cover such losses. BankersBanc is not an expert in the evaluation of allowances
for loan losses and has not reviewed any individual credit files. BankersBanc
did not make, nor was it furnished with, independent valuations or appraisals of
the assets or liabilities of Murfreesboro Bancorp.
No limitations were imposed by Murfreesboro Bancorp or the Murfreesboro
Bancorp Board of Directors on the scope of BankersBanc's investigation or the
procedures to be followed by BankersBanc in rendering its opinion. As part of
its procedures, BankersBanc solicited a number of bank holding companies for
their indications of acquisition interest in Murfreesboro Bancorp. BankersBanc
considered the results of this solicitation in arriving at its opinion. The
fairness opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to BankersBanc as of, the
date of its analysis.
In arriving at the fairness, from a financial point of view, of the
consideration to be received by the shareholders of Murfreesboro Bancorp,
BankersBanc developed an opinion of the value of Murfreesboro Bancorp common
stock should the institution remain independent and analyzed such value in light
of the premium represented by the Per Share Purchase Price and Terms. In
connection with rendering its opinion to the Murfreesboro Bancorp Board of
Directors, BankersBanc also reviewed a variety of generally recognized valuation
methodologies and merger analyses and performed those that it believed were most
appropriate for developing its opinion of fairness, from a financial point of
view.
The preparation of a fairness opinion involves various determinations
of the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. In arriving
at its fairness opinion, BankersBanc did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
about the significance and relevancy of each analysis and factor. None of the
analyses performed by BankersBanc were assigned a greater significance by
BankersBanc than any other. Accordingly, BankersBanc believes that its analyses
must be considered as a whole and that a review of selected portions of such
analyses and the factors considered therein, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying its opinion and any conclusions reached therein. In its analyses,
BankersBanc made numerous assumptions with respect to industry performance,
general business and economic conditions, and other matters, many of which are
beyond Murfreesboro Bancorp's control. Any estimates contained in BankersBanc's
analyses are not necessarily indicative of actual values or predictive of future
results or values that may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities actually
may be sold. In addition, as described above, BankersBanc's opinion and
presentations to the Murfreesboro Bancorp Board of Directors were only a few of
many factors taken into consideration by the Murfreesboro Bancorp Board of
Directors in making its determination to approve the merger agreement.
13
The following is a brief summary of analyses performed by BankersBanc
in connection with its opinion delivered to the Murfreesboro Bancorp Board of
Directors on December 11, 2002:
Summary of Proposal. BankersBanc reviewed the terms of the proposed
transaction as reflected in the merger agreement. BankersBanc stated that, based
on a purchase price of $21.25 in cash for each Murfreesboro Bancorp common share
to be outstanding, after reflecting the conversion of Murfreesboro Bancorp's
Floating Rate Convertible Subordinated Debentures, due August 31, 2011 (the
"Debentures"), into 240,000 shares of Murfreesboro Bancorp common stock, and
purchase of every outstanding option exercisable into Murfreesboro Bancorp
common shares for an amount in cash equal to $21.25 less the respective exercise
price of such option, the transaction would have a total value of approximately
$26.8 million.
Indicated Value of Murfreesboro Bancorp as an Independent Company.
BankersBanc undertook an analysis addressing the range of potential values that
would be implied if Murfreesboro Bancorp were to remain an independent company.
BankersBanc computed this range of values based on a discounted cash flow
analysis, relying on projections extrapolated from Murfreesboro Bancorp's
forecast and its historical performance. In this analysis methodology,
BankersBanc assumed Murfreesboro Bancorp shareholders received, in addition to
the projected dividend stream, a terminal valuation at year-end 2007 of 18.0 to
20.0 times projected earnings for such year. These amounts were discounted at
rates ranging from 10% and 14% and indicated net present values to Murfreesboro
Bancorp shareholders of between $19.56 million and $25.91 million.
Analysis of Other Selected Bank Mergers Involving Community Banks.
BankersBanc reviewed one hundred thirty three mergers involving community banks
and bank holding companies announced since June 1, 2001 in which the selling
institution had total assets of between $100 million and $500 million.
BankersBanc noted in particular the prices paid in these mergers as a multiple
of earnings and book values and the transaction premiums paid in excess of
tangible book value as a percentage of core deposits. BankersBanc also reviewed
other data in connection with each of these mergers, including the level of
earnings and the capital level of the acquired institutions and the return on
equity and the return on assets of the acquired institutions. BankersBanc then
compared this data to that of Murfreesboro Bancorp and to the value to be
received by Murfreesboro Bancorp shareholders in the merger.
This comparison yielded a range of transaction values as multiples of
the latest twelve-months earnings per share of a low of 3.60 times earnings and
a high of 57.80 times earnings and a median value of 18.90 times earnings. The
Murfreesboro Bancorp multiple of trailing earnings was 33.92 times earnings. The
calculations yielded a range of transaction values as multiples of book value
per share of a low of 0.52 times book value per share to a high of 5.13 times
book value per share and a median value of 2.00 times book value per share. The
Murfreesboro Bancorp multiple of book value was 1.92 times book value per share.
Finally, the calculations yielded a range of deposit base premiums paid from a
low of negative 5.40% to a high of 60.80%, with a median value of 13.10%. The
equivalent premium on Murfreesboro Bancorp deposits represented by the Per Share
Purchase Price and Terms was 12.80%.
14
No company or transaction used in the above analyses as a comparison is
identical to Murfreesboro Bancorp or the merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not, in itself, a meaningful method of
using comparable company data.
In connection with its opinion dated the date of this proxy statement,
BankersBanc confirmed the appropriateness of its reliance on the analyses used
to render its December 11, 2002 opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions on which such analyses
were based and the factors considered in connection therewith.
BankersBanc is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, private
placements, and valuations for estate, tax, corporate and other purposes.
Murfreesboro Bancorp has paid BankersBanc a fee of $100,000 in connection with
its engagement. An additional fee based upon the aggregate market value of the
consideration received by Murfreesboro Bancorp shareholders will be payable to
BankersBanc upon consummation of the merger. This additional fee will be
approximately $256,131. No compensation payable to BankersBanc is contingent on
the conclusions reached in the opinion of BankersBanc. Murfreesboro Bancorp has
also agreed to reimburse BankersBanc for reasonable out-of-pocket expenses and
to indemnify BankersBanc and certain related persons against certain liabilities
arising out of its engagement.
You Will Receive Cash for Your Murfreesboro Bancorp Common Stock
Upon completion of the merger, each outstanding share of our common
stock (other than shares as to which dissenters' rights have been asserted and
perfected in accordance with Tennessee law) shall be converted into and
represent the right to receive $21.25 in cash, without interest. The aggregate
amount of the cash payments represents the merger consideration. The merger
consideration to be paid in connection with the merger is expected to be
approximately $26.8 million, including payment for the cancellation of all of
Murfreesboro Bancorp's outstanding stock options and the conversion of all
outstanding Debentures into shares of Murfreesboro Bancorp common stock.
Treatment of Options
At the merger effective date, each outstanding option to purchase
shares of our common stock that has not been exercised prior to completion of
the merger, will be converted into the right to receive a cash payment equal to
$21.25 less the exercise price per share of the stock option, multiplied by the
number of shares of Murfreesboro Bancorp common stock subject to the stock
option, less any required tax withholding.
15
Treatment of Debentures
At the merger effective date, each outstanding Debenture that has not
been converted prior to the merger, will be converted into a number of shares of
Murfreesboro Bancorp common stock equal to the face amount of the debenture plus
any accrued but unpaid interest divided by the $12.50 per share conversion price
in accordance with the terms of the debentures. Immediately after the debentures
have been converted into shares of common stock, the shares will be converted
into the right to receive a cash payment of $21.25 per share.
Procedure for Surrendering Your Common Stock Certificates
At the merger effective date, First South will deliver to FirstBank,
its wholly owned subsidiary, an amount of cash equal to the aggregate merger
consideration pursuant to an escrow agreement entered into between First South
and FirstBank on terms that are mutually acceptable to Murfreesboro Bancorp and
First South. FirstBank will act as paying agent for the benefit of the holders
of certificates of our common stock in exchange for the merger consideration.
Each holder of our common stock who surrenders his or her Murfreesboro Bancorp
shares to FirstBank will be entitled to receive a cash payment of $21.25 per
share of Murfreesboro Bancorp common stock upon acceptance of the shares by
FirstBank.
After the merger effective date you will no longer have any rights as a
shareholder of Murfreesboro Bancorp and shall only have the right to receive
$21.25 in cash for each share of stock that you owned. As promptly as
practicable after the merger effective date, and in any event within five
business days after the merger effective date, a letter of transmittal will be
mailed by FirstBank to the former shareholders of Murfreesboro Bancorp. The
letter of transmittal will contain instructions for surrendering your share
certificates in exchange for the merger consideration.
You should not return your Murfreesboro Bancorp common stock
certificates with the enclosed proxy, and you should not send your stock
certificates to FirstBank until you receive the letter of transmittal.
If a certificate representing shares of common stock has been lost,
stolen or destroyed, FirstBank is not obligated to deliver payment until the
holder of the shares delivers an appropriate affidavit by such person claiming
the loss, theft or destruction of his or her certificate and, if required by
First South, a bond.
None of First South, FirstBank, Murfreesboro Bancorp, Bank of
Murfreesboro or any other person shall be liable to former holders of
Murfreesboro Bancorp stock for any amounts paid or property delivered in good
faith to any governmental agency pursuant to applicable abandoned property,
escheat or similar laws.
16
Representations and Warranties
Each of Murfreesboro Bancorp, Bank of Murfreesboro, First South and
FirstBank has made representations and warranties in the merger agreement which
are customary in merger transactions, including, among others, representations
and warranties concerning:
o the organization, good standing and corporate power and
authority of Murfreesboro Bancorp, Bank of Murfreesboro, First
South and FirstBank;
o the due authorization, execution, delivery and performance of
the merger agreement;
o the consents or approvals required, and the lack of conflicts
or violations under applicable certificates of incorporation,
charters, bylaws, instruments and laws, with respect to the
transactions contemplated by the merger agreement;
o the financial statements of the respective parties; and
o substantial compliance with applicable laws in the operation
of their businesses.
Murfreesboro Bancorp and Bank of Murfreesboro made certain additional
representations and warranties (which are also customary), including, but not
limited to, representations and warranties regarding its capitalization, the
absence of certain interim events, other material agreements, real estate owned
or leased, its employee benefit plans, the absence of any broker's and finder's
fees other than that owed The BankersBanc, environmental matters, securities
filings, relations with our employees and the receipt of the fairness opinion
from The BankersBanc.
In addition, First South and FirstBank have represented and warranted
that they have the financial resources to perform their obligations under the
merger agreement and have no reason to believe that the required regulatory
approvals will not be obtained.
Some of the representations and warranties made by the parties are
qualified by materiality. The representations, warranties, agreements and
covenants in the merger agreement will expire at the merger effective date,
except for agreements and covenants that by their terms are to be performed
after the effective time of the merger. If the merger is terminated, there will
be no liability on the part of either us or First South other than the possible
payment of a termination fee by us or First South under certain circumstances as
discussed below under "The Merger - Termination of the Merger Agreement;"
provided, however, that no party shall be relieved or released from any
liability arising out of a willful breach by it of any covenant, undertaking,
representation or warranty in the merger agreement.
Conduct of Business prior to Completion of the Merger
We have agreed, among other things, that, except as contemplated by the
merger agreement or unless First South provides its written consent, we and our
subsidiaries will:
o Take all action necessary under the merger agreement to permit
consummation of the merger;
o Convene and hold a meeting of our shareholders in order to
approve the merger agreement;
17
o Cooperate in the preparation, filing and distribution of this
proxy statement to our shareholders;
o Recommend that our shareholders approve the merger agreement;
o Support the terms of the merger agreement and cooperate with
First South in completing the transaction;
o Refrain from issuing any statements or press releases related
to the merger agreement unless required to by law;
o Give First South access to our premises and financial records
and assist First South and the authorized representatives of
First South in the preparation of disclosure and other
information required to be completed;
o Advise First South of any breach of our representations and
warranties under the merger agreement or any material adverse
change in our business;
o Assist First South in the preparation of necessary regulatory
filings, applications and approvals required to complete the
merger;
o Provide First South with all documents recently filed by us
with any governmental agencies;
o Refrain from taking any action, or failing to take any action
that may cause any of our representations and warranties to
become untrue;
o Take all actions to ensure the merger is exempt from any
applicable state anti-takeover laws or restrictions contained
in our organizational documents;
o Take such reserves and accruals as First South may reasonably
request;
o Engage a firm, satisfactory to First South, to conduct a phase
one environmental assessment of all of our facilities and a
transaction screen for all properties that we lease; and
o Purchase for, and on behalf of, our current and former
officers and directors extended director and officer liability
coverage that is effective for five (5) years following the
completion of the merger with respect to events which occur
prior to the completion of the merger.
In addition, we have agreed that neither we nor any of our subsidiaries
or any of our respective officers, directors, representatives, agents or
affiliates will, directly or indirectly, initiate, solicit or knowingly
encourage any acquisition proposal with any person other than First South and
its subsidiaries. If we are to receive an acquisition proposal we have agreed to
notify First South of all of the relevant details relating to all inquiries and
proposals we may receive. For purposes of this paragraph, an acquisition
proposal is any proposal to engage in any of the following transactions
involving Murfreesboro Bancorp or any of its subsidiaries: (i) any merger,
consolidation, share exchange, business combination or other similar
transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 25% or more of the assets of Murfreesboro Bancorp, taken as
a whole, in a single transaction or series of transactions; (iii) any tender
offer or exchange offer for 25% or more of the outstanding shares of capital
stock of Murfreesboro Bancorp or the filing of a registration statement under
the securities laws for the foregoing purpose; or (iv) any public announcement
of a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
18
We are permitted, however, to furnish information to or engage in
discussions or negotiations with third parties if, after having consulted with
and received the advice of our financial advisor and legal counsel, we determine
that the failure to do so may cause our Board of Directors to breach its
fiduciary duties. We are required to promptly inform First South of any requests
for information or of any negotiations or discussions regarding any alternative
proposal.
Conditions to the Merger
The respective obligations of Murfreesboro Bancorp, Bank of
Murfreesboro, First South and FirstBank to effect the merger are subject to the
satisfaction or waiver of the following conditions specified in the merger
agreement:
o Approval of the merger agreement by the affirmative vote of a
majority of votes to be cast a special meeting of our
shareholders;
o Approval of the merger agreement by the Board of Governors of
the Federal Reserve System, the Commissioner of the Tennessee
Department of Financial Institutions, the Federal Deposit
Insurance Corporation (the "FDIC") and any other applicable
regulatory authorities;
o Satisfaction of all statutory and regulatory requirements; and
o No party to the merger agreement shall be under any order or
decree restraining or enjoining the merger.
First South's and FirstBank's obligation to effect the merger also is
subject to the following additional conditions:
o All obligations, covenants, representations and warranties of
Murfreesboro Bancorp and Bank of Murfreesboro shall have been
duly performed and complied with;
o First South shall have received a certificate signed by our
chief executive officer as to fulfillment of all obligations,
covenants, representations and warranties of Murfreesboro
Bancorp and Bank of Murfreesboro;
o Each of Murfreesboro Bancorp and Bank of Murfreesboro shall
have compliance ratings and Community Reinvestment Act ratings
of "Satisfactory" or better;
o Each of Murfreesboro Bancorp and Bank of Murfreesboro will
have a loan loss reserve of at least 0.90%;
o Murfreesboro Bancorp shall have delivered the environmental
reports relating to the phase one environmental assessment and
transaction screen;
o There shall have been no adverse change to the overall CAMELS
rating of Murfreesboro Bancorp or Bank of Murfreesboro;
o Each officer and director of Murfreesboro Bancorp shall have
delivered a letter to First South stating that such person is
not aware of any claims he may have against Murfreesboro
Bancorp; and
o William E. Rowland shall have executed an employment agreement
to work for FirstBank.
19
Murfreesboro Bancorp's and Bank of Murfreesboro's obligation to effect
the merger also is subject to the following additional conditions:
o Each of the obligations, covenants representations and
warranties of First South and FirstBank shall have been
performed and complied with;
o Murfreesboro Bancorp shall have received an opinion letter
from The BankersBanc stating that the purchase price for
Murfreesboro Bancorp is fair from a financial point of view;
and
o First South shall have deposited funds sufficient to pay the
entire purchase price with FirstBank to be held in escrow.
There can be no assurance that the conditions to consummation of the
merger will be satisfied or waived. The merger will become effective when the
articles of merger are filed with the Secretary of State of the State of
Tennessee. It is currently anticipated that the merger will occur during the
second quarter of 2003.
Termination of the Merger Agreement
The merger agreement may be terminated in writing prior to the merger
effective date:
o by mutual written consent of Murfreesboro Bancorp and First
South authorized by their respective boards of directors;
o by First South or Murfreesboro Bancorp:
o upon a material breach of any representation,
warranty or covenant set forth in the merger
agreement and the breach cannot be cured within 30
days following written notice of the breach;
o if Murfreesboro Bancorp has received an offer
superior to the First South offer, the Board of
Directors of Murfreesboro Bancorp has made a
determination to accept the superior proposal subject
to approval by Murfreesboro Bancorp's shareholders,
and, simultaneously with the termination of the
merger agreement, Murfreesboro Bancorp enters into an
acquisition agreement with respect to the superior
offer;
o if the merger is not consummated on or prior to
September 30, 2003, unless the party seeking to
terminate failed to perform an obligation under the
merger agreement that caused or resulted in the
failure of the merger;
o if our shareholders fail to adopt the merger
agreement; or
o any required regulatory approval is formally
disapproved; and
o by First South, if after the completion of the phase one
environmental assessment of banking facilities owned by us and
the transaction screen performed on properties leased by us,
there are cleanup expenses or potential environmental
liability in excess of $500,000.
In the event that the merger agreement is terminated, the merger
agreement will become void and have no effect, except for:
o provisions relating to confidential information, and
20
o provisions relating to a termination fee in the amount of
$2,500,000 payable:
o to First South by Murfreesboro Bancorp if the merger
agreement is terminated by us or First South due to
our acceptance of a superior proposal offer from a
third party, or
o to Murfreesboro Bancorp by First South if the merger
agreement is terminated due to First South's
inability to meet regulatory capital ratios or
amounts necessary to consummate the merger and the
failure cannot be cured by September 30, 2003 by
First South.
Notwithstanding the termination fee and the general requirement that
both parties shall bear their own costs arising from the transaction, a
breaching party will not be relieved from any liability or damages resulting
from its willful breach of any provision of the merger agreement.
Waiver and Amendment of the Merger Agreement
Prior to the effective date of the merger any provision of the merger
agreement may be waived by the party benefited by the provision or may be waived
by both Murfreesboro Bancorp and First South. The merger agreement may be
amended, in writing, at any time on mutual agreement of Murfreesboro Bancorp and
First South as approved by their respective boards of directors. However, after
our shareholders have adopted the merger agreement, no amendment can modify the
form or decrease the amount of the merger consideration without further
shareholder approval.
Approvals Needed to Complete the Merger
In addition to approval of the merger agreement by our shareholders,
completion of the merger and the transactions contemplated by the merger
agreement are subject to the prior approval or non-objection of the Board of
Governors of the Federal Reserve System, also referred to as the Federal Reserve
Board; the Federal Deposit Insurance Corporation, also referred to as the FDIC;
and the Commissioner of the Tennessee Department of Financial Institutions, also
referred to as the Commissioner. The merger cannot proceed in the absence of
these regulatory approvals. Neither Murfreesboro Bancorp nor First South are
aware of any other regulatory approvals or actions that are required prior to
the parties' consummation of the merger other than those described below. Should
any other approvals be required, it is presently contemplated that such
approvals would be sought, but we cannot assure you that such approvals would be
obtained.
The merger is subject to the prior approval of the Federal Reserve
Board under the Bank Holding Company Act, unless the Federal Reserve Board
waives the application requirement. If the Federal Reserve Board denies First
South's request for a waiver of the application requirement, First South will be
required to file an application for approval. The bank merger is subject to the
prior approval of the FDIC under the Bank Merger Act. Neither the Federal
Reserve Board nor the FDIC may approve an application for approval if it
believes the merger will result in a monopoly or otherwise be anti-competitive.
In conducting their review of any application for approval, the Federal Reserve
Board and the FDIC will consider the financial and managerial resources of
Murfreesboro Bancorp and First South and their subsidiary financial
institutions, and the convenience and needs of the communities that the
financial institutions serve. Applicable regulations also provide for
publication of notice and an opportunity for public comment on the merger.
21
There will be a 15-30 day waiting period between the time the
application is approved by the Federal Reserve Board, if required, and the FDIC
and the date that the transaction can be consummated, during which time the
Department of Justice can challenge the merger for antitrust reasons. Although
we believe that the likelihood of such action by the Department of Justice is
remote in this merger, there can be no assurance that the Department of Justice
will not challenge the merger. If the merger is challenged, we cannot ensure a
favorable result.
The company merger and bank merger are each subject to the approval of
the Commissioner under the Tennessee Banking Act. In conducting its review, the
Commissioner will consider, among other factors, whether the merger agreement is
fair and whether the merger is contrary to the public interest. If the
Commissioner disapproves the merger, he is required to state his objections and
provide the parties with the opportunity to amend the merger agreement to
obviate such objections. At this time, we know of no legal basis on which the
Commissioner might disapprove the merger or require amendment of the merger
agreement.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include a review of the merger
from the standpoint of the adequacy of the consideration to be received by our
shareholders. Furthermore, regulatory approvals do not constitute an endorsement
or recommendation of the merger.
There can be no assurances that the requisite regulatory approvals will
be received in a timely manner, in which event the consummation of the merger
may be delayed. If the merger is not consummated on or before September 30,
2003, the merger agreement may be terminated by either First South or
Murfreesboro Bancorp.
It is a condition to the consummation of the merger that the regulatory
approvals be obtained without any conditions or requirements that are unduly
burdensome. No assurance can be provided that any such approvals will not
contain terms, conditions or requirements that fail to satisfy this condition of
the merger.
Interests of Directors and Officers in the Merger
Some members of our management and Board of Directors may have
interests in the merger that are in addition to or different from the interests
of our shareholders. Our Board of Directors was aware of these interests and
considered them in approving the merger agreement.
Stock Options. As of December 11, 2003, directors and executive
officers held options to purchase in the aggregate [73,750] shares of
Murfreesboro Bancorp common stock. Each director and executive officer will
receive payment for their stock options as described earlier in this proxy
statement. The aggregate value of the payout for these stock options will be
approximately $1.7 million. See "The Merger - Treatment of Options."
22
Agreements with William E. Rowland. At the effective time of the
merger, FirstBank will enter into an employment agreement and a consulting
agreement with William E. Rowland, our President and Chief Executive Officer.
Mr. Rowland will receive a signing bonus of $293,636 upon execution of the
employment agreement. The employment agreement has a term of two years, and
provides for an annual base salary of $150,000, the reimbursement of reasonable
business expenses and participation in all employee benefit plans available to
other full-time employees. In addition, Mr. Rowland will receive use of a
company automobile.
FirstBank can terminate the employment agreement at any time with or
without cause. Mr. Rowland can terminate the employment agreement for any reason
commencing on the first day of the seventh month following the effective date of
the employment agreement. Mr. Rowland can also terminate the employment
agreement at any time "For Good Reason," which means termination following any
of the following events:
o a relocation of Mr. Rowland's principal place of employment
outside of Rutherford County, Tennessee;
o a greater than 15% reduction in the benefits and perquisites,
including base salary, provided to Mr. Rowland in the
employment agreement (except for employee-wide reductions); or
o a change in Mr. Rowland's title, duties or responsibilities,
which change would cause Mr. Rowland's position to become one
of lesser responsibility, importance, or scope from the
position and attributes set forth in the employment agreement,
unless Mr. Rowland agrees to such change or changes in
writing.
Mr. Rowland generally shall not be entitled to any compensation under
the employment agreement following a termination of the employment agreement. If
the employment agreement is terminated due to Mr. Rowland's death or disability,
Mr. Rowland or his personal representative, in case of disability, or Mr.
Rowland's estate, in case of death, shall be entitled to receive salary and
benefits through the last day of the month in which Mr. Rowland dies or was
considered disabled.
The consulting agreement has a term of five years that begins the date
Mr. Rowland's employment with FirstBank is terminated for any reason. The
consulting agreement provides for annual consulting fees of $150,000 and the
reimbursement of reasonable business expenses. The consulting agreement limits
Mr. Rowland's services for ten days in any calendar month and 60 days in any
consecutive twelve-month period; Mr. Rowland shall receive $1,060 per day for
services he provides at the request of FirstBank in excess of ten days per
calendar month or 18 days in any consecutive twelve-month period.
The consulting agreement may only be terminated (i) by mutual agreement
of Mr. Rowland and FirstBank, or (ii) as a result of Mr. Rowland's death or
disability. If the consulting agreement is terminated due to Mr. Rowland's death
or disability, Mr. Rowland or his personal representative, in case of
disability, or Mr. Rowland's estate, in case of death, shall be entitled to
receive a lump-sum payment equal to all fees payable under the consulting
agreement had Mr. Rowland continued to provide services through the expiration
of the consulting agreement.
23
If Mr. Rowland is deemed to have received an excess parachute payment
due to the termination of his employment agreement or the consulting agreement,
he will be indemnified for the payment of any excise taxes.
Mr. Rowland must refrain from competing against FirstBank or its
affiliates during the term of the employment agreement and the consulting
agreement, although any actual or alleged breach of Mr. Rowland's agreement not
to compete will not terminate or suspend payments under the employment agreement
or the consulting agreement.
Under the employment agreement and the consulting agreement, FirstBank
has agreed that it will not participate in any (i) merger, consolidation or
other business reorganization, or (ii) any other transaction that results in a
"Change of Control" of FirstBank (as defined in the agreements), unless, in
either case, the purchaser or the surviving entity expressly assumes FirstBank's
liabilities under the agreements. If the purchaser or surviving entity does not
expressly assume FirstBank's liabilities under the agreements, then all payments
under each agreement will become due and payable in one lump-sum payment.
Employment Agreement with Joyce Ewell. On the effective date of the
merger, First South will enter into an employment agreement with Joyce Ewell,
our Executive Vice President. Under the employment agreement Ms. Ewell will
receive a $216,601 signing bonus paid upon execution of the agreement. The
employment agreement has a term of three years, and provides for an annual base
salary of $86,800, the reimbursement of reasonable business expenses and
participation in all employee benefit plans available to other full-time
employees.
First South can terminate the employment agreement at any time with or
without cause. Ms. Ewell can terminate the employment agreement for any reason
commencing on the first day of the 13th month following the effective date of
the employment agreement. Ms. Ewell can also terminate the employment agreement
at any time "For Good Reason," which has the same meaning as defined in Mr.
Rowland's employment agreement. If Ms. Ewell's employment with First South ends
prior to the completion of the three-year term, First South shall pay Ms. Ewell
a termination payment of $43,400 per year for the remainder of the three-year
term, provided that if Ms. Ewell is terminated for "Cause," as defined in the
employment agreement, First South shall not be required to pay the termination
payment. If Ms. Ewell is deemed to have received an excess parachute payment due
to the termination of her employment agreement, she will be indemnified for the
payment of any excise taxes.
If the employment agreement is terminated due to Ms. Ewell's death or
disability, Ms. Ewell, or her personal representative, in case of disability, or
Ms. Ewell's estate, in case of death, shall be entitled to receive salary and
benefits through the last day of the month in which Ms. Ewell dies or was
considered disabled.
Ms. Ewell must refrain from competing against First South during the
term of the employment agreement, although any actual or alleged breach of Ms.
Ewell's agreement not to compete will not terminate or suspend payments under
the employment agreement.
Under the employment agreement, First South has agreed that it will not
participate in any (i) merger, consolidation or other business reorganization,
or (ii) any other transaction that results in a "Change of Control" of First
South (as defined in the agreement), unless, in either case, the purchaser or
the surviving entity expressly assumes First South's liabilities under the
agreement. If the purchaser or surviving entity does not expressly assume First
South's liabilities under the employment agreement, then all payments under the
agreement will become due and payable in one lump-sum payment.
24
Employment Agreement with William L. Webb. On the effective date of the
merger, First South will enter into an employment agreement with William L.
Webb, our Senior Vice President and Chief Financial Officer. The employment
agreement has a term of 18 months, and provides for an annual base salary of
$65,000, the reimbursement of reasonable business expenses and participation in
all employee benefit plans available to other full-time employees.
Both First South and Mr. Webb can terminate the employment agreement at
any time. If First South terminates the employment agreement prior to the
completion of the 18-month term, or if Mr. Webb terminates the employment
agreement "For Good Reason," which has the same meaning as defined in Mr.
Rowland's employment agreement, First South shall pay Mr. Webb a termination
payment of one year's base salary. If Mr. Webb is terminated for "Cause," as
defined in the employment agreement, First South shall not be required to pay
the termination payment. If Mr. Webb is deemed to have received an excess
parachute payment due to the termination of his employment agreement, he will be
indemnified for the payment of any excise taxes.
If the employment agreement is terminated due to Mr. Webb's death or
disability, Mr. Webb, or his personal representative, in case of disability, or
Mr. Webb's estate, in case of death, shall be entitled to receive salary and
benefits through the last day of the month in which Mr. Webb dies or was
considered disabled.
Under the employment agreement, First South has agreed that it will not
participate in any (i) merger, consolidation or other business reorganization,
or (ii) any other transaction that results in a "Change of Control" of First
South (as defined in the agreement), unless, in either case, the purchaser or
the surviving entity expressly assumes First South's liabilities under the
agreement. If the purchaser or surviving entity does not expressly assume First
South's liabilities under the employment agreement, then all payments under the
agreement will become due and payable in one lump-sum payment.
Continuation of Executive Revenue Neutral Retirement Agreements and
Split Dollar Life Insurance Agreements. Bank of Murfreesboro has entered into
Executive Neutral Retirement Agreements and Split Dollar Agreements with eight
of our officers, including Mr. Rowland, Ms. Ewell and Mr. Webb. The Executive
Revenue Neutral Retirement Agreements provide the officers with a retirement
benefit based on the difference between the annual increase in value of two
simulated investment accounts: the first comprised of a portfolio of life
insurance policies and the second comprised of a hypothetical principal
investment determined by the Bank of Murfreesboro and the accumulated net
after-tax interest earnings on such investment. This difference between the two
accounts is then divided by an adjustment rate determined under the agreements
and multiplied by an allocation percentage that is specific to the officer.
During the officer's employment, the annual amount determined under the previous
formula is allocated to a retirement account and paid to the officer following
retirement. Amounts determined under this formula each year following the
officer's retirement are also paid to the officer in such year. The Executive
Revenue Neutral Retirement Agreements are unfunded, however, Bank of
Murfreesboro has purchased life insurance policies on the covered officers that
are designed to offset the annual expenses associated with the agreements.
25
Bank of Murfreesboro is the sole owner of the policies but has entered
into Split Dollar Agreements with each officer that will, in the case of the
officer's death, provide his or her beneficiary with the portion of the net
death benefit in the policy equal to the officer's vested percentage. An
officer's vested percentage in the death benefit varies depending on the
officer's age, years of continuous service and employment status on the date of
death. The Bank of Murfreesboro would be entitled, at the officer's death, to
receive the greater of the cash surrender value of the policy or the aggregate
premium payments, plus any of the net death benefit in which the officer was not
vested.
As a result of the merger, under the Executive Revenue Neutral
Agreements, each officer will be fully vested in their benefits as if the
officer had reached his or her normal retirement age. Such benefits will
commence to be paid to the officer within 120 days following the officer's
normal retirement age. First South and FirstBank have agreed to perform our
obligations to the officers under the Split-Dollar Agreements and Executive
Revenue Neutral Retirement Agreements following the merger.
Protection of Directors, Officers and Employees Against Claims. In the
merger agreement, First South has agreed to indemnify the directors and officers
of Murfreesboro Bancorp and Bank of Murfreesboro for a period of six (6) years
relating to all events occurring prior to the consummation of the merger to the
fullest extent permitted under Tennessee law and the certificate of
incorporation and bylaws of Murfreesboro Bancorp and Bank of Murfreesboro. In
addition, Murfreesboro Bancorp shall purchase extended directors' and officers'
insurance coverage for the directors and officers of Murfreesboro Bancorp and
Bank of Murfreesboro for a period of five (5) years following the merger
effective date, provided however, that First South may substitute insurance
policies for those purchased by Murfreesboro Bancorp that have coverage terms
which are not materially less favorable than the current policy.
You Have Dissenters' Rights of Appraisal
Under Chapter 48-23 of Tennessee Business Corporation Code, if you do
not wish to accept the cash payment provided for in the merger agreement, you
have the right to dissent from the merger and to demand fair value for shares,
with fair value to be determined between you and Murfreesboro Bancorp, or by a
judicial determination. Shareholders electing to exercise dissenters' rights
must comply strictly with the provisions of Chapter 48-23 of the Tennessee
Business Corporation Code ("Chapter 48-23") to perfect their rights. A copy of
Chapter 48-23 is attached to this proxy statement as Appendix C.
The following is intended as a brief summary of the material provisions
of the Tennessee statutory procedures required to dissent from the merger and
perfect a shareholder's dissenters' rights. This summary, however, is not a
complete statement of all applicable requirements.
26
If a proposed corporate action creating dissenters' rights under
Chapter 48-23 is submitted to a vote at a shareholders' meeting, the proxy
materials which give notice of the meeting of shareholders must state that
shareholders will be able to assert dissenters' rights provided the shareholders
meet the requirements of Chapter 48-23. A copy of Chapter 48-23 must also be
included in such notice. This proxy statement constitutes our notice to you of
the availability of dissenters' rights in connection with the approval of the
merger at the special meeting of shareholders. If you wish to consider
exercising your dissenters' rights you should carefully review the text of
Chapter 48-23 contained in Appendix C because failure to timely and properly
comply with the requirements of Chapter 48-23 will result in the loss of your
dissenters' rights under Tennessee law.
If you elect to demand appraisal of your shares, you must satisfy all
of the following conditions:
You must deliver to us a written demand for appraisal of your shares
before the shareholder vote approving the merger agreement. This written demand
for appraisal must be in addition to and separate from any proxy or vote against
or abstaining from the merger agreement. Voting against or failing to vote for
the merger by itself does not constitute a demand for appraisal within the
meaning of Chapter 48-23.
You must not vote in favor of the merger agreement. An abstention, a
vote against or failure to vote will satisfy this requirement, but a vote in
favor of the merger agreement, by proxy or in person, will constitute a waiver
of your dissenters' rights in respect of the shares so voted and will nullify
any previously filed written demands for appraisal.
You must continuously hold your shares of Murfreesboro Bancorp common
stock through the merger effective date.
If you fail to comply with all of these conditions and the merger is
completed, you will be entitled to receive the cash payment for any shares of
Murfreesboro Bancorp common stock you hold as of the merger effective date as
provided for in the merger agreement but you will have no dissenters' rights of
appraisal for your shares of Murfreesboro Bancorp common stock.
All demands for appraisal should be addressed to the Corporate
Secretary, Murfreesboro Bancorp, 615 Memorial Boulevard, Murfreesboro,
Tennessee, 37129, before the vote on the merger agreement is taken at the
special meeting of shareholders, and should be executed by, or on behalf of, the
record holder of the shares of Murfreesboro Bancorp common stock. The demand
must reasonably inform us of the identity of the shareholder and the intention
of the shareholder to demand appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of our common stock
must be made by or in the name of such registered shareholder, fully and
correctly, as the shareholder's name appears on his or her stock certificate(s)
and cannot be made by the beneficial owner if he or she does not also hold the
shares of record. The beneficial holder must, in such cases, have the registered
owner submit the required demand in respect of such shares.
27
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity. If the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a shareholder of
record. However, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
shares as a nominee for others, may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In such case, the written
demand should state the number of shares as to which appraisal is sought. Where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of such record owner.
If you hold your shares of Murfreesboro Bancorp common stock in a
brokerage account or in other nominee form and you wish to exercise appraisal
rights, you should consult with your broker or such other nominee to determine
the appropriate procedures for the making of a demand for appraisal by such
nominee.
Within ten days after the merger agreement is authorized at the special
meeting of shareholders or the merger effective date, whichever is first to
occur, either First South or Murfreesboro Bancorp must give written notice to
each shareholder of Murfreesboro Bancorp who has properly filed a written demand
for appraisal and who did not vote in favor of the merger agreement. The notice
sent to dissenting shareholders must have instructions stating where demand for
payment for shares should be sent, where share certificates should be sent and
the deadline for receiving the demand for payment and all share certificates.
Murfreesboro Bancorp shall set a deadline for receipt of all required materials
from shareholders that is no less than one month and no more than two months
following the date such notice is delivered to dissenting shareholders. The
notice also shall contain a form that shareholders must use to demand payment,
which shall include the date of the first announcement of the merger to the news
media, which occurred on December 11, 2002, and require dissenting shareholders
to certify that the shareholder owned the shares before that date. Once the
dissenting shareholders have received notice the shareholder must submit to
Murfreesboro Bancorp a demand for payment on the form provided by Murfreesboro
Bancorp, state whether the shareholder received beneficial ownership of the
shares prior to the date set and deposit all share certificates with
Murfreesboro Bancorp in accordance with the notice. Dissenting shareholders
shall retain all rights as shareholders until their rights are cancelled due to
the consummation of the merger.
Once the merger is completed Murfreesboro Bancorp may pay to the
shareholders the amount we believe to be fair value for the shares plus accrued
interest. Such payment will be accompanied by our balance sheet as of a fiscal
year that ended no more than 16 months before the date of payment, an income
statement for the same year, a statement of changes in shareholders' equity for
that year and the most recent interim financial statements. Dissenting
shareholders may notify Murfreesboro Bancorp in writing of their own estimation
of fair value for the shares and demand payment of that amount plus accrued
interest if the shareholder believes that our payment is less than fair value,
or if we fail to make a payment within two months of the date set for payment
under the notice to dissenting shareholders.
28
If we and any dissenting shareholders do not agree on the fair value of
the shares, we will commence a judicial proceeding within two months after
receiving the demand for payment from a dissenting shareholder and petition the
court to determine the fair value of the shares and accrued interest. If we do
not commence the judicial proceeding within two months of the receipt of the
demand for payment, we will pay to all dissenting shareholders the amount
demanded. We will make all dissenting shareholders party to the judicial
proceeding. The court will then, after a hearing, determine the fair value for
the shares, plus interest, held by the dissenting shareholders and order us to
make the appropriate payment to shareholders.
In determining fair value, the court is required to take into account
all relevant factors. You should be aware that the fair value of the shares as
determined under Chapter 48-23 could be more, the same as or less than the value
that you are entitled to receive pursuant to the merger agreement.
The costs of the judicial proceeding shall be borne by us, except that
the court may assess fees and expenses to dissenting shareholders if the court
finds that the dissenting shareholders acted arbitrarily, vexatiously or not in
good faith in demanding payment. Upon the application of a shareholder, the
court may order all or a portion of the expenses incurred by any shareholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all shares entitled to appraisal.
In view of the complexity of Chapter 48-23, all shareholders who may
wish to dissent from the merger and pursue appraisal rights should consult their
legal advisors.
Federal Income Tax Consequences of the Merger to You
The exchange of your Murfreesboro Bancorp common stock for cash
pursuant to the terms of the merger agreement will be a taxable transaction for
Federal income tax purposes under the Internal Revenue Code of 1986, as amended,
and may also be a taxable transaction under state, local and other tax laws.
Similarly, any of our shareholders who exercise their dissenters' appraisal
rights and receive cash in exchange for their shares of our common stock will
recognize income for Federal tax purposes and may recognize income under state,
local and other tax laws. Our shareholders will recognize gain or loss equal to
the difference between the amount of cash received by the shareholder pursuant
to the merger agreement and the tax basis in our common stock exchanged by such
shareholder pursuant to the merger agreement. Gain or loss must be determined
separately for each block of our common stock surrendered pursuant to the
merger. For purposes of Federal tax law, a block consists of shares of our
common stock acquired by the shareholder at the same time and price.
Gain or loss recognized by the shareholder exchanging his or her common
stock pursuant to the merger agreement or pursuant to the exercise of
dissenters' rights will be capital gain or loss if such common stock is a
capital asset in the hands of the shareholder. If the common stock has been held
for more than one year, the gain or loss will be treated as long term capital
gain or loss.
29
Neither First South nor us has requested or will request a ruling from
the Internal Revenue Service as to any of the tax effects to our shareholders
resulting from the merger, and no opinion of counsel has been or will be
rendered to our shareholders with respect to any of the tax effects of the
merger to our shareholders.
The Federal income tax discussion set forth above is based upon current
law and is intended for general information only. You are urged to consult your
tax advisor concerning the specific tax consequences of the merger to you,
including the applicability and effect of state, local or other tax laws and of
any proposed changes in those tax laws and the Internal Revenue Code.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of
accounting. Under this method of accounting, First South and Murfreesboro
Bancorp will be treated as one company as of the date of the merger, and First
South will record the fair market value of our assets less liabilities on its
consolidated financial statements. Similarly, FirstBank and Bank of Murfreesboro
will be treated as a single wholly owned subsidiary of First South as of the
date of the merger. Acquisition costs in excess of the fair values of the net
assets acquired, if any, will be recorded as an intangible asset. The reported
consolidated income of First South, including earnings attributable to
FirstBank, will include our operations after the completion of the merger.
RELATED AGREEMENTS
Voting Agreement
As an inducement for First South to enter into the merger agreement,
our directors entered into a voting agreement with First South. Pursuant to the
voting agreement, our directors, in their capacity as shareholders, have agreed
to vote all of their shares of Murfreesboro Bancorp common stock beneficially
owned and over which they possess voting power in favor of the merger agreement.
Notwithstanding the voting agreement, our board of directors may, pursuant to
their fiduciary duties withdraw their recommendation in favor of the merger
agreement or may enter a definitive acquisition agreement with another acquirer
if, after consulting with legal counsel, the board of directors determines that
it has received a superior proposal as discussed earlier in this proxy statement
in the section entitled "The Merger - Termination of the Merger Agreement."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following individuals hold 5% or more of the outstanding voting
common stock of Murfreesboro Bancorp. No other individual's hold 5% or more of
the outstanding voting common stock of Murfreesboro Bancorp as of ___________,
2003.
30
Name and Address Amount and Nature
of Beneficial Owner Beneficial Ownership Percent of Class(1)
- ------------------- -------------------- -------------------
William E. Rowland ___________(2) %
1110 Virginia Avenue
Murfreesboro, Tennessee 37130
Joseph M. Swanson ___________(3) %
100 East Vine Street - Suite 1500
Murfreesboro, Tennessee 37130
__________________________
(1) As of ____________, 2003 there are [907,609] shares of outstanding voting
common stock of Murfreesboro Bancorp.
(2) Includes [40,000] shares held as trustee for two sons' trusts, stock
options for [12,000] shares that expire on April 28, 2008 and [64,088]
shares from conversion of debentures held in individual retirement account
and as trustee for sons' trusts.
(3) Includes [500] shares held jointly with daughter, stock options for [3,000]
shares that expire April 28, 2008, stock options for [1,000] shares that
expire May 15, 2011 and [52,800] shares from conversion of debentures.
The following table shows the beneficial ownership of all directors and
executive officers of Murfreesboro Bancorp individually and as a group as of
______________, 2003.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Position Beneficial Ownership Class(1)
- -------------------- -------- --------------------- -----------
William E. Rowland President, Chief Executive ____________(2) %
1110 Virginia Avenue Officer and Director
Murfreesboro, Tennessee 37130
Joyce Ewell Executive Vice President and ____________(3) %
2807 Bowers Lane Director
Murfreesboro, Tennessee 37129
Melvin R. Adams Director ____________(4) %
805 South Church Street
Murfreesboro, Tennessee 37130
Thomas E. Batey Director ____________(5) %
2802 East Main Street
Murfreesboro, Tennessee 37130
Sam B. Coleman, Jr. Director ____________(6) %
138 Laurel Hill Drive
Smyrna, Tennessee 37167
John Stanley Hooper Director ____________(7) %
3331 Siegel Lane
Murfreesboro, Tennessee 37129
William H. Sloan Director ____________(8) %
2523 Morgan Road
Murfreesboro, Tennessee 37129
Joseph M. Swanson Director ____________(9) %
100 East Vine Street-- Suite 1500
Murfreesboro, Tennessee 37130
31
Olin O. Williams, M.D. Director ____________(10) %
2007 Riverview Drive
Murfreesboro, Tennessee 37129
William L. Webb Senior Vice President and ____________(11) %
1438 Amberwood Circle Chief Financial Officer
Murfreesboro, Tennessee 37128
All directors and officers as a ____________(12) %
group
__________________________
(1) As of _____________, 2003 there were [907,609] shares of outstanding voting
common stock of Murfreesboro Bancorp.
(2) Includes [40,000] shares held as trustee for two sons' trusts, options for
[12,000] shares that expire on April 28, 2008 and [64,088] shares from
conversion of debentures held in individual retirement account and as
trustee for sons' trusts.
(3) Includes [33] shares held as trustee for a minor, stock options for [5,600]
shares that expire on April 28, 2008 and [13,049] shares from conversion of
debentures held individually, in individual retirement account and as
custodian for a minor.
(4) Includes stock options for [3,000] shares that expire April 28, 2008, stock
options for [1,000] shares that expire May 15, 2011 and [8,000] shares from
conversion of debentures.
(5) Includes [250] shares held by wife, stock options for [3,000] shares that
expire April 28, 2008, stock options for [1,000] shares that expire May 15,
2011 and [2,795] from conversion of debentures.
(6) Includes stock options for [4,000] shares that expire December 11, 2001 and
[57] shares from conversion of debentures.
(7) Includes [500] shares as custodian for minors, stock options for [3,000]
shares that expire April 28, 2008, stock options for [1,000] shares that
expire May 15, 2011 and [4,954] shares from conversion of debentures held
jointly with wife, in individual retirement account, in wife's individual
retirement account and as custodian for minors.
(8) Includes [5,000] shares held by wife, stock options for [3,000] shares that
expire April 28, 2008, stock options for [1,000] shares that expire May 15,
2011 and [4,000] shares from conversion of debentures held individually and
by wife.
(9) Includes [500] shares held jointly with daughter, stock options for [3,000]
shares that expire April 28, 2008, stock options for [1,000] shares that
expire May 15, 2011 and [52,800] shares from conversion of debentures.
(10) Includes [400] shares held as custodian for minors, stock options for
[3,000] shares that expire April 28, 2008, stock options for [1,000] shares
that expire May 15, 2011 and [8,795] shares from conversion of debentures
held individually and as custodian for minors.
(11) Includes [200] shares as custodian for minor children, stock options for
[3,000] shares that expire on April 28, 2008 and [60] shares from
conversion of debentures held as custodian for minor children.
(12) Includes all shares listed in notes (2) through (12) above.
At ____________________, 2003, there were no family relationships among
directors and officers. With the exception of Dr. Williams and Mr. Swanson, none
of the directors of Murfreesboro Bancorp serve as directors of any other company
which has a class of securities registered under the Securities Exchange Act of
1934 or any other bank holding company, bank, savings and loan association or
credit union. Dr. Williams is a director of National HealthCare Corp. and
National HealthRealty, Inc., and Mr. Swanson is a director of National
HealthRealty, Inc. Further, no director or executive officer has been involved
in any legal proceedings including bankruptcy, criminal proceedings or
injunction from involvement with any business, banking or securities activities.
32
Future Shareholder Proposals
We expect to consummate the merger prior to the next regularly
scheduled annual meeting of shareholders, in which case the annual meeting of
shareholders will not be convened. If, however, the merger is not consummated
prior to the next regularly scheduled annual meeting of shareholders, any
proposal that a shareholder wishes to have included in our proxy materials for
the next annual meeting of shareholders must have been received at our main
office located at 615 Memorial Boulevard, Murfreesboro, Tennessee, 37129,
Attention: Debbie Ferrell, Corporate Secretary, by November 23, 2002. The
shareholder's notice must include certain information as specified in our bylaws
and the requirements of the proxy rules adopted under the Securities Exchange
Act of 1934. Nothing in this paragraph shall be deemed to require us to include
in our proxy statement or the proxy relating to any annual meeting any
shareholder proposal which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal is received. In
addition, all shareholder proposals must comply with Tennessee law.
Other Matters
Each proxy solicited also confers discretionary authority on our Board
of Directors to vote the proxy with respect to matters incident to the conduct
of the special meeting of shareholders and upon such other matters as may
properly come before the special meeting of shareholders. Our Board of Directors
is not aware of any business to come before the special meeting of shareholders
other than those matters described above in this proxy statement. However, if
any other matter should properly come before the special meeting of
shareholders, it is intended that proxy holders will act in accordance with
their best judgment.
33
Appendix A
Agreement and Plan of Merger
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 11th day of December,
2002 (the "Plan" or the "Agreement") by and among FIRST SOUTH BANCORP, INC.
("First South"), FIRST BANK ("First Bank"), the BANK OF MURFREESBORO ("BOM") and
MURFREESBORO BANCORP, INC. ("MBI"). References to the "parties" or a "party" to
this Agreement shall include First South and First Bank on the one hand, and MBI
and BOM on the other.
RECITALS:
A. First South. First South has been duly incorporated and is an
existing corporation in good standing under the laws of Tennessee, with its
principal executive offices located in Lexington, Tennessee. First South has one
(1) wholly owned banking subsidiary (a "Subsidiary"), First Bank and other
direct or indirect non-banking Subsidiaries as of the date hereof. Each
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and the applicable regulations
thereunder, and the deposits in each such insured institution are insured by the
Federal Deposit Insurance Corporation.
B. MBI. MBI has been duly incorporated and is an existing corporation
in good standing under the laws of Tennessee, with its principal executive
offices located in Murfreesboro, Tennessee. As of the date hereof, MBI had
5,000,000 authorized shares of common stock, par value $5.00 per share ("MBI
Common Stock"), of which 907,609 shares are outstanding as of the date hereof,
and $3,000,000 face amount of Floating Rate Convertible Subordinated Debentures,
due August 31, 2011, which are convertible into shares of MBI Common Stock at a
conversion rate of $12.50 per share (each a "Debenture" and collectively, the
"Debentures"). All of the issued and outstanding shares of MBI Common Stock are
duly and validly issued and outstanding, are fully paid and nonassessable and
have no preemptive rights. Assuming the conversion of the Debentures and the
issuance of all shares upon the exercise of outstanding options, there would be
1,262,359 shares of common stock issued and outstanding. MBI has one wholly
owned banking Subsidiary, BOM. BOM also engages in investment services and
mortgage origination activities through two Subsidiaries. BOM is an "insured
institution" as defined in the Federal Deposit Insurance Act and the applicable
regulations thereunder, and the deposits in such institution are insured by the
Federal Deposit Insurance Corporation.
C. Rights, Etc. MBI has no shares of its capital stock reserved for
issuance, any outstanding option, call or commitment relating to shares of its
capital stock or any outstanding securities, obligations or agreements
convertible into or exchangeable for, or giving any person any right (other
than, in the case of MBI, preemptive rights) to subscribe for or acquire from
it, any shares of its capital stock except as described in filings made with the
Securities and Exchange Commission ("SEC") by MBI ("Public Filings") or except
as otherwise disclosed in the disclosure schedule referred to in Article III
below.
D. Board Approvals. The respective Boards of Directors of First South
and First Bank and MBI and BOM have unanimously approved and adopted the Plan
and the transactions related thereto and have duly authorized its execution. In
the case of MBI, the Board of Directors has also approved the Plan and the
transactions related thereto as the sole shareholder of BOM, and has unanimously
voted to recommend to its stockholders that the Plan and the transactions
related thereto be approved.
In consideration of their mutual promises and obligations hereunder,
and intending to be legally bound hereby, First South, First Bank, BOM and MBI
adopt the Plan and prescribe the terms and conditions hereof and the manner and
basis of carrying it into effect, which shall be as follows:
I. THE MERGER
(A) Structure of the Merger. On the Effective Date (as defined in
Article VIII), MBI will merge (the "Merger") with and into First South, with
First South being the surviving corporation (the "Surviving Corporation") under
the name First South Bancorp, Inc. pursuant to the applicable provisions of the
Tennessee Business Corporation Code (the "Tennessee Act"). On the Effective
Date, the charter and bylaws of the Surviving Corporation shall be the charter
and bylaws of First South in effect immediately prior to the Effective Date.
(B) Effect on Outstanding Shares. By virtue of the Merger,
automatically and without any action on the part of the holder thereof, each
share of MBI Common Stock issued and outstanding on the Effective Date
(including MBI Common Stock to be issued as a result of the conversion of the
Debentures in accordance with Section 4 thereof) shall be converted into the
right to receive cash in the amount of $21.25 (the "Purchase Price"). As of the
Effective Date, each share of MBI Common Stock held as treasury stock of MBI
shall be canceled, retired and cease to exist, and no payment shall be made in
respect thereof.
All of the shares of capital stock of First South issued and
outstanding immediately prior to the Effective Date shall remain outstanding and
unchanged after the Merger.
(C) Procedures. Certificates which represent shares of MBI Common Stock
that are outstanding on the Effective Date (each, a "Certificate") and are
exchanged for the Purchase Price pursuant to the Plan shall be exchangeable by
the holders thereof in the manner provided in the transmittal materials
described below.
On or prior to the Effective Date, First South shall, pursuant to an
escrow agreement to be entered into by and between First South and First Bank
which escrow agreement shall be mutually acceptable to First South and MBI (the
"Escrow Agreement"), deposit or cause to be deposited, in an escrow account, an
amount of cash equal to the aggregate Purchase Price that MBI stockholders shall
be entitled to receive on the Effective Date pursuant to Paragraph I(b) hereof.
Within five (5) business days of the Effective Date, First South shall deliver a
letter of transmittal to each holder of MBI Common Stock with instructions for
exchanging the Certificates for the Purchase Price. Upon surrender of a
Certificate, duly endorsed as First South may require, the holder of such
Certificate shall be entitled to receive in exchange therefor the consideration
set forth in Paragraph I(B), hereof and such Certificate shall forthwith be
canceled. After the Effective Date, there shall be no transfers on the stock
transfer books of MBI of shares of MBI Common Stock which were issued and
outstanding on the Effective Date and converted pursuant to the provisions of
the Plan. If after the Effective Date Certificates are presented for transfer to
MBI, MBI shall forward the Certificates to First South where the Certificates
will be canceled and exchanged in accordance with the procedures
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set forth in this Paragraph. In the case of any lost, mislaid, stolen or
destroyed Certificate, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the consideration described in
Paragraph I(B) hereof, to deliver to First South a bond in such sum as specified
in the Escrow Agreement as indemnity against any claim that may be made against
the parties with respect to the Certificate alleged to have been lost, mislaid,
stolen or destroyed.
After the Effective Date, holders of MBI Common Stock shall cease to
be, and shall have no rights as, stockholders of MBI, other than to receive the
Purchase Price.
Notwithstanding the foregoing, neither First South nor MBI nor any
other person shall be liable to any former holder of shares of MBI Common Stock
for any amounts paid or property delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(D) Options. At the Effective Date, each option granted by MBI to
purchase shares of MBI Common Stock (an "MBI Option"), as disclosed in Schedule
I(D) of the MBI Disclosure Schedule (which shall set forth the name of each
option holder, the grant date, the vesting date, and the number of shares and
the exercise price of each option), which is issued and outstanding, whether or
not such option is exercisable on the Effective Date, shall, by reason of the
Merger, cease to be outstanding and each holder of an MBI Option shall receive
from MBI or First South, on the Effective Date, a cash payment in an amount
equal to (i) the difference (if a positive number) between (A) the Purchase
Price and (B) the exercise price of each such MBI Option multiplied by (ii) the
number of shares of MBI Common Stock subject to the MBI Option.
(E) Debentures. On or prior to the Effective Date, each outstanding
Debenture, as disclosed in Schedule I(E) of the MBI Disclosure Schedule, shall
be converted into a number of shares of MBI Common Stock equal to the face
amount of the Debenture plus any accrued but unpaid interest, divided by the
$12.50 per share conversion price, as provided in Section 4 of the Debentures,
and as of the Effective Date, shall thereafter be converted into the right to
receive the Purchase Price in accordance with Paragraph I(B) hereof. MBI shall
take such steps as necessary or appropriate to accomplish the conversion of the
Debentures as provided in Section 4 thereof.
(F) Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, and only to the extent required by Section 48-23-101 et seq. of
the Tennessee Act, shares of MBI Common Stock which are outstanding immediately
prior to the Effective Date and which are held by shareholders who shall not
have voted in favor of the Plan and the transactions related thereto and who
shall have delivered a written demand for appraisal of such shares of MBI Common
Stock (collectively, the "Dissenting Shares") in the manner provided by the
Tennessee Act shall not be entitled to receive the Purchase Price, but the
holders of the Dissenting Shares shall be entitled to the appraised value of
such shares in accordance with the Tennessee Act; provided, however, that (1) if
any holder of Dissenting Shares shall subsequently deliver a written withdrawal
of his or her demand for appraisal of such shares; (2) if any holder fails to
establish his or her entitlement to appraisal rights as provided in the
Tennessee Act; or (3) if any holder of Dissenting Shares has not filed a
petition demanding a determination of the value of the Dissenting Shares within
the time provided in the Tennessee Act, such holder(s) shall forfeit the right
to appraisal of such shares and such shares
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shall thereupon be deemed to have been exchangeable for, as of the Effective
Date, the right to receive the Purchase Price solely in accordance with this
Article I. MBI shall give First South prompt written notice of any demand
received from holders of Dissenting Shares, and First South shall have the right
to participate in all negotiations and proceedings with respect to such dissent.
MBI shall not purport to make any determination of fair value, make any payment
with respect to or settle any matter arising out of a dissent.
(G) The Bank Merger. Pursuant to the laws of the United States of
America and the State of Tennessee, as applicable, and subject to the terms and
conditions of this Agreement, BOM shall be merged with and into First Bank,
which shall be the surviving bank, immediately after the completion of the
Merger.
(1) Effect of the Bank Merger. On the Effective Date, BOM
shall be merged with and into First Bank in the manner and with the
effect provided by the laws of the United States of America and the
State of Tennessee, if applicable, and the separate legal, existence of
BOM shall cease except to the extent provided by the laws of the United
States of America or Tennessee in the case of a bank after its merger
into another bank, and thereupon BOM and First Bank (sometimes referred
to as the "Merging Banks") shall be a single bank. First Bank as the
surviving bank, shall thereupon and thereafter possess all the rights,
privileges, powers and franchises, of a public as well as a private
nature, and shall be subject to all of the restrictions, disabilities
and duties of the Merging Banks; and all of the rights, privileges,
powers, liabilities and franchises of the Merging Banks on whatever
account, subscriptions for shares and all other things in action or
belonging to the Merging Banks shall be taken and deemed to be vested
in First Bank without further act or deed.
The outstanding shares of capital stock of BOM shall be converted on
the basis, terms and conditions described below.
(a) Articles of Association and Bylaws. The Articles
of Association and Bylaws of First Bank in effect immediately
prior to the Bank Merger shall govern First Bank after the
Bank Merger without amendment.
(b) Directors. The directors of First Bank
immediately following the Bank Merger shall be those directors
of First Bank immediately prior to the Bank Merger without
change.
(2) Conversion of Shares. At the effective time of the Bank
Merger, each share of First Bank capital stock outstanding immediately
prior to the Bank Merger shall retain all of its present rights and
privileges and shall be unchanged as the result of the Bank Merger. At
the effective time of the Bank Merger, all of the issued and
outstanding shares of BOM capital stock (all of which are held by MBI)
shall be canceled.
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II. ACTIONS PENDING MERGER
(A) MBI covenants to First South that MBI and its Subsidiaries shall
conduct their business only in the ordinary course and shall not, without the
prior written consent of First South: (1) issue any options to purchase capital
stock or issue any shares of capital stock, other than shares of MBI Common
Stock issued in connection with the exercise of currently outstanding options to
purchase shares of MBI Common Stock and the conversion of the Debentures; (2)
declare, set aside, or pay any dividend or distribution with respect to the
capital stock of MBI except that MBI may continue to pay interest on the
Debentures; (3) directly or indirectly redeem, purchase or otherwise acquire any
capital stock of MBI or its Subsidiaries; (4) effect a split or reclassification
of the capital stock of MBI or its Subsidiaries or a recapitalization of MBI or
its Subsidiaries; (5) amend the charter or by-laws of MBI or any of its
Subsidiaries; (6) grant any increase in the salaries payable or to become
payable by MBI or its Subsidiaries to any employee except as set forth on
Schedule II(A)(6) of the MBI Disclosure Schedule; (7) make any change in any
bonus, group insurance, pension, profit sharing, deferred compensation, or other
benefit plan, payment or arrangement made to, for or with respect to any
employees or directors of MBI or its Subsidiaries except as set forth on
Schedule II(A)(7) of the MBI Disclosure Schedule or to the extent such changes
are required by applicable laws or regulations; (8) enter into, terminate,
modify or amend any contract, lease or other agreement with any officer or
director of MBI or its Subsidiaries or any "associate" of any such officer or
director, as such term is defined in Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than in the
ordinary course of their banking business; (9) incur or assume any liabilities,
other than in the ordinary course of their business; (10) dispose of any of
their assets or properties, other than in the ordinary course of their business;
(11) solicit, encourage or authorize any individual, corporation or other
entity, including its directors, officers and other employees, 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 its Subsidiaries with any corporation or other entity other than as
provided by this Agreement, or subject to the fiduciary obligations of its Board
of Directors, provide any individual, corporation or other entity with
information or assistance or negotiate with any individual, corporation or other
entity in furtherance of such inquiries or to obtain such a proposal (and MBI
shall promptly notify First South of all of the relevant details relating to all
inquiries and proposals which it may receive relating to any of such matters);
(12) take any other action or permit its Subsidiaries to take any action not in
the ordinary course of business of it and its Subsidiaries; or (13) directly or
indirectly agree to take any of the foregoing actions.
(B) First South covenants to MBI that without the prior written consent
of MBI, which consent will not be unreasonably withheld, First South will not
take any action that would: (a) adversely affect the ability of First South to
obtain any necessary approvals of regulatory authorities required for the
transactions contemplated hereby; or (b) adversely affect its ability to perform
its covenants and agreements under this Plan.
III. REPRESENTATIONS AND WARRANTIES OF MBI
MBI and BOM represent and warrant to First South and First Bank that
the statements contained in this Article III are correct and complete as of the
date of this Agreement except as set
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forth in the MBI Disclosure Schedules delivered by MBI to First South on or
prior to the date hereof. MBI and BOM have made a good faith effort to ensure
that the disclosure on each schedule of the MBI Disclosure Schedules corresponds
to the section reference herein. However, for purposes of the MBI Disclosure
Schedules, any item disclosed on any schedule is deemed to be fully disclosed
with respect to all schedules under which such item may be relevant.
(A) the representations set forth in Recitals B through D of the Plan
with respect to MBI and BOM are true and correct and constitute representations
and warranties for the purpose of Article VI, hereof;
(B) the outstanding shares of capital stock of MBI and its Subsidiaries
are duly authorized, validly issued and outstanding, fully paid and
non-assessable, and subject to no preemptive rights of current or past
shareholders;
(C) each of MBI and its Subsidiaries has the power and authority, and
is duly qualified in all jurisdictions (except for such qualifications the
absence of which will not as a whole have an adverse effect on the business,
results of operations or financial condition of it or its Subsidiaries which is
material to it and its Subsidiaries, taken as a whole ("Material Adverse
Effect") provided that "Material Adverse Effect" shall not be deemed to include:
(1) the impact of changes in banking or similar laws of general applicability or
interpretations thereof by courts or governmental authorities; (2) changes in
generally accepted accounting principles applicable to banks and their holding
companies; or (3) any impact of actions taken by MBI or BOM as required by this
Agreement or at the request of First South in connection with the Merger or the
Bank Merger) where such qualification is required to carry on its business as it
is now being conducted, to own all its material properties and assets, and has
all federal, state, local and foreign governmental authorizations necessary for
it to own or lease its properties and assets and to carry on its business as it
is now being conducted, except for such authorizations the absence of which,
either individually or in the aggregate, would not have a Material Adverse
Effect;
(D) all shares of capital stock of each of MBI's Subsidiaries are owned
by MBI free and clear of all liens, claims, encumbrances and restrictions on
transfer;
(E) subject to the receipt of shareholder approval of this Plan, the
Plan has been authorized by all necessary corporate action of MBI and BOM and,
subject to receipt of such approval of shareholders and required regulatory
approvals, is a legal, valid and binding agreement of MBI and BOM enforceable
against MBI and BOM in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles involving specific performance or injunctive relief;
(F) the execution, delivery and performance of the Plan by MBI and BOM
does not, and the consummation of the transactions contemplated hereby by MBI
and BOM will not, constitute: (1) a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of MBI or its Subsidiaries or
to which MBI or its Subsidiaries (or any of their respective properties) is
subject which breach, violation or default would have a Material Adverse Effect,
or enable any person to
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enjoin any of the transactions contemplated hereby; or (2) a breach or violation
of, or a default under, the charter or by-laws of MBI or any of its
Subsidiaries; and the consummation of the transactions contemplated hereby will
not require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the consent or
approval of any other party to any such agreement, indenture or instrument,
other than the required approvals of applicable Regulatory Authorities and the
approval of the shareholders of MBI, both of which are referred to in Paragraph
(A) of Article VI and any consents and approvals the absence of which will not
have a Material Adverse Effect;
(G) since December 31, 2001, MBI has filed all forms, reports and
documents with the SEC required to be filed by MBI pursuant to the federal
securities laws and SEC rules and regulations thereunder (the "SEC Reports")
each of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirement of the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act and
the applicable rules and regulations thereunder. As of their respective dates,
none of the SEC Reports, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. Each of the balance sheets in or incorporated by
reference into the SEC Reports (including the related notes and schedules)
fairly presents the financial position of the entity or entities to which it
relates as of its date and each of the statements of operations and retained
earnings and of cash flows and changes in financial position or equivalent
statements in or incorporated by reference into the SEC Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings and cash flows and changes in financial position, as the case may be,
of the entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles applicable to bank
holding companies consistently applied during the periods involved, except as
may be noted therein. MBI has no material obligations or liabilities (contingent
or otherwise) except as disclosed in the SEC Reports. For purposes of this
Paragraph, material shall have the meaning as defined under the Securities Act,
the Exchange Act and the rules and regulations promulgated thereunder;
(H) MBI and BOM have no material liabilities or obligations secured or
unsecured, whether accrued, absolute, contingent or otherwise, known or unknown,
due or to become due, including, but not limited to tax liabilities, that should
have been but are not reflected in or reserved against in its audited financial
statements as of December 31, 2001 or disclosed in the notes thereto;
(I) there has not been the occurrence of one or more events,
conditions, actions or states of facts which, either individually or in the
aggregate, have caused a Material Adverse Effect with respect to MBI or BOM
since December 31, 2001;
(J) all federal, state, local and foreign tax returns required to be
filed by or on behalf of MBI or any of its Subsidiaries have been timely filed
or requests for extensions have been timely filed and any such extension shall
have been granted and not have expired; and all such returns filed are complete
and accurate in all material respects. All taxes shown on returns filed by MBI
have
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been paid in full or adequate provision has been made for any such taxes on
MBI's balance sheet (in accordance with generally accepted accounting
principles). As of the date of the Plan, there is no audit examination,
deficiency, or refund litigation with respect to any taxes of MBI that could
result in a determination that would have a Material Adverse Effect. All taxes,
interest, additions, and penalties due with respect to completed and settled
examinations or concluded litigation relating to MBI have been paid in full or
adequate provision has been made for any such taxes on MBI's balance sheet (in
accordance with generally accepted accounting principles, applied on a
consistent basis). MBI has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any material tax due that is
currently in effect. Deferred taxes have been provided for in MBI's financial
statements in accordance with generally accepted accounting principles applied
on a consistent basis. MBI and BOM are in compliance with, and MBI's and BOM's
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting and
tax withholding requirements under federal, state, and local tax laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code;
(K) (1) no litigation, proceeding or controversy before any court or
governmental agency is pending, and there is no pending claim, action or
proceeding against MBI or any of its Subsidiaries, which could have a Material
Adverse Effect or to prevent consummation of the transactions contemplated
hereby, and, to MBI's knowledge, no such litigation, proceeding, controversy,
claim or action has been threatened or is contemplated; and
(2) neither MBI nor any of its Subsidiaries is subject to any
agreement, memorandum of understanding, commitment letter, board resolution or
similar arrangement with, or transmitted to, any regulatory authority materially
restricting MBI's operations as conducted on the date hereof or requiring that
certain actions be taken in the future;
(L) neither MBI nor its Subsidiaries are in default in any material
respect under any material contract (as defined in Item 601(b)(10)(i) and (ii)
of Regulation S-K); and there has not occurred any event that with the lapse of
time or the giving of notice or both would constitute such a default;
(M) all "employee benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), that cover any of
MBI's or its Subsidiaries' employees, comply in all material respects with all
applicable requirements of ERISA, the Internal Revenue Code of 1986 (as amended)
(the "Code") and other applicable laws; neither MBI nor any of its Subsidiaries
has engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any such plan which is likely to
result in any material penalties or taxes under Section 502(i) of ERISA or
Section 4975 of the Code; no material liability to the Pension Benefit Guaranty
Corporation has been or is expected by MBI or its Subsidiaries to be incurred
with respect to any such plan which is subject to Title IV of ERISA ("Pension
Plan"), or with respect to any "single-employer plan" (as defined in Section
4001(a)(15) of ERISA) currently or formerly maintained by MBI, its Subsidiaries
or any entity which is considered one employer with MBI under Section 4001 of
ERISA or Section 414 of the Code; no Pension Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA (whether or not waived) as
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of the last day of the end of the most recent plan year ending prior to the date
hereof; the fair market value of the assets of each Pension Plan exceeds the
present value of the "benefit liabilities" (as defined in Section 4001(a)(16) of
ERISA) under such Pension Plan as of the end of the most recent plan year with
respect to the respective Plan ending prior to the date hereof, calculated on
the basis of the actuarial assumptions used in the most recent actuarial
valuation for such Pension Plan as of the date hereof; to the knowledge of MBI,
there are no pending or anticipated material claims against or otherwise
involving any of MBI's employee benefit plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
activities of such plans) has been brought against or with respect to any such
plan, except for any of the foregoing which would not have a Material Adverse
Effect; no notice of a "reportable event" (as defined in Section 4043 of ERISA)
for which the 30-day reporting requirement has not been waived has been required
to be filed for any Pension Plan within the 12-month period ending on the date
hereof; MBI and its Subsidiaries have not contributed to a "multi-employer
plan", as defined in Section 3(37) of ERISA; and MBI and its Subsidiaries do not
have any obligations for retiree health and life benefits under any benefit
plan, contract or arrangement, except as required by Section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA;
(N) each of MBI and its Subsidiaries has good and marketable title to
its respective properties and assets, tangible or intangible (other than
property as to which it is lessee);
(O) MBI knows of no reason why the regulatory approvals referred to in
Paragraph (A)(2) of Article VI should not be obtained without the imposition of
any condition of the type referred to in the proviso following such Paragraph
(A)(2);
(P) MBI's reserve for possible loan and lease losses as shown in its
audited financial statements as of December 31, 2001 was, and MBI's reserve for
possible loan and lease losses as shown in all Quarterly Reports on Form 10-Q
filed prior to the Effective Date will be, adequate in all material respects
under generally accepted accounting principles applicable to banks and bank
holding companies;
(Q) Each of MBI, BOM and each of their Subsidiaries is in compliance in
all material respects with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable to it, its properties, assets and deposits, its business, and its
conduct of business and its relationship with its employees, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act, and all
other applicable fair lending laws and other laws relating to discriminatory
business practices and neither MBI nor BOM has received any written notice to
the contrary;
(R) MBI and BOM hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their businesses under and,
to their knowledge, have complied in all material respects with, applicable
laws, statutes, orders, rules and regulations of any federal, state or local
governmental authority relating to them including, but not limited to, the
Tennessee Department of Banking and Finance, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System (the "Board of
Governors"), the SEC and the respective staffs thereof
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("Regulatory Authority"), other than where such failure to hold or such
noncompliance will neither result in a limitation in any material respect on the
conduct of their businesses nor otherwise have a Material Adverse Effect on MBI
or BOM. Neither MBI or BOM has received any notification or communication from
any Regulatory Authority (i) asserting that MBI or BOM is not in compliance with
any of the statutes, regulations or ordinances which such Regulatory Authority
enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to MBI or BOM; (iii) requiring or
threatening to require MBI or BOM, or indicating that MBI or BOM may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of MBI or BOM; or (iv)
directing, restricting or limiting, or purporting to direct, restrict or limit,
in any manner the operations of MBI or BOM, including without limitation any
restriction on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither MBI nor BOM is a party to, nor
has consented to any Regulatory Agreement. The most recent regulatory rating
given to BOM as to compliance with the CRA is satisfactory or better;
(S) No consents, waivers or approvals of, or filings or registrations
with, any governmental authority having jurisdiction over MBI or BOM are
necessary, and no consents, waivers or approvals of, or filings or registrations
with, any other third parties are necessary, in connection with (a) the
execution and delivery of this Agreement by MBI and BOM, and (b) the completion
by MBI and BOM of the transactions described in this Agreement, except for the
approval of any Regulatory Authority;
(T) neither MBI nor any of its Subsidiaries is a party to, or is bound
by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization, nor is MBI or any of its
Subsidiaries the subject of a proceeding asserting that MBI or any such
Subsidiary has committed an unfair labor practice or seeking to compel MBI or
such Subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving MBI or any of its Subsidiaries pending or threatened, nor is MBI or
any of its Subsidiaries aware or any solicitation or organizational activity
involving any labor union, labor organization, bargaining agreement or contract;
(U) other than services provided by The BankersBanc Capital
Corporation, which has been retained by MBI and the arrangements with which,
including fees, have been disclosed to First South prior to the date hereof,
neither MBI nor any of its Subsidiaries, nor any of their respective officers,
directors or employees, has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for MBI
or any of its Subsidiaries, in connection with the Plan or the transactions
contemplated hereby;
(V) the information to be supplied by MBI for inclusion in the proxy
statement to be filed with the SEC under the Exchange Act and distributed in
connection with MBI's meeting of its shareholders to vote upon this Plan (as
amended or supplemented from time to time, the "Proxy Statement") or in any
application or other filing with any regulatory authority in connection with the
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Plan or the transactions contemplated hereby, will not at the time such
information is furnished, and in the case of the Proxy Statement at the time it
is mailed and at the time of the meeting of stockholders contemplated under this
Plan, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(W) for purposes of this section, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to: (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource); and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation: (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss. 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss. 7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss. 9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss. 11001, et
seq; the Safe Drinking Water Act, 42 U.S.C. ss. 300f, et seq; all accompanying
federal regulations and all comparable state and local laws; and (2) any common
law (including without limitation common law that may impose strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Substance.
"Hazardous Substance" means any substance or waste presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or any derivative or
by-product thereof, asbestos, radioactive material, and polychlorinated
biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned or operated by MBI or any of its Subsidiaries, but shall not
include any properties where the activities of MBI and any of its Subsidiaries
are limited to operating Automatic Teller Machines on the premises of a third
party.
There are no actions, suits, demands, notices, claims, investigations
or proceedings pending or, to the knowledge of MBI, threatened against MBI or
its Subsidiaries relating to the Loan Portfolio Properties and Other Properties
Owned by MBI or its Subsidiaries under any Environmental Law, including without
limitation any notices, demand letters or requests for information from any
federal or state environmental agency relating to any such liabilities under or
violations of Environmental Law, nor, to the knowledge of MBI, are there any
circumstances which could lead to such actions, suits, demands, notices, claims,
investigations or proceedings; and
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(X) all securities issued by MBI (or any other person), or convertible
into MBI Common Stock, except for those shares subject to dissenter's rights as
defined in the Tennessee Act, shall as a result and upon consummation of the
Merger, be subject to the Plan and exchangeable only for the Purchase Price.
IV. REPRESENTATIONS AND WARRANTIES OF FIRST SOUTH
First South represents and warrants to MBI that:
(A) the representations set forth in Recitals A, C and D of the Plan
with respect to First South and First Bank are true and correct and constitute
representations and warranties for the purpose of Article VI, hereof;
(B) the Plan has been authorized by all necessary corporate action of
First South and First Bank and, subject to receipt of approval of the
shareholders of MBI and required regulatory approvals, is a legal, valid and
binding agreement of First South and First Bank enforceable against First South
and First Bank in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles involving specific performance or injunctive relief;
(C) the execution, delivery and performance of the Plan by First South
and First Bank does not, and the consummation of the transactions contemplated
hereby by First South and First Bank will not, constitute: (1) a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of First South or First Bank or to which First South or First Bank is
subject which breach, violation or default would have a Material Adverse Effect,
or enable any person to enjoin any of the transactions contemplated hereby; or
(2) a breach or violation of, or a default under, the charter or by-laws of
First South or First Bank; and the consummation of the transactions contemplated
hereby will not require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license or the
consent or approval of any other party to any such agreement, indenture or
instrument, other than the required approvals of applicable Regulatory
Authorities and the approval of the shareholders of MBI, both of which are
referred to in Paragraph (A) of Article VI and any consents and approvals the
absence of which will not have a Material Adverse Effect;
(D) First South knows of no reason why the regulatory approvals
referred to in Paragraph (A)(2) of Article VI should not be obtained without the
imposition of any condition of the type referred to in the proviso following
such Paragraph (A)(2);
(E) First South and First Bank hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their businesses under
and, to their knowledge, have complied in all material respects with, applicable
laws, statutes, orders, rules and regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a Material Adverse
Effect on First South or First Bank. Neither First
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South nor First Bank has received any notification or communication from any
Regulatory Authority (i) asserting that First South or First Bank is not in
compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to First South
or First Bank; (iii) requiring or threatening to require First South or First
Bank, or indicating that First South or First Bank may be required, to enter
into a cease and desist order, agreement or memorandum of understanding or any
other agreement restricting or limiting, or purporting to restrict or limit, in
any manner the operations of First South or First Bank; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of First South or First Bank, including without limitation
any restriction on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither First South nor First Bank is
a party to, nor has consented to any Regulatory Agreement. The most recent
regulatory rating given to First Bank as to compliance with the CRA is
satisfactory or better. ;
(F) No consents, waivers or approvals of, or filings or registrations
with, any governmental authority having jurisdiction over First South or First
Bank are necessary, and no consents, waivers or approvals of, or filings or
registrations with, any other third parties are necessary, in connection with
(a) the execution and delivery of this Agreement by First South and First Bank,
and (b) the completion by First South and First Bank of the transactions
described in this Agreement; except for the approval of any Regulatory
Authority;
(G) As of the date hereof, and the Effective Date, First South and
First Bank will have funds that are sufficient, under all applicable legal and
regulatory standards, and available to meet its obligations under this Agreement
and to consummate in a timely manner the transactions contemplated hereby and
thereby. Neither First South nor First Bank shall enter into any plan of
reorganization or plan of merger with any party to form a new parent corporation
of either entity without such party assuming all obligations of First South and
First Bank under this Agreement; and
(H) First South has made available to MBI copies of First South's
financial statements for the preceding three (3) fiscal years (the "First South
Financials"). The First South Financials have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered by such
statements, and (including the related notes where applicable) fairly present
the consolidated financial position, results of operations and cash flows of
First South and the First South Subsidiaries as of and for the respective
periods ending on the dates thereof, except as indicated in the notes thereto.
V. COVENANTS
(A) MBI hereby covenants to First South, that:
(1) MBI and/or BOM shall take or cause to be taken all action
necessary or desirable under the Plan on their part as promptly as practicable,
including the filing of all necessary applications, so as to permit the
consummation of the transactions contemplated by the Plan and cooperate fully
with First South to that end;
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(2) MBI shall: (1) take all steps necessary to duly call, give
notice of, convene and hold a meeting of MBI's shareholders for the purpose of
approving the Plan as soon as is reasonably practicable; (2) distribute to MBI's
shareholders the Proxy Statement in accordance with applicable federal and state
law and with its charter and by-laws; (3) recommend to its shareholders that
they approve the Plan; and (4) support the Plan in all respects and fully
cooperate and consult with First South with respect to each of the foregoing
matters;
(3) MBI will cooperate in the preparation and filing of the Proxy
Statement in order to consummate the transactions contemplated by the Plan as
soon as is reasonably practicable;
(4) subject to MBI's disclosure obligations imposed by law, unless
reviewed and agreed to by First South in advance, neither MBI not BOM will issue
any press release or written statement for general circulation relating to the
transactions contemplated hereby; provided however, that nothing in this Section
(4) shall be deemed to prohibit either party from making any disclosure which
MBI's counsel deems necessary or advisable in order to satisfy such party's
disclosure obligations imposed by law;
(5) from and subsequent to the date hereof, MBI and BOM will: (1)
give to First South and its counsel and accountants access to their premises and
books and records during normal business hours for any reasonable purpose
related to the transactions contemplated hereby; and (2) cooperate and instruct
MBI's counsel and accountants to cooperate with First South and with First
South's counsel and accountants with regard to the formulation and production of
all necessary information, disclosures, financial statements, registration
statements and regulatory filings with respect to the transactions encompassed
by the Plan;
(6) MBI shall notify First South as promptly as practicable of: (1)
any breach of any of its or BOM's representations, warranties or agreements
contained herein; (2) any occurrence, or impending occurrence, of any event or
circumstance which could cause or constitute a material breach of any of the
representations, warranties or agreements of it contained herein; and (3) any
material adverse change in MBI's or BOM's financial condition, results of
operations or business; and (4) MBI and BOM shall use their best efforts to
prevent or remedy the same;
(7) MBI and BOM shall cooperate and use their best efforts to
assist First South in the prompt preparation and filing of all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to obtain all necessary permits, consents, approvals
and authorizations of all third parties and governmental bodies or agencies,
including, submission of applications for approval of the Plan and the
transactions contemplated hereby to the Board of Governors of the Federal
Reserve System (the "Board of Governors") in accordance with the provisions of
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), the Tennessee
Department of Banking and Finance ("Tennessee Department"), and to such other
regulatory agencies as required by law, including without limitation, the
Federal Deposit Insurance Corporation ("FDIC");
(8) MBI shall promptly furnish First South with copies of all
documents filed prior to the Effective Date with the SEC and all documents filed
by it or any of its Subsidiaries with other governmental or regulatory agencies
or bodies in connection with the Merger;
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(9) Neither MBI nor BOM will directly or indirectly take any action
or omit to take any action to cause any of its representations and warranties
made in this Plan to become untrue;
(10) prior to the Effective Date, MBI and/or BOM will use its best
efforts to take all steps required to exempt the transactions contemplated by
this Agreement from any applicable state anti-takeover law or any restrictions
contained in their charter or other organizational documents;
(11) at the request of First South, MBI and BOM shall immediately
prior to the Effective Date establish and take such reserves and accruals, as
First South reasonably shall request to conform MBI's and BOM's loan, accrual,
reserve and other accounting policies to the policies of First South or its
Subsidiaries, provided, however, that MBI shall not be required to take such
action unless First South agrees in writing that all conditions to closing set
forth in Article VI have been satisfied or waived; prior to the delivery by
First South of the writing referred to in the preceding clause, MBI shall
provide First South a written statement, certified without personal liability by
the chief executive officer of MBI and dated the date of such writing, that the
representation made in Section III(P) hereof is true as of such date or,
alternatively, setting forth in detail the circumstances that prevent such
representation from being true as of such date; and no accrual or reserve made
by MBI or any MBI Subsidiary pursuant to this subsection, or any litigation or
regulatory proceeding arising out of any such accrual or reserve, shall
constitute or be deemed to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement or to
constitute a termination event within the meaning of Paragraph VII(A)(2) hereof.
(12) From and after the date hereof until the termination of this
Agreement, neither MBI, nor any MBI Subsidiary, nor any of their respective
officers, directors, employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by MBI or any of its Subsidiaries), will, directly or indirectly,
initiate, solicit or knowingly encourage (including by way of furnishing
non-public information or assistance), or facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal (as defined below), or enter into or maintain
or continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal, or authorize or permit any of its officers, directors, or
employees or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by any of its
subsidiaries to take any such action, and MBI shall notify First South orally
(within one business day) and in writing (as promptly as practicable) of all of
the relevant details relating to all inquiries and proposals which it or any of
its Subsidiaries or any such officer, director, employee, investment banker,
financial advisor, attorney, accountant or other representative may receive
relating to any of such matters, provided, however, that nothing contained in
this Paragraph A(12) shall prohibit the Board of Directors of MBI from (i)
furnishing information to, or entering into discussions or negotiations with any
person or entity that makes an unsolicited written, bona fide proposal to
acquire MBI pursuant to a merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction, if, and only
to the extent that, (a) the Board of Directors of MBI receives an opinion from
its independent financial advisor that such proposal may be superior to the
Merger and the Bank Merger from a financial point-of-view to MBI's stockholders,
-15-
(b) the Board of Directors of MBI, after consultation with and after considering
the advice of independent legal counsel, determines in good faith that failure
to take such action may cause the Board of Directors of MBI to breach its
fiduciary duties to stockholders under applicable law (such proposal that
satisfies (a) and (b) being referred to herein as a "Superior Proposal"); and
(c) MBI promptly notifies First South of such inquiries, proposals or offers
received by, any such information requested from, or any such discussions or
negotiations sought to be initiated or continued with MBI or any of its
representatives indicating, in connection with such notice, the name of such
person and the material terms and conditions of any inquiries, proposals or
offers. For purposes of this Agreement, "Acquisition Proposal" shall mean any
proposal or offer as to any of the following (other than the transactions
contemplated hereunder) involving MBI or any of its subsidiaries: (i) any
merger, consolidation, share exchange, business combination, or other similar
transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 25% or more of the assets of MBI, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 25% or more of the outstanding shares of capital stock of MBI or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing;
(13) MBI will, within 30 days after the date hereof, engage a firm
satisfactory to First South to conduct: (a) a phase one environmental assessment
of the banking facilities currently owned by MBI upon which MBI or any
Subsidiary is conducting a banking business, which assessment shall meet the
standards of ASTM E1527-97 and shall include at a minimum a site history,
on-site inspection, asbestos report, evaluation of surrounding properties and
soil tests in the event any underground storage tanks are discovered; and (b) a
transaction screen that meets the standards of ASTM E 1528 for the properties
that MBI or any Subsidiary leases, and in addition, MBI agrees to conduct a
phase one assessment of the leased properties if, in First South's reasonable
judgment, the transaction screen indicates potential environmental liabilities
associated with the leased properties. Notwithstanding the foregoing, no
assessment or transaction screen need be conducted on any properties where the
activities of MBI and any of its Subsidiaries are limited to operating Automatic
Teller Machines on the premises of a third party. First South has requested such
inspection and testing in an effort to reasonably determine whether potential
liabilities exist relating to Environmental Law. Delivery of the phase one
assessments and transaction screens satisfactory to First South is an express
condition precedent to the consummation of the Merger. Within 15 days after
receipt of these reports, First South shall notify MBI in writing whether or
not, in the reasonable judgment of First South, the results of such reports will
have a Material Adverse Effect on MBI. For purposes of this Paragraph V(A)(13),
the results of the reports shall not be considered to have a Material Adverse
Effect on MBI unless they indicate cleanup expenses, or potential liabilities
under the environment laws, in excess of $500,000 individually or in the
aggregate. In the event that First South determines, in its reasonable judgment,
that the results of such reports will have a Material Adverse Effect on MBI,
such written notification shall include a statement by First South regarding
whether or not it intends to terminate this Agreement based upon the results of
such reports. The Parties agree that First South has given MBI good and valuable
consideration for its agreement to obtain and pay the cost of such inspection
and testing, and First South shall be entitled to rely on same; and
-16-
(14) prior to the Effective Date, MBI shall purchase for, and on
behalf of, its current and former officers and directors, extended coverage
under the current directors' and officers' liability insurance policy maintained
by MBI to provide for continued coverage of such insurance for a period of five
(5) years following the Effective Date with respect to matters occurring on or
prior to the Effective Date. In the alternative, First South may provide
evidence, satisfactory to MBI, that provision has been made for coverage of
MBI's current and former officers and directors under directors' and officers'
insurance policies maintained by First South with respect to matters occurring
in their capacity as an officer or director of MBI on or prior to the Effective
Date which coverage shall be no less favorable, in terms of the scope of
coverage and coverage amount, than MBI's current directors' and officers'
policies.
(B) First South hereby covenants to MBI, that:
(1) First South hereby agrees to provide indemnification on the
following terms in connection with the Merger and the Bank Merger:
(a) First South, subject to the conditions set forth in
Paragraph (B)(1)(b) below, for a period of six (6) years after the
Effective Date, shall indemnify, defend and hold harmless each person
entitled to indemnification from MBI and its Subsidiaries (each, an
"Indemnified Party") against all liabilities arising out of actions or
omissions occurring at or prior to the Effective Date (including the
transactions contemplated by this Agreement) to the fullest extent
permitted under Tennessee law and by MBI's and its Subsidiaries'
charters and/or by-laws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of
any litigation. Without limiting the foregoing, in any case in which
approval by First South is required to effectuate any indemnification,
First South shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by
independent counsel mutually agreed upon between First South and the
Indemnified Party;
(b) Any Indemnified Party wishing to claim indemnification
under Paragraph (B)(1) upon learning of any such liability or
litigation, shall promptly notify First South thereof. In the event of
any such litigation (whether arising before or after the Effective
Date), (a) First South shall have the right to assume the defense
thereof, and First South shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if First South elects not to assume
such defense or counsel for the Indemnified Parties advises that there
are substantive issues which raise conflicts of interest between First
South and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them, and First South shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly
as statements therefor are received; provided, that First South shall
be obligated pursuant to this Paragraph (B)(1)(b) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction, (b)
the Indemnified Parties will cooperate in the defense of any such
litigation, and (c) First South shall not be liable for any settlement
effected without its prior written consent; and provided further, that
First South shall not have any obligation hereunder to any Indemnified
Party when and if a
-17-
court of competent jurisdiction shall determine, and such determination
shall have become final, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable
law;
(2) at or before the Effective Date, First South shall enter into
an employment agreement with William Rowland and with Joyce Ewell in the form
attached to Schedule V(B)(2) of the MBI Disclosure Schedules, and shall make
change in control payments as described in Schedule V(B)(2);
(3) At and following the Effective Date, First South and First Bank
shall honor, and First South and First Bank shall continue to be obligated to
perform, in accordance with their terms, the employment, severance, split-dollar
and revenue neutral plans, arrangements and policies of the Company which are
listed on Schedule V(B)(3) of the MBI Disclosure Schedule. First South and First
Bank shall cause the administrator of the revenue neutral agreements listed on
Schedule V(B)(3) of the MBI Disclosure Schedule to provide individual benefit
statements, within 90 days of each plan year end, to the individuals entitled to
benefits thereunder; and
(4) As of or after the Effective Date, and at First South's
election and subject to the requirements of the Code and ERISA, any MBI and BOM
compensation and benefit plans (other than the agreements referred to in
Paragraph (V)(B)(3)) may be continued and maintained separately, consolidated or
terminated. MBI and BOM employees who continue employment with First South or
First Bank following the Effective Date ("Continuing Employees") shall
participate in all First South and First Bank Employee Plans as of the first
entry date coincident with or following the Effective Date, with recognition of
prior service with MBI or BOM for purposes of eligibility to participate and
vesting, but not benefits accrual;
VI. CONDITIONS TO CONSUMMATION
(A) The respective obligations of First South and First Bank and of MBI
and BOM to effect the Merger and the Bank Merger shall be subject to the
satisfaction prior to the Effective Date of the following conditions:
(1) the Plan and the transactions contemplated hereby shall have
been approved by the requisite vote of the shareholders of MBI in accordance
with applicable law, and MBI shall have furnished to First South certified
copies of resolutions duly adopted by MBI's shareholders evidencing the same;
(2) the procurement of approval of the Plan and the transactions
contemplated hereby by the Board of Governors, the Tennessee Department, the
FDIC and any other applicable Regulatory Authorities; provided, however, that no
approval or consent in this Paragraph (A)(2) of this Article VI shall be deemed
to have been received if it shall include any conditions or requirements (other
than conditions or requirements that First South increase its regulatory capital
levels (in terms of amount(s) and/or ratio(s)) prior to consummating the Merger
or the Bank Merger, or such other conditions or requirements which are
customarily included in such an approval or consent) which would have such a
material adverse impact on the economic or business benefits of
-18-
the transactions contemplated hereby as to render inadvisable the consummation
of the Merger or the Bank Merger in the opinion of the Board of Directors of
First South;
(3) the satisfaction of all other statutory or regulatory
requirements which are necessary to the consummation of the transactions
contemplated by the Plan;
(4) no party hereto shall be subject to any order, decree or
injunction or any other action of a United States federal or state court of
competent jurisdiction permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement; and
(5) no party hereto shall be subject to any order, decree or
injunction or any other action of a United States federal or state governmental,
regulatory or administrative agency or commission permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement.
(B) The obligation of First South and First Bank to effect the Merger
and the Bank Merger shall be subject to the satisfaction prior to the Effective
Date of the following additional conditions:
(1) Each of the obligations and covenants of MBI and BOM required
by this Agreement to be performed at or prior to the Closing Date shall have
been duly performed and complied with in all material respects;
(2) Each of the representations and warranties of MBI and BOM
contained herein shall be true and correct in all material respects as of the
Effective Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), provided that this
Paragraph (B)(2) shall be deemed satisfied unless the failure of such
representation or warranty to be so true and correct constitute, individually or
in the aggregate, a Material Adverse Effect on MBI or BOM or First South or
First Bank;
(3) First South shall have received a certificate signed by the
Chief Executive Officer of MBI, dated the Effective Date, as to compliance with
Paragraphs (B)(1) and (2);
(4) on the Effective Date, MBI and BOM will have Compliance Ratings
and Community Reinvestment Act Ratings of at least "Satisfactory";
(5) on the Effective Date, MBI and BOM will have a loan loss
reserve of at least 0.90% of loans and which will be adequate in all material
respects under generally accepted accounting principles applicable to banks;
(6) MBI shall have delivered to First South the environmental
reports referenced in Paragraph (A)(13) of Article V;
(7) there shall have been no adverse change in the overall
composite CAMELS Rating of MBI or its Subsidiaries occurring between the date
hereof and the Effective Date;
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(8) each of the officers and directors of MBI shall have delivered
a letter to First South to the effect that such person is not aware of any
claims he might have against MBI, except as disclosed therein, other than
routine compensation, benefits and the like as an employee, or ordinary rights
as a customer; and
(9) William E. Rowland shall have executed the employment agreement
referenced in Paragraph V(B)(2) (except in the event of his death or
incapacity).
(C) The obligation of MBI and BOM to effect the Merger and the Bank
Merger shall be subject to the satisfaction prior to the Effective Date of the
following additional conditions:
(1) Each of the obligations and covenants of First South and First
Bank required by this Agreement to be performed at or prior to the Closing Date
shall have been duly performed and complied with in all material respects;
(2) Each of the representations and warranties of First South and
First Bank contained herein shall be true and correct in all material respects
as of the Effective Date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date),
provided that this Paragraph (C)(2) shall be deemed satisfied unless the failure
of such representation or warranty to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on MBI or BOM or
First South or First Bank;
(3) MBI shall have received from The BankersBanc Capital
Corporation a letter to the effect that, in the opinion of such firm, the
Purchase Price is fair, from a financial point of view, to the holders of MBI
Common Stock; and
(4) First South shall have deposited funds in an escrow account
sufficient to pay the Purchase Price pursuant to the terms of the Escrow
Agreement.
VII. TERMINATION
(A) The Plan may be terminated prior to the Effective Date, either
before or after its approval by the stockholders of MBI:
(1) by the mutual consent of First South and MBI, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board;
(2) by First South or MBI upon a material breach of any
representation, covenant or warranty set forth in Plan on the part of the other
party such that the condition to Closing in Article VI would not be satisfied,
which breach by its nature cannot be cured prior to the Effective Date or shall
not have been cured within 30 days after written notice by First South to MBI
(or by MBI to First South) of such breach;
(3) by First South in accordance with the terms of Paragraph
V(A)(13);
(4) by First South or MBI if MBI has received a Superior Proposal
and, in accordance with Paragraph V(A)(12) of this Agreement, MBI has entered
into an acquisition
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agreement with respect to the Superior Proposal or withdraws its recommendation
in support of this Agreement, fails to make such recommendation or modifies or
qualifies its recommendation in a manner adverse to the consummation of the
Merger or the Bank Merger; or
(5) by First South or MBI if its Board of Directors so determines
by vote of a majority of the members in the event that the Merger is not
consummated by September 30, 2003, unless the failure to so consummate by such
time is due to the breach of the Plan by the party seeking to terminate,
provided that First South may not rely on this termination provision if the
delay beyond September 30, 2003 is primarily caused by its inability to meet a
regulatory condition relating to regulatory capital ratios or amounts necessary
to consummate the Merger of the Bank Merger; and
(6) by either First South or MBI if the stockholders of MBI shall
have voted at the MBI stockholders meeting on the transactions contemplated by
this Agreement and such vote shall not have been sufficient to approve such
transactions;
(7) by either First South or MBI if (i) final action has been taken
by a Regulatory Authority whose approval is required in connection with this
Agreement and the transactions contemplated hereby, which final action (x) has
become unappealable and (y) does not approve this Agreement or the transactions
contemplated hereby, (ii) any Regulatory Authority whose approval or
nonobjection is required in connection with this Agreement and the transactions
contemplated hereby has stated in writing that it will not issue the required
approval or nonobjection, or (iii) any court of competent jurisdiction or other
governmental authority shall have issued an order, decree, ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
(B) (1) Except as otherwise provided in this Paragraph (B), if this
Agreement is terminated pursuant to Paragraph VII(A) hereof, this Agreement
shall forthwith become void (other than this Paragraph (B) and Paragraphs (E)
and (F) of Article IX, which shall remain in full force and effect), and there
shall be no further liability on the part of MBI, BOM, First South or First Bank
to the other, except that no party shall be relieved or released from any
liabilities or damages arising out of its willful or fraudulent breach of any
provision of this Agreement.
(2) In the event that this Agreement is terminated by (i) First
South or MBI in accordance with the terms of Paragraph (A)(4) of Article VII,
then MBI shall pay First South a cash amount, within two business days of
termination, of$2,500,000, or (ii) by MBI in accordance with the terms of
Paragraph (A)(5) due to First South's inability to meet a regulatory condition
relating to regulatory capital ratios or amounts necessary to consummate the
Merger of the Bank Merger, then First South shall pay MBI a cash amount, within
two business days of termination, of $2,500,000. The $2,500,000 cash payment
required in either (i) or (ii) is referred to as the Termination Fee. Upon
payment of the Termination Fee, then neither party will have any other rights or
claims against the other, its subsidiaries, or its officers and directors, under
this Agreement, it being agreed that the payment of the Termination Fee under
this Paragraph (B)(2) will constitute the sole and exclusive remedy of the party
receiving the fee, its subsidiaries and its respective officers and directors.
-21-
VIII. EFFECTIVE DATE
The "Effective Date" shall be the date on which the Merger becomes
effective as specified in the Certificate of Merger to be filed with the
Secretary of State of Tennessee and the Secretary of State of Tennessee
approving the Merger. The Effective Date shall be no later than five (5)
business days after the last condition precedent pursuant to this Agreement has
been fulfilled or waived (including the expiration of any applicable waiting
period), or such other date as to which the parties shall mutually agree;
provided that, at First South's election, the Effective Date may occur within
the first ten (10) days of the month following the month in which the last
condition precedent is fulfilled or waived.
IX. OTHER MATTERS
(A) All representations, warranties and, except to the extent
specifically provided otherwise herein, agreements and covenants, other than
those covenants set forth in Paragraph (A)(4) of Article V, Paragraph (B) of
Article VII and Paragraphs (E) and (F) of this Article, which will survive the
Merger, shall terminate on the Closing Date.
(B) Prior to the Effective Date, any provision of the Plan may be: (1)
waived by the party benefited by the provision or by both parties; or (2)
amended or modified at any time (including the structure of the transaction) by
an agreement in writing between the parties hereto approved by their respective
Boards of Directors (to the extent allowed by law) or by their respective Boards
of Directors.
(C) This Plan may be executed in multiple and/or facsimile originals,
and each copy of the Plan bearing the manually executed, facsimile transmitted
or photocopied signature of each of the parties hereto shall be deemed to be an
original.
(D) The Plan shall be governed by, and interpreted in accordance with,
the laws of the State of Tennessee.
(E) Except as provided in Paragraph (B) of Article VII, each party
hereto will bear all expenses incurred by it in connection with the Plan and the
transactions contemplated hereby, including, but not limited to, the fees and
expenses of its respective counsel and accountants.
(F) Each of the parties and its respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed unless it is advised
by counsel that any such information is required by law to be disclosed.
(G) All notices, requests, acknowledgments and other communications
hereunder to a party shall be in writing and shall be deemed to have been duly
given when delivered by hand, telecopy, by overnight courier or sent by
registered or certified mail, postage paid, to such party at its address set
forth below or such other address as such party may specify by notice to the
other party hereto.
-22-
If to First South or First Bank: Mr. Douglas Cruickshanks
President and Chief Executive Officer
First South Bancorp, Inc.
53 East Church Street
Lexington, Tennessee 38351
with a copy to: Ms. Mary Neil Price, Esq.
Miller & Martin, LLP
1200 One Nashville Place
150 4th Avenue North
Nashville, Tennessee 37219
If to MBI or BOM: Mr. William R. Rowland
President and Chief Executive Officer
615 Memorial Blvd.
Murfreesboro, Tennessee 37129
With a copy to: John J. Gorman, Esq.
Luse Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
(H) All terms and provisions of the Plan shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, provided, however, except as expressly provided for in Paragraphs
V(B)(1) and (5), IX(E) and IX(F), that nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors, any rights, remedies, obligations or liabilities.
(I) The Plan represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made.
(J) This Plan may not be assigned by any party hereto without the
written consent of the other parties.
-23-
In Witness Whereof, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers as of the day and
year first above written.
FIRST SOUTH BANCORP, INC.
Attest: Mary Neil Price By: Douglas Cruickshanks, Jr.
----------------------- --------------------------
Title: Attorney Title: President
----------------------- -----------------------
FIRST BANK
Attest: Mary Neil Price By: Douglas Cruickshanks, Jr.
----------------------- --------------------------
Title: Attorney Title: President
----------------------- -----------------------
MURFREESBORO BANCORP, INC.
Attest: William L. Webb By: William E. Rowland
----------------------- --------------------------
Title: SVP and Chief Financial Title: President and Chief
Officer Executive Officer
----------------------- -----------------------
BANK OF MURFREESBORO
Attest: William L. Webb By: William E. Rowland
----------------------- --------------------------
Title: SVP and Chief Financial Title: President and Chief
Officer Executive Officer
----------------------- -----------------------
Appendix B
Opinion of The BankersBanc Capital Corporation
Board of Directors _______________, 2003
Murfreesboro Bancorp, Inc.
615 Memorial Boulevard
Murfreesboro, TN 37129
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the shareholders
of Murfreesboro Bancorp, Inc. (the "Company"), from a financial point of view,
of the per share purchase price and terms (the "Per Share Purchase Price and
Terms") provided for in the Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 11, 2002 between the Company and First South
Bancorp, Inc. ("First South"). The Merger Agreement provides for a merger (the
"Merger") of the Company and First South pursuant to which the common
shareholders of the Company will receive $21.25 in cash for every common share
of the Company they hold and optionholders shall receive an amount in cash equal
to $21.25, less the respective exercise price, for each option to purchase a
share of the Company's common stock they hold.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to First South and the Company. We have also
reviewed certain other information, including financial forecasts and budgets,
provided to us by the Company, and have discussed with the Company's management
the business and prospects of the Company.
We have also considered certain financial and stock market data of publicly held
bank holding companies similar to the Company and we have considered the
financial terms of certain comparable merger and acquisition transactions which
have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant. In connection with our review, we have
not independently verified any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts and budgets, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company. In addition, we have not made an independent evaluation or
appraisal of the assets of the Company and we have assumed that the aggregate
allowances for loan losses for First South and the Company are adequate to cover
such losses. We have solicited third party indications of interest in acquiring
the Company and have considered the results of that solicitation in arriving at
our opinion.
Board of Directors
December 11, 2002
Page Two
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger.
We agree to the inclusion of this opinion letter in the Proxy
Statement/Prospectus relating to the Merger. The opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof, the Per Share Purchase Price and Terms of the Merger are fair to the
common shareholders of the Company from a financial point of view.
Very truly yours,
BankersBanc Capital Corporation
Appendix C
Chapter 48-23 of the Tennessee Business Corporation Code
TITLE 48. CORPORATIONS AND ASSOCIATIONS
FOR-PROFIT BUSINESS CORPORATIONS
CHAPTER 23. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. Chapter definitions
As used in this chapter, unless the context otherwise requires:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 48-23-102 and who exercises that right when and in
the manner required by part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. Right to dissent
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by ss. 48-21-104 or
the charter and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
underss. 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all
1
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction of
a share, if the fractional share is to be acquired for cash under ss. 48-16-104;
or
(5) Any corporate action taken pursuant to a shareholder vote to the extent
the charter, bylaws, or a resolution of the board of directors provides that
voting or nonvoting shareholders are entitled to dissent and obtain payment for
their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under ss. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
(1) person and notifies the corporation in writing of the name and address of
each person on whose behalf the record shareholder asserts dissenters' rights.
The rights of a partial dissenter under this subsection are determined as if the
shares as to which the partial dissenter dissents and the partial dissenter's
other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on the beneficial shareholder's behalf only if
the beneficial shareholder:
(1) Submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(2) Does so with respect to all shares of the same class of which the
person is the beneficial shareholder or over which the person has power to
direct the vote.
2
PART 2. PROCEDURES FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under ss. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in ss. 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
48-23-202. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must:
(1) Deliver to the corporation, before the vote is taken, written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated; and
(2) Not vote the shareholder's shares in favor of the proposed action. No
such written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by ss. 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
48-23-203. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under ss.
48-23-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of ss. 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person asserting dissenters' rights acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than one (1) nor more than two (2) months after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to ss.
48-23-201.
3
48-23-204. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in ss. 48-23-203 must
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to ss. 48-23-203(b)(3), and deposit the shareholder's certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the effectuation of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
48-23-205. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effectuated or the restrictions released under ss. 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
48-23-206. Payment
(a) Except as provided in ss. 48-23-208, as soon as the proposed corporate
action is effectuated, or upon receipt of a payment demand, whichever is later,
the corporation shall pay each dissenter who complied with ss. 48-23-204 the
amount the corporation estimates to be the fair value of each dissenter's
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment underss.
48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a
copy of this chapter to the shareholder pursuant to ss. 48-23-201 or ss.
48-23-203.
48-23-207. Failure to take action
(a) If the corporation does not effectuate the proposed action that gave
rise to the dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under ss. 48-23-203 and repeat the payment demand
procedure.
4
48-23-208. After-acquired shares
(a) A corporation may elect to withhold payment required by ss. 48-23-206
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under ss.
48-23-209.
48-23-209. Procedure if shareholder dissatisfied with payment or offer
(a) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate (less any payment under ss.
48-23-206), or reject the corporation's offer under ss. 48-23-208 and demand
payment of the fair value of the dissenter's shares and interest due, if:
(1) The dissenter believes that the amount paid under ss. 48-23-206 or
offered under ss. 48-23-208 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under ss. 48-23-206 within two
(2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within two (2) months after the date set for
demanding payment.
(b) A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within one (1) month after the corporation made
or offered payment for the dissenter's shares.
PART 3. JUDICIAL APPRAISAL OF SHARES
48-23-301. Court action
(a) If a demand for payment under ss. 48-23-209 remains unsettled, the
corporation shall commence a proceeding within two (2) months after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision
5
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under ss. 48-23-208.
48-23-302. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under ss. 48-23-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under ss. 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable against:
(1) The corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this chapter; or
(2) Either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
REVOCABLE PROXY
MURFREESBORO BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
______________________, 2003
The undersigned shareholder of Murfreesboro Bancorp, Inc. (the
"Company") hereby appoints the Board of Directors of the Company, or any one of
them, with full power of substitution, as proxies to cast all votes to which the
undersigned shareholder is entitled to cast at the special meeting of
shareholders (the "Special Meeting") to be held on [Day], [Date], 2003, at 5:00
p.m., local time, at the executive officers of the Company, 615 Memorial
Boulevard, Murfreesboro, Tennessee 37129, and at any adjournment thereof.
The shareholder named herein hereby acknowledges receipt of the Notice
of Special Meeting of Shareholders and Proxy Statement relating to the Special
Meeting and hereby revokes any proxy or proxies heretofore given. The
shareholder named herein may revoke this proxy at any time before it is voted by
filing with the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date, or by attending the Special Meeting
and voting in person.
FOR AGAINST ABSTAIN
1. To approve and adopt the Agreement and _ _ _
Plan of Merger, dated as of December 11, |_| |_| |_|
2002, by and among First South Bancorp,
Inc., First Bank, the Bank of
Murfreesboro and Murfreesboro Bancorp,
Inc.
The Board of Directors recommends a vote "FOR" the listed proposal.
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IF SIGNED, THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY, IF SIGNED, WILL BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL
BE VOTED BY THE ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD
OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
at any adjournment thereof and after notification to the Secretary of the
Company at the Meeting of the shareholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect. This proxy may also be revoked by sending written
notice to the Secretary of the Company at the address set forth on the Notice of
Special Meeting of Shareholders, or by the filing of a later-dated proxy prior
to a vote being taken on a particular proposal at the Meeting.
Dated: _________________, 2003
_______________________________ ___________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
_______________________________ ___________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on this proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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Please complete, date and sign this proxy and return it promptly
in the enclosed postage-paid envelope.
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