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As filed with the Securities and Exchange Commission on January 30, 1995
Registration No. 33-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 6021 62-0803242
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901) 523-4444
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
HARRY A. JOHNSON, III
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST TENNESSEE NATIONAL CORPORATION
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901) 523-5624
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With Copies to:
CLYDE A. BILLINGS, JR. JEFFREY C. GERRISH
Vice President & Counsel Gerrish & McCreary, P.C.
First Tennessee National Corporation 700 Colonial Road, Ste. 200
165 Madison Avenue Memphis, TN 38117
Memphis, TN 38103 (901) 767-0900
(901) 523-5679
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective and after conditions contained in Merger Agreement have been
satisfied.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: / /
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CALCULATION OF REGISTRATION FEE
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Title of each Amount Proposed Maximum Proposed Maximum Amount
class of to be Offering Price Aggregate of
securities Registered(1) per Unit(2) Offering Price(2) Registration Fee
to be registered
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Common Stock and
Associated Rights 477,950 $23.13 $11,057,000 $3,813
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(1) Based upon the assumed number of shares that may be issued in the Merger
described herein. Such assumed number is based on the number of shares of
Peoples Common Stock that may be outstanding immediately prior to the Merger
and the assumed minimum price per share for Registrant's Common Stock under
Section (B)(1) of Article I of the Merger Agreement.
(2) Estimated solely for purpose of computing the registration fee pursuant to
Rule 457(f)(2) on the basis of the book value of a share of Peoples Common
Stock on September 30, 1994, divided by 3.5943, the maximum number of shares of
the Registrant's Common Stock to be exchanged for each share of Peoples Common
Stock in the proposed merger to which this Registration Statement relates,
based on the assumed value for Registrant's Common Stock used in Note (1).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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FIRST TENNESSEE NATIONAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
FORM S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
A. Information About the Transaction
1. Forepart of the Registration Statement and Facing page of Registration Statement; Outside Front
Outside Front Cover Page of Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages Available Information; Table of Contents
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; The Special Meeting; The Merger
and Other Information
4. Terms of the Transaction Summary; The Merger; Incorporation of Certain Documents
by Reference; Certain Regulatory Considerations;
Effect of the Merger on Rights of Shareholders;
Description of FTNC Capital Stock
5. Pro Forma Financial Information Index to Pro Forma Financial Information
6. Material Contacts with the Company Being The Merger
Acquired
7. Additional Information Required for Reoffering Not Applicable
by Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel Validity of Common Stock; Experts
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
B. Information About the Registrant
10. Information with Respect to S-3 Registrants Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by Incorporation of Certain Documents by Reference
Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants Other Not Applicable
Than S-3 or S-2 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Other Summary; Information concerning Peoples; Index to
Than S-2 or S-3 Companies Peoples Financial Information
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited Incorporation of Certain Documents by Reference;
Summary; The Special Meeting; Experts; The Merger;
Cover Page of Proxy Statement-Prospectus
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or in
an Exchange Offer
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_______________, 1995
Dear Peoples Commercial Services Corporation Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Peoples Commercial Services Corporation ("Peoples") to be held at the main
office of Peoples, 207 E. Main Street, Senatobia, Mississippi on
______________, 1995 at 2:00 p.m., local time.
At this meeting, you will have an opportunity to consider and vote on
the terms of an Agreement and Plan of Merger (the "Agreement") that provides
for the merger of Peoples with and into First Tennessee National Corporation
("FTNC"), with FTNC being the surviving corporation (the "Merger"), as a result
of which Peoples Bank will become a wholly-owned subsidiary of FTNC.
The Agreement generally provides for a tax-free exchange in which
Peoples shareholders will receive shares of FTNC Common Stock in exchange for
shares of Peoples Common Stock.
The proposed Merger has been unanimously approved by the Boards of
Directors of both FTNC and Peoples.
The enclosed Notice of Special Meeting of Shareholders and Proxy
Statement-Prospectus explain the Merger and provide specific information
relative to the Special Meeting. Please carefully read these materials and
thoughtfully consider the information contained in them. Your vote is of great
importance, as the approval of Peoples shareholders is required to consummate
the Merger.
Whether or not you plan to attend the Special Meeting, you are urged
to complete, date, sign and promptly return the enclosed proxy card to assure
that your shares will be voted at the Special Meeting. For your convenience,
there is included a postage-paid, addressed envelope for your proxy card. No
additional postage is required if mailed in the United States.
THE MERGER IS AN IMPORTANT STEP FOR PEOPLES AND ITS SHAREHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER.
Sincerely,
LELAND GOUGH
President
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PEOPLES COMMERCIAL SERVICES CORPORATION
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD _______________, 1995
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Notice is hereby given that a Special Meeting of Shareholders of
Peoples Commercial Services Corporation ("Peoples") has been called by the
Board of Directors and will be held at the main office of Peoples, 207 E. Main
Street, Senatobia, Mississippi, on ___________, 1995 at 2:00 p.m., local time,
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of October 19, 1994 (the "Agreement") by and between
First Tennessee National Corporation ("FTNC") and Peoples. The Agreement
provides for the merger of Peoples with and into FTNC, with FTNC being the
surviving corporation, as a result of which Peoples Bank will become a
wholly-owned subsidiary of FTNC, all as more fully described in the
accompanying Proxy Statement-Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come
before the meeting.
Shareholders of Peoples are entitled to assert dissenters' rights upon
compliance with the applicable provisions of Mississippi Business Corporation
Act Sections 79-4-13.01 through 79-4-13.31, which are described in and a copy
of which is attached as an appendix to the accompanying Proxy
Statement-Prospectus.
Whether or not you plan to attend, please complete, date and sign the
enclosed proxy card and return it at once in the stamped return envelope in
order to insure that your shares will be represented at the meeting. If you
attend in person, the proxy can be disregarded, if you wish, and you may vote
your own shares.
Only shareholders of record at the close of business on ____________,
1995 will be entitled to receive notice of and to vote at the meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors,
RUFUS WARREN, Secretary
Senatobia, Mississippi
Dated: _________________, 1995
THE BOARD OF DIRECTORS OF PEOPLES UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF PEOPLES COMMON STOCK VOTE TO APPROVE THE AGREEMENT.
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PROXY STATEMENT
PEOPLES COMMERCIAL SERVICES CORPORATION
SPECIAL MEETING TO BE HELD ON _________________, 1995
PROSPECTUS
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FIRST TENNESSEE NATIONAL CORPORATION
477,950 SHARES OF COMMON STOCK
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $5.00 per share (the "Peoples Common Stock"), of
Peoples Commercial Services Corporation ("Peoples"), a Mississippi corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended, in connection with the solicitation of proxies by the Peoples
Board of Directors (the "Peoples Board") for use at the Special Meeting of
Peoples shareholders to be held at 2:00 p.m., local time, on __________,
1995, at the main office of Peoples, 207 E. Main Street, Senatobia,
Mississippi, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, the shareholders of record of Peoples Common
Stock as of the close of business on _______, 1995 will consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of October 19,
1994 (the "Agreement") by and between First Tennessee National Corporation
("FTNC"), a Tennessee corporation registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended, and Peoples, pursuant to which,
among other things, Peoples will merge with and into FTNC, with FTNC surviving
the merger (the "Merger"), and as a result of which Peoples Bank will become a
wholly-owned subsidiary of FTNC. Upon consummation of the Merger, each
outstanding share of Peoples Common Stock (other than shares held directly or
indirectly by FTNC or any of its subsidiary banks, except in a fiduciary
capacity or in satisfaction of a debt previously contracted, and shares held in
the treasury of Peoples, which shares shall be canceled, retired and cease to
exist by virtue of the Merger and without any payment made in respect thereof)
will be converted into the right to receive shares of common stock, par value
$2.50 per share, of FTNC ("FTNC Common Stock") as described herein. For a
description of the Agreement, which is included herein in its entirety as
Appendix "A" to this Proxy Statement-Prospectus, see "The Merger."
This Proxy Statement-Prospectus also constitutes a prospectus of FTNC
in respect of up to 477,950 shares of FTNC Common Stock to be issued to
shareholders of Peoples in connection with the Merger. The shares of FTNC
Common Stock to be issued in connection with the Merger are based upon the
conversion of each outstanding share of Peoples Common Stock into shares of
FTNC Common Stock as described herein. See "The Merger -- Terms of the
Merger."
The outstanding shares of FTNC Common Stock are, and the shares
offered hereby will be, included for quotation on the Nasdaq Stock Market on
its National Market. The last reported sale price of FTNC Common Stock on the
Nasdaq Stock Market on ________ ___, 1995 was $_____ per share.
All information contained in this Proxy Statement-Prospectus relating
to FTNC and its subsidiaries has been supplied by FTNC and all information
relating to Peoples has been supplied by Peoples. This Proxy
Statement-Prospectus and the accompanying proxy card are first being mailed to
shareholders of Peoples on or about ___________, 1995.
THE SHARES OF FTNC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS ____________________, 1995
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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7 -
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7 -
Special Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
Vote Required; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
Conditions; Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
Termination of Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Certain Differences in Shareholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Shareholders' Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Market Prices of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Equivalent and Pro Forma Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
Selected Financial Data and Ratios . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Opinion of Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Conduct of Business Pending Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Shareholders' Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
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Page
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Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
Resale of FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
The Nasdaq Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
Certain Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Holding Company Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Interstate Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
FDIC Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
Depositor Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
INFORMATION CONCERNING PEOPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Selected Statistical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Management's Discussion & Analysis of Financial Condition & Results of Operations . . . . . . . . . . . . . . . . - 42 -
Ownership of Peoples Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
DESCRIPTION OF FTNC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Shareholder Protection Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Subordinated Capital Notes due 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Shareholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Required Vote to Authorize Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Amendment of Articles of Incorporation or Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Authorized Corporation Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Conflict of Interest Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Vacancies On Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Control Share Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
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Page
----
Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 54 -
Greenmail Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 54 -
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 55 -
Rights of Holders of Capital Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 55 -
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 55 -
VALIDITY OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 55 -
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 55 -
INDEX TO PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 56 -
INDEX TO PEOPLES FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . - 56 -
APPENDICES:
Appendix "A" - Agreement and Plan of Merger
Appendix "B" - Opinion of Southard Financial
Appendix "C" - Mississippi Business Corporation Act, Sections 79-4-13.01 through 79-4-13.31
- 4 -
9
AVAILABLE INFORMATION
FTNC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). The reports, proxy statements
and other information filed by FTNC with the SEC can be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports,
proxy statements and other information can be inspected and copied at the SEC's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511. Copies of such material can be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C., at prescribed
rates. The FTNC Common Stock is included for quotation on the Nasdaq Stock
Market and such reports, proxy statements and other information concerning FTNC
should be available for inspection and copying at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. FTNC has filed with the SEC a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of FTNC Common Stock and associated rights to be issued pursuant to the
Agreement. As permitted by the rules and regulations of the SEC, this Proxy
Statement-Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the
SEC's principal office in Washington, D.C. Statements contained in this Proxy
Statement-Prospectus or in any document incorporated by reference in this Proxy
Statement-Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are hereby incorporated by
reference in this Proxy Statement-Prospectus and made a part hereof: (a)
FTNC's Current Report on Form 8-K, dated October 1, 1993, filed October 18,
1993; (b) FTNC's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and its Forms 10-K/A filed on April 27 and June 29, 1994 amending its
Annual Report on Form 10-K; (c) FTNC's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1994, and its Form 10-Q/A
filed on August 19, 1994, amending its Form 10-Q for the quarter ended March
31, 1994; (d) FTNC's proxy statement dated March 14, 1994, exclusive of the
Board Compensation Committee Report and the Total Shareholder Return
Performance Graph on pages 11-16 thereof; (e) the description of FTNC Common
Stock contained in FTNC's registration statement on Form 10 (File No. 0- 4491),
filed April 14, 1970, pursuant to Section 12 of the Exchange Act (and any
amendments or reports filed for the purpose of updating the description); and
(f) the description of the FTNC's rights to purchase Participating Preferred
Stock included in FTNC's registration statement on Form 8-A (File No. 0-4491),
filed September 8, 1989, pursuant to Section 12 of the Exchange Act pursuant to
which FTNC registered the Shareholder Protection Rights under the Exchange Act.
All documents filed by FTNC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement- Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to
- 5 -
10
be incorporated herein by reference will be deemed to be modified or superseded
for the purpose of this Proxy Statement-Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS RELATING TO
FTNC BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS, OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO THE TREASURER, FIRST TENNESSEE NATIONAL
CORPORATION, P.O. BOX 84, MEMPHIS, TENNESSEE 38101, TELEPHONE NUMBER (901)
523-5630. COPIES OF EXHIBITS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS MAY BE OBTAINED FOR A CHARGE COVERING THE COST OF
REPRODUCTION AND MAILING. IN ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY __________________, 1995.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FTNC OR PEOPLES SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
- 6 -
11
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding FTNC, Peoples and the matters to be considered at
the Special Meeting and is qualified in all respects by the information
appearing elsewhere and incorporated by reference in this Proxy
Statement-Prospectus, the Appendices hereto and the documents referred to
herein.
PARTIES TO THE MERGER
FTNC. FTNC is a regional bank holding company incorporated under the
laws of Tennessee, which, through First Tennessee Bank National Association,
Memphis, Tennessee ("FTB") and its other banking and banking-related
subsidiaries, provides a broad range of financial services. FTNC was
incorporated in Tennessee in 1968. At September 30, 1994, FTNC had
consolidated total assets of approximately $10.4 billion, consolidated total
deposits of approximately $7.6 billion and equity capital of approximately
$752.0 million. At September 30, 1994, FTNC ranked 58th among bank holding
companies in the United States and first among bank holding companies
headquartered in Tennessee in terms of total assets.
FTNC coordinates the financial resources of the consolidated
enterprise and maintains systems of financial, operational and administrative
control that allow coordination of selected policies and activities. FTNC
operates principally through FTB, which was chartered as a national banking
association in 1864. As of September 30, 1994, FTB was the largest commercial
bank headquartered in Tennessee both in terms of total assets and deposits. At
September 30, 1994, FTB had total assets of approximately $10.0 billion, total
deposits of approximately $7.1 billion and equity capital of approximately
$658.9 million. FTB conducts a broad range of retail and commercial banking
and fiduciary services and had 212 banking locations at September 30, 1994.
FTB also offers a comprehensive range of financial services, including bond
broker/agency services, mortgage banking and check clearing, to companies
nationally. Bond broker/agency services provided by FTB consist primarily of
the sale of bank-eligible securities to other financial institutions.
Subsidiaries of FTNC and FTB are engaged primarily in providing mortgage
banking, integrated check processing solutions, discount brokerage, equipment
finance, venture capital, investment management and credit life insurance.
The principal executive offices of FTNC are located at 165 Madison
Avenue, Memphis, Tennessee 38103, and its telephone number is (901) 523-4444.
Peoples. Peoples is a Mississippi corporation and bank holding company
chartered in 1982 as the one-bank holding company for Peoples Bank, Senatobia,
Mississippi. Peoples Bank, a Mississippi state bank, was organized in 1916 and
has its principal offices in Senatobia with a branch in Coldwater, Mississippi.
At September 30, 1994, Peoples had consolidated total assets of approximately
$97.5 million, consolidated total deposits of approximately $85.9 million, and
equity capital of approximately $11.1 million.
The executive offices of Peoples are located at 207 E. Main Street,
Senatobia, Mississippi 38668 and the telephone number is (601) 562-8236.
Additional information about FTNC and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement-Prospectus. See
"Incorporation of Certain Documents by Reference."
- 7 -
12
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held on _____________, 1995 at 2:00 p.m.,
local time, at the main office of Peoples, 207 E. Main Street, Senatobia,
Mississippi. The purpose of the Special Meeting is to consider and vote upon
a proposal to approve the Agreement.
VOTE REQUIRED; RECORD DATE
Only Peoples shareholders of record at the close of business on
_____________, 1995, (the "Peoples Record Date") will be entitled to vote at the
Special Meeting. The affirmative vote of the holders of a majority of the
shares outstanding on such date is required to approve the Agreement.
"Abstentions" and broker "non votes" will have the same effect as a vote
"against" approval of the Agreement. See "The Special Meeting Vote Required."
As of the Peoples Record Date, there were 133,000 shares of Peoples Common Stock
entitled to be voted.
The directors and executive officers of Peoples and their affiliates
beneficially owned, as of the Peoples Record Date, 15,288 shares, or
approximately 11.5%, of the outstanding shares of Peoples Common Stock.
Peoples has been advised that such directors and executive officers intend to
vote their shares for approval of the Agreement.
As of the Peoples Record Date, FTNC and its subsidiaries owned no
shares of Peoples Common Stock, and the directors and executive officers of
FTNC beneficially owned no shares of Peoples Common Stock.
TERMS OF THE MERGER
On the Effective Date (as defined below) of the Merger, Peoples will
merge with and into FTNC with FTNC being the surviving entity. As a result of
the merger, Peoples Bank will become a wholly-owned subsidiary of FTNC.
Upon consummation of the Merger, each outstanding share of Peoples
Common Stock (other than shares held directly or indirectly by FTNC or any
subsidiary of FTNC, except in a fiduciary capacity or in satisfaction of a debt
previously contracted, and other than shares held in the treasury of Peoples,
which shares shall be canceled, retired and cease to exist by virtue of the
Merger and without any payment made in respect thereof) will be converted into
the right to receive shares of FTNC Common Stock. Each share of Peoples Common
Stock issued and outstanding at the Effective Date will become and be converted
into the right to receive the number of shares of FTNC Common Stock equal to
the exchange ratio (the "Exchange Ratio") determined as follows:
If the FTNC Common Stock Average Price (defined below) is $42.00 per
share or greater, the Exchange Ratio will be 3.1658.
If the FTNC Common Stock Average Price is less than $42.00 per share,
the Exchange Ratio will be the product of (y) 3.1658 multiplied by (z)
the quotient of (1) $42.00 divided by (2) the FTNC Common Stock
Average Price, subject to FTNC's right to terminate the Agreement if
the FTNC Common Stock Average Price is less than $38.00 per share.
- 8 -
13
"FTNC Common Stock Average Price" means the average of the closing
prices of the FTNC Common Stock for the ten (10) business days (the
"Calculation Period") immediately prior to the fifth (5th) business day
preceding the Effective Date.
If the Effective Date had been ____________, 1995, the Conversion
Number would have been ____.
No fractional shares of FTNC Common Stock will be issued in connection
with the Merger. In lieu of fractional shares, FTNC will make a cash payment
equal to the holder's fractional interest multiplied by either the closing
price of FTNC Common Stock on the Effective Date (if the Exchange Ratio is
3.1658) or the FTNC Common Stock Average Price used to calculate the Exchange
Ratio (if the Exchange Ratio is other than 3.1658). The holders of Peoples
Common Stock at the Effective Date will become holders of FTNC Common Stock.
Each outstanding share of FTNC Common Stock will remain outstanding and
unchanged as a result of the Merger. See "The Merger -- Terms of the Merger."
EFFECTIVE DATE
The Merger will become effective at the time of the filing of a
certificate of merger or on such date as the certificate of merger may specify
(the "Effective Date"). Unless otherwise mutually agreed upon by FTNC and
Peoples, the Effective Date will occur on the last business day of the month
during which the expiration of all applicable waiting periods in connection
with governmental approvals occurs and all conditions to the consummation of
the Agreement have been satisfied or waived, or, at FTNC's option, the first
business day of the next succeeding month.
REASONS FOR THE MERGER; RECOMMENDATION OF PEOPLES BOARD OF DIRECTORS
The Peoples Board believes the Merger is fair to and in the best
interest of Peoples and its shareholders and recommends that Peoples
shareholders vote FOR approval of the Agreement. The Peoples Board believes
that the Merger will provide significant value to all Peoples shareholders and
also enable them to participate in opportunities for growth that the Peoples
Board believes that the Merger makes possible. See "The Merger -- Background
of and Reasons for the Merger." For information on the interests of certain
officers and directors of Peoples in the Merger, see "The Merger -- Interests
of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISER
Southard Financial ("Southard"), Memphis, Tennessee, has delivered its
written opinion to the Peoples Board to the effect that, as of October 12, 1994
and as of January 24,1995, the terms of the Merger are fair to the holders of
Peoples Common Stock from a financial point of view. A copy of the opinion of
Southard dated as of October 12, 1994 and its supplement dated January 24, 1995
is attached hereto as Appendix "B." The opinion should be read in its entirety
for a description of the procedures followed, assumptions and qualifications
made, matters considered, and the limitations undertaken by Southard. See
"The Merger -- Opinion of Financial Adviser."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the shareholder approval solicited hereby, receipt by Peoples of a
fairness opinion, which has been received, receipt of the necessary regulatory
approvals, receipt of the opinion of counsel to FTNC regarding certain tax
- 9 -
14
aspects of the Merger, Peoples' shareholders' equity, subject to certain
adjustments, is not less than $11 million on the Effective Date,
implementation, to the extent consistent with generally accepted accounting
principles ("GAAP"), of certain adjustments to Peoples loan, litigation and
real estate valuation policies and practices (including loan classifications
and levels of reserves), and satisfaction of customary closing conditions.
The regulatory approvals and consents necessary to consummate the
transactions contemplated by the Agreement include the approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
Mississippi Commissioner of Banking and Consumer Finance (the "Mississippi
Commissioner"). Applications have been submitted for such approvals. There
can be no assurances as to when, if or with what conditions such approvals or
waiver will be granted. See "The Merger -- Conditions to Consummation of the
Merger," "-- Regulatory Approvals," "-- Conduct of Business Pending the Merger"
and "--Certain Regulatory Considerations."
TERMINATION OF THE MERGER AGREEMENT
The Agreement may be terminated at any time prior to the Effective
Date by the mutual consent of FTNC and Peoples, by either of them individually
under certain specified circumstances, including, if the Merger has not become
effective by October 19, 1995, or by FTNC if FTNC's Common Stock Average Price
is less than $38.00 per share. In certain situations if the Merger is not
consummated and Peoples engages in a specified transaction with another party
within 12 months following termination of the Agreement, Peoples must pay to
FTNC liquidated damages in the amount of $1,000,000. See "The Merger -- Waiver
and Amendment; Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Peoples management and the Peoples Board have
certain interests in the Merger that are in addition to their interests as
shareholders of Peoples generally. These consist of provisions relating to
indemnification in the Agreement. See "The Merger - Interests of Certain
Persons in the Merger."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Date, shareholders of Peoples automatically will
become shareholders of FTNC, and their rights as shareholders of FTNC will be
determined by the Tennessee Business Corporation Act ("TBCA") and by FTNC's
Charter and Bylaws. The rights of shareholders of FTNC differ from rights of
the shareholders of Peoples with respect to certain important matters,
including, but not limited to, their rights to remove directors, cumulate votes
for the election of directors, act by written consent, amend the charter and
bylaws, submit shareholder proposals or nominations of director candidates,
dissent with respect to their shares, call special shareholder meetings,
inspect corporate records, and fill vacancies on the board of directors and
with respect to the rights of the holders of debt securities, the required
shareholder vote as to certain matters, indemnification provisions, and
statutory and other restrictions on certain share acquisitions. For a summary
of these differences, see "Effect of the Merger on Rights of Shareholders."
SHAREHOLDERS' DISSENTERS' RIGHTS
Under the Mississippi Business Corporation Act ("MBCA") holders of
Peoples Common Stock
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15
who deliver to Peoples the required written notice of intent to demand payment
for their shares prior to the vote at the Special Meeting and who do not vote
in favor of the Merger and who otherwise comply with the requirements of the
MBCA will have the right to be paid the "fair value" of their shares as
determined under the provisions of the MBCA. SUCH DISSENTERS' RIGHTS WILL BE
LOST, HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF THE MBCA ARE NOT FULLY AND
PRECISELY SATISFIED. See "The Merger--Shareholders' Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that for federal income tax purposes the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and, accordingly, for
federal income tax purposes, no gain or loss will be recognized by either
Peoples or FTNC as a result of the Merger and Peoples shareholders will not
recognize gain or loss upon the receipt of FTNC Common Stock in exchange for
Peoples Common Stock, except to the extent of any cash received in lieu of
fractional shares. Consummation of the Merger is dependent upon, among other
conditions, receipt by each of FTNC and Peoples of an opinion of counsel to
FTNC, dated as of the Effective Date, substantially to this effect. See "The
Merger -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
FTNC has delivered a notice pursuant to section (B)(5) of Article V of
the Agreement so that the Merger will be accounted for under the purchase
method of accounting under GAAP. See "The Merger -- Accounting Treatment."
MARKET PRICES OF COMMON STOCK
The FTNC Common Stock is included for quotation on the Nasdaq Stock
Market's National Market (symbol: FTEN). The following table sets forth the
high and low closing prices of FTNC Common Stock as reported on the Nasdaq
Stock Market on a quarterly basis since 1992 through ______, 1995.
1995 1994 1993
---------------- ------------------------------------ ------------------------------------
1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- --- --- --- --- --- ---
47 1/2 47 3/4 45 1/4 39 3/4 40 1/2 43 1/2 47 43 1/4
41 1/4 43 1/2 37 3/4 37 3/8 36 1/4 38 7/8 37 3/4 36 1/8
There is no established public trading market for Peoples Common
Stock, and trading in such shares is extremely sporadic. Management of Peoples
occasionally becomes aware of the price at which Peoples Common Stock is
transferred. Since January 1, 1993 through the date of this Proxy
Statement-Prospectus, management of Peoples is aware of occasional sales
transactions for shares of Peoples Common Stock at per share prices of
approximately $60.00.
The following table sets forth the closing price per share of FTNC
Common Stock and the equivalent per share price for Peoples Common Stock giving
effect to the Merger as of October 18, 1994, the last business day preceding
public announcement of the execution of the Agreement; and as of _____,
- 11 -
16
1995 the last practicable date prior to the mailing of this Proxy
Statement-Prospectus. The equivalent price per share of Peoples Common Stock
at each specified date represents the closing price of a share of FTNC Common
Stock on such date multiplied by 3.1658 and _____, respectively, assuming that
to be the Exchange Ratio provided for in the Agreement. The most recent sale
price known to management of Peoples in a transaction on or before October 18,
1994, for a sale of Peoples Common Stock was $60.00 per share on June 8, 1994.
FTNC Equivalent Price
Common Stock Per Peoples Share
------------ --------------------
October 18, 1994 $44.75 $141.67
, 1995
- ---------
Peoples shareholders are advised to obtain current market quotations
for FTNC Common Stock. The market price of FTNC Common Stock at the Effective
Date may be higher or lower than the market price at the time the Agreement was
executed, at the date of mailing of this Proxy Statement-Prospectus, at the
time of the Special Meeting, or at the time of calculation of the Exchange
Ratio.
EQUIVALENT AND PRO FORMA SHARE DATA
The following table presents selected comparative unaudited per share
data for FTNC Common Stock and Peoples Common Stock on a historical basis and
for FTNC Common Stock on a pro forma combined basis and Peoples Common Stock on
a pro forma equivalent basis giving effect to the Merger on a purchase
accounting basis. The data is not necessarily indicative of the results of the
future operations of the combined entity or the actual results that would have
occurred had the Merger been consummated prior to the periods indicated. For a
description of the purchase accounting basis with respect to the Merger and the
related effects on the historical financial statements of FTNC, see "The Merger
- -- Accounting Treatment." The information is derived from and should be read
in conjunction with the consolidated historical financial statements of FTNC
and Peoples, including the related notes thereto, contained herein or
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference," "Index to Pro Forma Financial Information," and "Index to Peoples
Financial Information."
- 12 -
17
EQUIVALENT AND PRO FORMA SHARE DATA (UNAUDITED)
Nine Months Ended Twelve Months Ended
----------------- -------------------
September 30, 1994 December 31, 1993
------------------ -----------------
Income Per Common Share:(1)
FTNC $3.40 $3.31
Peoples 8.84 10.83
FTNC pro forma 3.42 3.34
Peoples pro forma equivalent 10.83 10.57
Fully Diluted Income Per Common Share:(1)
FTNC $3.35 $3.26
Peoples 8.84 10.83
FTNC pro forma 3.37 3.29
Peoples pro forma equivalent 10.67 10.42
Dividends Declared Per Common Share:(2)
FTNC $1.26 $1.50
Peoples -- 3.50
FTNC pro forma 1.26 1.50
Peoples pro forma equivalent 3.99 4.75
Book Value Per Common Share (end of period):(3)
FTNC $23.35 $21.65
Peoples 83.14 80.45
FTNC pro forma 23.22 21.52
Peoples pro forma 73.51 68.13
(1) Pro forma income per share is calculated using combined historical
income for FTNC and Peoples adjusted for purchase accounting treatment
divided by the average pro forma common shares of the combined entity.
The average pro forma common shares of the combined entity have been
calculated by using FTNC's historical average shares because the FTNC
shares to be exchanged for the shares of Peoples have been repurchased
in contemplation of the acquisition. The Peoples pro forma equivalent
income per share amounts are computed by multiplying the FTNC pro
forma amounts by the Exchange Ratio.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC. Peoples pro forma equivalent dividends per share represent
such amounts multiplied by the Exchange Ratio.
(3) FTNC pro forma book value per common share is based upon the
historical total common equity of the combined entity divided by the
FTNC common shares outstanding because the FTNC shares to be exchanged
for the Peoples Common Stock have been repurchased in contemplation of
the acquisition.
SELECTED FINANCIAL DATA AND RATIOS
The following tables present for FTNC and Peoples, on a historical
basis and on a pro forma combined basis, giving effect to the Merger on a
purchase accounting basis, selected unaudited consolidated financial data and
ratios. This information is based on the consolidated financial statements of
FTNC and Peoples included herein or incorporated herein by reference and should
be read in conjunction therewith and with the notes thereto. The data is not
necessarily indicative of the results of future operations of combined entity
or the actual results that would have occurred had the Merger been consummated
prior to the periods indicated. See "Incorporation of Certain Documents by
Reference," "Index to Pro Forma Financial Information," and "Index to Peoples
Financial Information."
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18
SELECTED FINANCIAL DATA AND RATIOS (UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Twelve Months Ended
September 30, 1994 December 31, 1993
------------------ -------------------
Total Interest Income and Other Income:
FTNC $ 790,303 $ 959,789
Peoples 5,250 6,845
Purchase Accounting Adjustments (670) (572)
FTNC pro forma 794,883 966,062
Net Income Applicable to Common Stock:
FTNC $ 109,248 $ 106,082
Peoples 1,176 1,440
Purchase Accounting Adjustments (667) (583)
FTNC pro forma 109,757 106,939
Net Income per Common Share:
FTNC $ 3.40 $ 3.31
Peoples 8.84 10.83
FTNC pro forma (1) 3.42 3.34
Dividends Declared per Common Share
FTNC $ 1.26 $ 1.50
Peoples --- 3.50
FTNC pro forma (2) 1.26 1.50
Total Assets (end of period):
FTNC $ 10,446,866 $ 10,366,697
Peoples 97,528 86,715
Purchase Accounting Adjustments (15,277) (14,920)
FTNC pro forma 10,529,117 10,438,492
Long-Term Debt and Capital Leases:
FTNC $ 92,311 $ 92,723
Peoples --- ---
FTNC pro forma $ 92,311 $ 92,723
Performance Ratios:
Return on Average Assets
FTNC 1.45% 1.11%
Peoples 1.85 1.69
FTNC pro forma 1.45 1.11
Return on Average Shareholders' Equity
FTNC 20.12% 16.07%
Peoples 15.70 14.10
FTNC pro forma 19.93 15.95
Shareholders' Equity to Total Assets
FTNC 7.20% 6.69%
Peoples 11.34 12.34
FTNC pro forma 7.10 6.60
(1) Pro forma income per share is calculated using combined historical
income for FTNC and Peoples adjusted for purchase accounting treatment
divided by the average pro forma common shares of the combined entity.
The average pro forma common shares of the combined entity have been
calculated by using FTNC's historical average shares because the FTNC
shares to be exchanged for the shares of Peoples Commercial Services,
Inc. have been repurchased in contemplation of the acquisition.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC.
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19
THE SPECIAL MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of
Peoples Common Stock is accompanied by a proxy card furnished in connection
with the Peoples Board's solicitation of proxies for use at the Special Meeting
and at any adjournments or postponements thereof. The Special Meeting is
scheduled to be held at 2:00 p.m., local time, on ______________, 1995, at the
main office of Peoples, 207 E. Main Street, Senatobia, Mississippi. Only
holders of record of Peoples Common Stock at the close of business on
_____________, 1995 are entitled to receive notice of and to vote at the
Special Meeting. At the Special Meeting, shareholders will consider and vote
upon (a) a proposal to approve the Agreement and (b) such other matters as may
properly be brought before the Special Meeting or any adjournments or
postponements thereof.
HOLDERS OF PEOPLES COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO PEOPLES IN THE
ENCLOSED, POSTAGE PAID ENVELOPE.
Any holder of Peoples Common Stock who has delivered a proxy may
revoke it any time before it is voted by attending the Special Meeting and
voting in person at the meeting or by giving notice of revocation in writing or
submitting a signed proxy card bearing a later date to Peoples, at the main
office, 207 E. Main Street, Senatobia, Mississippi 38668, Attention: Secretary,
provided such notice or proxy is actually received by Peoples before the vote
of shareholders. The shares of Peoples Common Stock represented by properly
executed proxy cards received at or prior to the Special Meeting and not
subsequently revoked will be voted as directed by the shareholders submitting
such proxies. If instructions are not given, proxy cards received will be
voted FOR approval of the Agreement. If any other matters are properly
presented at the Special Meeting for consideration, the persons named in the
Peoples proxy card enclosed herewith will have discretionary authority to vote
on such matters in accordance with their best judgment. The Peoples Board is
unaware of any matter to be presented at the Special Meeting other than the
proposal to approve the Agreement.
The cost of soliciting proxies from holders of Peoples Common Stock
will be borne by Peoples. Such solicitation will be made by mail but also may
be made by telephone or in person by the directors, officers and employees of
Peoples (who will receive no additional compensation for doing so). In
addition, Peoples will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their
principals.
PEOPLES SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of Peoples Common Stock entitled to vote at the Special Meeting is
required in order to approve the Agreement. Therefore, a failure to return a
properly executed proxy card or to vote in person at the Special Meeting will
have the same effect as a vote against the Agreement. As of the Peoples Record
Date, there were 133,000 shares of Peoples Common Stock outstanding and
entitled to vote at the Special Meeting, with each share being entitled to one
vote.
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A majority of the outstanding shares entitled to vote at the Special
Meeting constitutes a quorum for purposes of that meeting. An "abstention"
will be considered present for quorum purposes, but will have the same effect
as a vote "against" the proposal to approve the Agreement. Broker "non votes"
will not be considered present for quorum purposes and will have the same
effect as a vote "against" the proposal to approve the Agreement.
As of the Peoples Record Date, the directors and executive officers of
Peoples and their affiliates beneficially owned a total of 15,288 shares or
approximately 11.5% of the outstanding shares of Peoples Common Stock. Peoples
has been advised that such directors and executive officers intend to vote
their shares in favor of approval of the Agreement.
As of the Peoples Record Date, FTNC and its subsidiaries owned no
shares of Peoples Common Stock, and the directors and executive officers of
FTNC beneficially owned no shares of Peoples Common Stock.
RECOMMENDATION
FOR THE REASONS DESCRIBED BELOW, THE PEOPLES BOARD HAS UNANIMOUSLY
APPROVED THE AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTEREST OF PEOPLES
AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF PEOPLES VOTE FOR
APPROVAL OF THE AGREEMENT. IN MAKING ITS RECOMMENDATION TO SHAREHOLDERS, THE
PEOPLES BOARD CONSIDERED, AMONG OTHER THINGS, THE OPINION OF SOUTHARD THAT THE
TERMS OF THE AGREEMENT ARE FAIR TO THE HOLDERS OF PEOPLES COMMON STOCK FROM A
FINANCIAL POINT OF VIEW. SEE "THE MERGER -- BACKGROUND OF AND REASONS FOR THE
MERGER" AND "-- OPINION OF FINANCIAL ADVISER."
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Agreement, is qualified in its entirety by
reference to the Agreement, which is incorporated herein by reference and
attached hereto as Appendix "A." Peoples shareholders are urged to read
carefully the Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background. In early July of 1994, Elbert L. Thomas,Jr., a senior
vice president of FTNC, contacted Leland Gough, President of Peoples, to
explore the possibility of a merger between FTNC and Peoples. On July 25,
1994, a meeting was held at the request of FTNC between the Peoples Board and
senior management officials of Peoples and John C. Kelley, Jr.,
President-Memphis Banking Group, First Tennessee Bank, and Mr. Thomas. The
purpose of the meeting was for FTNC to present a proposal for a potential
acquisition of Peoples by FTNC. Following that meeting, discussions took place
between certain Board members and senior management officials of Peoples and
FTNC which resulted in FTNC submitting an indication of interest on August 5,
1994 to acquire Peoples. On August 16, 1994, Peoples retained counsel to
assist it in negotiations with FTNC. More negotiations ensued and on August
31, 1994, a confidentiality agreement was executed and was followed by an
exchange of information and discussions between FTNC and Peoples relative to
the proposed transaction. On October 12, 1994, the Peoples Board met for
purposes of considering and acting on a proposed definitive agreement between
FTNC and Peoples. During that meeting, Peoples heard a presentation from and
received the written opinion of Southard setting forth that the terms of the
proposed definitive agreement were fair to the
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holders of Peoples Common Stock from a financial point of view. The Peoples
Board instructed senior management and counsel for Peoples to further negotiate
certain provisions with regard to the proposed definitive agreement, and on
October 14, 1994, the Peoples Board met for purposes of considering and acting
upon the Agreement as more fully negotiated. Based upon the opinion of
Southard (which was updated to include its analysis of the Agreement) and other
factors as described below, the Peoples Board unanimously approved the
Agreement at its meeting on October 14, 1994. The report of Southard is
described below in the section entitled "Opinion of Financial Advisor."
At a special meeting held on October 19, 1994, the FTNC Board
unanimously approved the Agreement.
Reasons for the Merger. In reaching its determination that the Merger
and the Agreement are fair to, and in the best interest of, Peoples and its
shareholders, the Peoples Board consulted with its advisers, as well as with
Peoples management, and considered a number of factors, including, without
limitation, the following:
a. The Peoples Board's familiarity with and review of Peoples'
business, operations, earnings and financial condition;
b. The Peoples Board's belief that the terms of the Agreement are
attractive in that the Agreement allows Peoples shareholders
to become shareholders in FTNC, an institution which is the
largest bank holding company headquartered in the area, whose
stock is traded over the Nasdaq Stock Market's National
Market, and the recent earnings performance of FTNC;
c. FTNC's wide range of banking products and services and its
dividend payment history;
d. The Peoples Board's belief based upon analysis of the
anticipated financial effects of the Merger, that upon
consummation of the Merger, FTNC and its banking subsidiaries
would be well capitalized institutions, the financial
positions of which would be well in excess of all applicable
regulatory capital requirements;
e. The current and prospective economic and regulatory
environment and competitive constraints facing the banking
industry and financial institutions in Peoples' market area;
f. The recent business combinations involving financial
institutions, either announced or completed, during the past
twelve months in the United States, the State of Mississippi
and contiguous states and the effect of such combinations on
competitive conditions in Peoples' market area; and
g. The expectation that the Merger will generally be a tax-free
transaction to Peoples and its shareholders. (See "Certain
Federal Income Tax Consequences").
The Peoples Board did not assign any specific or relative weight to
the foregoing factors in their considerations.
OPINION OF FINANCIAL ADVISER
Peoples retained Southard to render its opinion as to the fairness,
from a financial point of view, to the holders of Peoples Common Stock of the
consideration to be paid in the Merger. In connection with this engagement,
Southard evaluated the
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financial terms of the Merger, but was not asked to, and did not, recommend the
specific ratio of exchange between FTNC Common Stock and Peoples Common Stock
and did not assist in the Merger negotiations. The ratio of exchange was
determined by the FTNC and Peoples Boards of Directors after arm's length
negotiations. Peoples did not place any limitations on the scope of Southard's
investigation or review.
Southard is a financial valuation consulting firm, specializing in the
valuation of closely-held companies and financial institutions. Since its
founding in 1987, Southard has provided approximately 1,000 valuation opinions
for clients in 40 states. Further, Southard provides valuation services for
approximately 100 financial institutions annually.
Southard provided the Peoples Board with a fairness opinion letter and
supporting documentation and presented its conclusions at a Special Meeting of
the Board of Directors. The full text of the opinion letter of Southard, dated
October 12, 1994, which sets forth certain assumptions made, matters
considered, and limitations on the review performed, is attached hereto as
Appendix "B" and is incorporated herein by reference. Southard has
supplemented its opinion by letter dated January 24, 1995, a copy of which is
included in Appendix "B". The summary of the opinion of Southard set forth in
this Proxy Statement-Prospectus is qualified in its entirety by reference to
the opinion.
In arriving at its opinion, Southard conducted interviews with
officers of FTNC and Peoples, and reviewed the documents indicated in the
fairness letter. Southard did not independently verify the accuracy and/or the
completeness of the financial and other information reviewed in rendering its
opinion. Southard did not, and was not requested to, solicit third party
indications of interest in acquiring any or all the assets of Peoples.
In connection with rendering its opinion, Southard performed a variety
of financial analyses, which are summarized below. Southard believes that its
analyses must be considered as a whole and that considering only selected
factors could create an incomplete view of the analyses and the process
underlying the opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not susceptible to partial
analyses or summary description. In its analyses, Southard made numerous
assumptions, many of which are beyond the control of Peoples and FTNC. Any
estimates contained in the analyses prepared by Southard are not necessarily
indicative of future results or values, which may vary significantly from such
estimates. Estimates of value of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. None of the analyses performed by Southard was assigned a
greater significance than any other.
Dividend Yield Analysis. In evaluating the impact of the proposed
Merger on the shareholders of Peoples, Southard reviewed the dividend paying
histories of Peoples and FTNC. Based upon this review, it is reasonable to
expect that the shareholders of Peoples, in total, will receive dividends at or
above the level currently paid by Peoples after the Merger is completed
(defined as post-Merger combined dividends per share times the Exchange Ratio).
Based upon 1994 expected dividend payments for FTNC and Peoples and an exchange
ratio of 3.1658 shares of FTNC Common Stock for each share of Peoples Common
Stock, the shareholders of Peoples would see an increase in dividends of 52.0%.
Earnings Yield Analysis. In evaluating the impact of the proposed
Merger on the shareholders of Peoples, Southard determined that, based upon
exchange ratio of 3.1658 shares of FTNC Common
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Stock for each share of Peoples Common Stock, the shareholders of Peoples would
have seen an increase of 24.5% in their share of earnings based upon reported
1993 earnings of FTNC and Peoples. Based upon the average of independent third
party estimates of FTNC's 1994 earnings and Southard's estimate of Peoples'
1994 earnings, Peoples' shareholders would see an increase of about 30.0% over
what Peoples would be expected to earn in 1994, absent the Merger.
Book Value Analysis. In evaluating the impact on the proposed Merger
on the shareholders of Peoples, Southard determined that the shareholders of
Peoples would have seen dilution in the book value of their investment had the
Merger been consummated prior to June 30, 1994. Reported book value of Peoples
at June 30, 1994 was $80.81 per share. Reported book value of FTNC at June 30,
1994 was $22.77 per share. Had the Merger been consummated prior to June 30,
1994, each former Peoples share would have book value of $72.09 (FTNC June 30,
1994 book value of $22.77 per share times 3.1658 shares). This represents
89.21% of Peoples book value at year-end.
Analysis of Market Transactions. Based upon the Merger terms and an
FTNC Average Stock Price of $47.50, Peoples shareholders would receive 186.1%
of June 30, 1994 book value per share, and 13.89 times reported 1993 earnings.
Based upon the review conducted by Southard, the pricing for Peoples in the
Merger is within the range of multiples seen in recent bank acquisitions.
Fundamental Analysis. Southard reviewed the financial characteristics
of Peoples and FTNC with respect to profitability, capital ratios, liquidity,
asset quality, and other factors. Southard compared Peoples and FTNC to a
universe of publicly traded banks and bank holding companies and to peer groups
prepared by the Federal Financial Institutions Examination Council (FFIEC).
Southard found that the post-Merger combined entity will have capital ratios
and profitability ratios near those of the public peer group.
Liquidity. Unlike Peoples stock, shares of FTNC Common Stock to be
received in the Merger will be registered with the SEC, and FTNC Common Stock
is actively traded on the Nasdaq Stock Market. Further, except in the case of
officers, directors, and certain large shareholders of Peoples ("affiliated
parties"), FTNC shares received will be freely tradeable with no restrictions.
For rendering its opinion, Southard received a fee of $7,500, plus
reasonable out-of-pocket expenses. Southard has never been previously engaged
by Peoples or FTNC. Neither Southard nor its principal owns an interest in the
securities of Peoples or FTNC.
TERMS OF THE MERGER
At the Effective Date, Peoples will merge with and into FTNC, with
FTNC being the surviving entity. As a result of the Merger, Peoples Bank will
become a wholly-owned subsidiary of FTNC. Upon consummation of the Merger, each
share of Peoples Common Stock outstanding immediately prior to the Effective
Date (other than shares held directly or indirectly by FTNC or any subsidiary
of FTNC, except in a fiduciary capacity or in satisfaction of a debt previously
contracted, and other than shares held in the treasury of Peoples, which shares
shall be canceled, retired and cease to exist by virtue of the Merger and
without any payment made in respect thereof) will be converted into the right
to receive shares of FTNC Common Stock. Each share of Peoples Common Stock
issued and outstanding at the Effective Date will become and be converted into
the right to receive the number of shares of FTNC Common Stock equal to
Exchange Ratio determined as follows:
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If the FTNC Common Stock Average Price is equal to or greater
than $42 per share, then the Exchange Ratio will be 3.1658.
If the FTNC Common Stock Average Price is less than $42, the
Exchange Ratio will be the product of (y) 3.1658 multiplied by
(z) the quotient of (1) $42.00 divided by (2) the FTNC Common
Stock Average Price, subject to FTNC's right to terminate the
Agreement if the FTNC Common Stock Average Price is less than
$38.00 per share.
"FTNC Common Stock Average Price" means the average of the closing
prices of the FTNC Common Stock as reported on the Nasdaq Stock Market for the
ten (10) business days immediately prior to the fifth (5th) business day
preceding the Effective Date (the "Calculation Period"). A business day shall
be a day on which the Nasdaq Stock Market is generally open for trading.
If the Effective Date had been ________, 1995, the Exchange Ratio
would have been _____.
Any shares of Peoples Common Stock held directly or indirectly by
Peoples other than in a fiduciary capacity or in satisfaction of a debt
previously contracted will be cancelled and retired and will cease to exist as
of the Effective Date of the Merger and no payment will be made with respect
thereto. No fractional shares of FTNC Common Stock will be issued in
connection with the Merger. In lieu of fractional shares, FTNC will make a
cash payment equal to the fractional interest which a Peoples shareholder would
otherwise receive multiplied by either the closing price of FTNC Common Stock
on the Effective Date (if the Exchange Ratio is 3.1658) or the FTNC Common
Stock Average Price used to calculate the Exchange Ratio (if the Exchange Ratio
is other than 3.1658). If prior to the Effective Date the outstanding shares
of FTNC Common Stock are increased, decreased, changed into or exchanged for a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, stock split or reverse stock split, or if a stock
divided is declared with a record date between the date of the Agreement and
the Effective Date, or by reason of a combination of shares in a transaction in
which FTNC is effectively acquired, or other like changes in FTNC's
capitalization have occurred, then the Exchange Ratio will be adjusted
accordingly.
EFFECTIVE DATE
The Effective Date of the Merger will be the date the certificate of
merger is filed in accordance with applicable law or on such date as the
certificate may specify. Unless otherwise mutually agreed upon by FTNC and
Peoples, the Effective Date will occur on the last business day of the month
during which the expiration of all applicable waiting periods in connection
with governmental approvals occurs and all conditions to the consummation of
the Agreement have been satisfied or waived or, at FTNC's option, the first
business day of the next succeeding month.
SURRENDER OF CERTIFICATES
As promptly as practicable after the Effective Date, FTNC's Exchange
Agent will mail to each former holder of record of Peoples Common Stock a form
of letter of transmittal, together with instructions for the exchange of such
holder's certificates representing shares of Peoples Common Stock for
certificates representing shares of FTNC Common Stock.
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HOLDERS OF PEOPLES COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE
EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates for
Peoples Common Stock together with a properly completed letter of transmittal
and any other required documents, there will be issued and mailed to the holder
of Peoples Common Stock surrendering such items a certificate or certificates
representing the number of shares of FTNC Common Stock to which such holder is
entitled and, where applicable, a check for the amount representing any
fractional share determined in the manner described above.
No dividend or other distribution payable after the Effective Date
with respect to FTNC Common Stock will be paid to the holder of any
unsurrendered Peoples certificate until the holder properly surrenders such
certificate(s) together with all required documents, at which time the holder
will be entitled to receive all previously withheld dividends and
distributions, without interest.
After the Effective Date, there will be no transfers on Peoples stock
transfer books of shares of Peoples Common Stock which were issued and
outstanding at the Effective Date and converted pursuant to the Merger into the
right to receive FTNC Common Stock. If certificates representing shares of
Peoples Common Stock are presented for transfer after the Effective Date, they
will be returned to the presenter together with a form of letter of transmittal
and exchange instructions.
Neither FTNC nor Peoples nor any other person will be liable to any
former holder of Peoples Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for Peoples Common Stock has been lost, stolen or
destroyed, FTNC will issue the consideration properly payable in accordance
with the Agreement upon receipt of appropriate evidence as to such loss, theft
or destruction, appropriate evidence as to the ownership of such certificate by
the claimant, and appropriate and customary indemnification including, when
appropriate, the posting of a bond.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and
warranties by Peoples and by FTNC, which do not survive the Effective Date,
relating to, among other things: organization, good standing, and authority;
capitalization; validity and enforceability of the Agreement and absence of
conflicts with law and other documents; financial statements and undisclosed
liabilities; no adverse change in financial condition; taxes; litigation;
material contracts; employee benefit plans; properties; regulatory approvals;
loan loss reserves; permits; collective bargaining agreements; brokerage; full
disclosure in proxy statement- prospectus; environmental matters; and
consistency of its credit approval and administration and documentation
procedures and practices with the standards normally applied by the Comptroller
of the Currency and the FDIC and compliance with applicable state and federal
banking and bank holding company laws and regulations.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of FTNC and Peoples to effect the Merger
are subject to the satisfaction of the following conditions prior to the
Effective Date: (a) approval of the Agreement and
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the transactions contemplated thereby by the affirmative vote of the holders of
a majority of the outstanding shares of Peoples Common Stock entitled to vote
thereon; (b) receipt by the Peoples Board of a fairness opinion from Southard
Financial, which has been received; (c) receipt of all regulatory consents and
approvals necessary to consummate the transactions contemplated by the
Agreement including the Federal Reserve Board and the Mississippi Commissioner
and the expiration of any statutory waiting periods (provided, however, that no
such consent or approval referred to herein will be deemed to have been
received if it includes any conditions or requirements which would reduce the
benefits of the transactions contemplated by the Agreement to such a degree
that FTNC would not have entered into the Agreement had such conditions or
requirements been known at the date thereof); (d) the satisfaction of all other
requirements prescribed by law necessary to the consummation of the
transactions contemplated by the Agreement; (e) neither FTNC nor Peoples is
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger; (f) no
statute, rule, regulation, order, injunction, or decree has been enacted,
entered, promulgated or enforced by any governmental authority which prohibits
or makes illegal consummation of the Merger or which imposes restrictions or
conditions which would reduce the benefits of the Merger to such a degree that
FTNC or Peoples (as to any condition which directly affects Peoples) would not
have entered into the Agreement had such conditions been known at the date
thereof; (g) the Registration Statement of which this Proxy Statement-Prospectus
forms a part has become effective and no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Securities and Exchange Commission; and
(h) receipt by each party from counsel of a legal opinion to the effect that the
Merger qualifies as a tax-free reorganization under the provisions of Section
368(a) of the Internal Revenue Code.
The obligations of FTNC to effect the Merger are further subject to
the satisfaction (or waiver by FTNC) of the following conditions: (a) FTNC
will have received from Peoples' independent certified public accountants
certain customary letters with respect to certain financial information of
Peoples; (b) FTNC will have received a customary legal opinion, dated the date
of closing, from counsel to Peoples; (c) each of the representations,
warranties and covenants of Peoples set forth in the Agreement will, in all
material (generally, as to Peoples, $500,000 on a pre-tax basis as to
environmental matters and $250,000 on a pre-tax basis as to other matters)
respects, be true on, or complied with by, the Effective Date and FTNC will
have received a certificate signed by the President of Peoples to such effect
[provided, however, that any effect on Peoples as a result of any action taken
by Peoples pursuant to its obligations under the Agreement to, consistent with
GAAP, modify and change its loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) (see
"Conduct of Business Pending the Merger") will be disregarded for purposes of
determining the truth or correctness of any representation or warranty of
Peoples and for purposes of determining whether any conditions are satisfied];
(d) FTNC will have received all necessary state securities laws and "Blue Sky"
permits; (e) unless FTNC delivers to Peoples a Notice of Election for Purchase
Accounting, which FTNC had delivered, FTNC will have received a letter dated as
of the Effective Date from its independent certified public accountants to the
effect that the Merger will qualify for pooling-of-interests accounting
treatment if closed and consummated in accordance with the Agreement; (f) no
litigation or proceeding will be pending against either FTNC or Peoples or any
of their subsidiaries by any governmental agency seeking to prevent
consummation of the transactions contemplated by the Agreement nor is any
litigation or proceeding pending which in the reasonable judgment of the CEO of
Peoples is likely to have a material adverse effect (defined in subparagraph
(c) above) on Peoples; (g) each director, executive officer and other affiliate
of Peoples will have delivered to FTNC a written agreement satisfactory to FTNC
providing, among other matters, that such person will not sell or otherwise
dispose of any shares of FTNC Common Stock received in the Merger except in
compliance with applicable securities laws and
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will not sell, pledge, transfer or otherwise dispose of or take any action to
reduce his risk with respect to any shares of Peoples Common Stock or FTNC
Common Stock during any period when such sale, pledge, transfer, disposition or
action would disqualify the Merger for pooling-of-interests accounting
treatment (the restriction on sales that would disqualify the Merger for
pooling-of-interests accounting treatment will not apply since it is FTNC's
intention to account for the Merger as a purchase); and (h) on the Effective
Date, Peoples' shareholders equity, with certain adjustments described in
Section V (B)(8) of the Agreement, will not be less than $11 million.
The obligations of Peoples to effect the Merger are further subject to
the satisfaction (or waiver by Peoples) of the following conditions: (a)
Peoples will have received a customary legal opinion, dated the date of
closing, from counsel to FTNC; (b) each of the representations, warranties and
covenants of FTNC set forth in the Agreement will, in all material respects, be
true on, or complied with by, the Effective Date and Peoples will have received
a certificate signed by the President or Chief Financial Officer of FTNC to
such effect; and (c) no litigation or proceeding will be pending against either
FTNC or Peoples or any of their subsidiaries by any governmental agency seeking
to prevent consummation of the transactions contemplated by the Agreement nor
is any litigation or proceeding pending which in the reasonable judgment of the
Chief Executive Officer of FTNC is likely to have a material adverse effect on
FTNC.
No assurance can be provided as to when, if ever, the regulatory
consents and approvals necessary to consummate the Merger will be obtained (or,
if so obtained, that such consents and approvals will not contain conditions or
requirements which cause such approvals to fail to satisfy the conditions to
the Merger set forth in the Agreement) or whether all of the other conditions
precedent to the Merger will be satisfied or waived by the party permitted to
do so. See "Regulatory Approvals." If the Merger is not effected on or before
October 19, 1995, the Agreement may be terminated, and the Merger abandoned, by
a vote of a majority of the Board of Directors of either FTNC or Peoples,
unless the failure to effect the Merger by such date is due to the breach of
the Agreement by the party seeking to terminate the Agreement.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board
under Section 3 of the Bank Holding Company Act of 1956, as amended (the
"BHCA"), which requires that the Federal Reserve Board take into consideration,
among other factors, the financial and managerial resources and future
prospects of the institutions and the convenience and needs of the communities
to be served. Application for such approval has been filed with the Federal
Reserve Board. The BHCA prohibits the Federal Reserve Board from approving the
Merger if it would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of banking
in any part of the United States, or if its effect in any section of the
country may be substantially to lessen competition or to tend to create a
monopoly, or if it would in any other manner be a restraint of trade, unless
the Federal Reserve Board finds that the anticompetitive effects of the Merger
are clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Federal Reserve Board has the authority to deny an application if
it concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act of 1977. Under the BHCA, the Merger may not be
consummated before the thirtieth day after the date of the Federal Reserve
Board approval, during which time the United States Department of Justice may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise.
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The Merger is also subject to approval by the Mississippi
Commissioner. Application for such approval has been filed.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "Conditions to Consummation of the Merger" and "Waiver and
Amendment; Termination."
THERE CAN BE NO ASSURANCE THAT THE REGULATORY AUTHORITIES DESCRIBED
ABOVE WILL APPROVE THE MERGER, AND IF THE MERGER IS APPROVED, THERE CAN BE NO
ASSURANCE AS TO THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT
ANY SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES
SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF THE MERGER
SET FORTH IN THE AGREEMENT. THERE CAN LIKEWISE BE NO ASSURANCE THAT THE
DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE MERGER, OR IF SUCH A CHALLENGE IS
MADE, AS TO THE RESULT THEREOF.
CONDUCT OF BUSINESS PENDING MERGER
The Agreement contains certain restrictions on the conduct of Peoples'
business pending consummation of the Merger. In particular, the Agreement
provides that, without the prior written consent of FTNC, Peoples may not,
among other things, (a) make, declare or pay any dividend on the Peoples Common
Stock except for its usual and customary annual dividend not to exceed $3.50
per share or make any distribution on, or directly or indirectly combine,
redeem, reclassify or purchase or otherwise acquire any shares of its capital
stock (other than in a fiduciary capacity or in respect of a debt previously
contracted in good faith) or authorize the creation or issuance of or issue or
sell any additional shares of Peoples or Peoples Bank Common Stock, or any
options, calls or commitments relating to such stock; or (b) merge or
consolidate or permit any significant subsidiary to merge or consolidate with
any other entity or engage in any similar transactions. In addition, without
the prior written consent of FTNC, which will not be unreasonably withheld,
Peoples will not and will not permit any subsidiary to (a) pay any bonus to, or
increase the rate of compensation of, any of its directors, officers or
employees except in the ordinary course of business consistent with past
practice; (b) enter into or modify or permit any subsidiary to enter into or
modify (except as may be required by law and except for renewal of any existing
plan in the ordinary course of business consistent with past practice) any
employee benefit plan covering any of Peoples' directors, officers or other
employees; (c) except as may be required to, consistent with GAAP, modify and
change its loan, litigation and real estate valuation policies and practices so
as to be applied consistently on a mutually satisfactory basis with those of
FTNC, substantially modify the manner in which it has conducted its business,
taken as a whole, or amend its articles of incorporation or bylaws; (d) except
for disposition of loans and cash equivalent assets in the ordinary course of
banking business, sell, dispose of or discontinue or permit any subsidiary to
sell, dispose or discontinue any of its business, assets (including investment
securities) or property; (e) except for the acquisition of loans, investment
securities and cash equivalent assets in the ordinary course of its banking
business, acquire (other than through foreclosure or satisfaction of
indebtedness) any assets or business that is material to such party; (f) take
any other action not in ordinary course of business; or (g) directly or
indirectly agree to take any of the foregoing actions.
The Agreement also contains various customary covenants and
agreements, including agreement to cooperate, use best efforts and obtain
appropriate consents. Also, Peoples will, consistent with GAAP, modify its
loan, litigation, and real estate valuation policies and practices (including
loan classifications and levels of reserves) so as to be applied consistently
on a mutually satisfactory basis with those of FTNC.
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NO SOLICITATION
Peoples has agreed with FTNC and FTNC has agreed with Peoples in the
Agreement that neither it nor any of its subsidiaries will solicit or encourage
inquiries or proposals with respect to, or, subject to the fiduciary duties of
its directors, furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
material portion of its assets (whether owned by it directly or owned by any of
its subsidiaries), or of a substantial equity interest in, it or any business
combination with it or any of its subsidiaries other than, in the case of FTNC,
a business combination initiated by FTNC or in which FTNC or a company which is
its subsidiary following the transaction is as a practical matter the surviving
corporation. Peoples will notify FTNC immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, it or any of its
subsidiaries; and it has instructed its officers, directors, agents, advisers
and affiliates to comply with the same restrictions.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Date, any provision of the Agreement may be
waived by the party benefitted by the provision or amended or modified
(including the structure of the transaction) by an agreement in writing
approved by the FTNC and Peoples Boards (to the extent allowed by law),
provided that after the vote of the shareholders of Peoples, Article I(B) of
the Agreement, which concerns conversion of the Peoples Common Stock and the
Exchange Ratio, may not be amended or revised.
The Agreement may be terminated at any time prior to the Effective
Date, either before or after its approval by the shareholders of Peoples, as
follows: (a) by the mutual consent of FTNC and Peoples; (b) by either FTNC or
Peoples in the event of a failure by the shareholders of Peoples to approve the
Agreement; (c) by the non-breaching party in the event a material breach of the
Agreement is not cured or curable within 60 days after written notice of such
breach is given to the breaching party; (d) by either FTNC or Peoples in the
event that the Merger has not been consummated by October 19, 1995, unless the
failure to consummate the Merger is due to the breach of the Agreement by the
party seeking to terminate the Agreement; and (e) by FTNC if the FTNC Common
Stock Average Price is less than $38.00 per share, adjusted accordingly for
stock splits, stock dividends, and other changes in FTNC's capitalization,
provided written notice (a "termination notice") is delivered to Peoples within
three business days after the last day of the Calculation Period.
Except as set forth below, in the event of the termination of the
Agreement by either FTNC or Peoples, as provided above, the Agreement will
become void, and there will be no liability on the part of either FTNC or
Peoples or their respective officers or directors, except that such termination
will be without prejudice to the rights of any party arising out of a willful
breach by any other party of any covenant or a willful misrepresentation
contained in the Agreement. If the Merger is not consummated and both an
Initial Triggering Event (as defined below) and a Subsequent Triggering Event
(as defined below) occur prior to a Termination Event (as defined below),
Peoples is required to pay to FTNC liquidated damages in the amount of
$1,000,000.
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For purposes hereof the following terms have the indicated meanings:
"Initial Triggering Event" shall mean any of the following
events or transactions occurring after October 19, 1994:
(1) Peoples shall have entered into an agreement
to engage in an Acquisition Transaction (as hereinafter
defined) with any person (other than FTNC or a subsidiary of
FTNC), or the Peoples Board shall have recommended that the
shareholders of Peoples approve or accept any Acquisition
Transaction (other than that contemplated by the Agreement).
The term "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Peoples
or Peoples Bank, (y) a purchase, lease or other acquisition of
all or any substantial part of the assets of Peoples or
Peoples Bank, or (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the
voting power of Peoples. The term "person" for purposes of
this paragraph shall have the meaning assigned thereto in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations
thereunder;
(2) Any person (other than FTNC, a subsidiary of
FTNC or any fiduciary acting under any employee benefit plan
for FTNC or any of its subsidiaries) shall have acquired
beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of the
Peoples Common Stock (the term "beneficial ownership" having
the meaning assigned thereto in Section 13(d) of the Exchange
Act, and the rules and regulations thereunder);
(3) Any person (other than FTNC or a subsidiary
of FTNC) shall have made a proposal (in writing or orally) to
Peoples or any one or more of its shareholders owning ten
percent (10%) or more (singly or in the aggregate) of the
outstanding shares of Peoples Common Stock that results in or
is a part of an Acquisition Transaction;
(4) After a proposal is made by any person (other
than FTNC or a subsidiary of FTNC) to Peoples or its
shareholders to engage in an Acquisition Transaction, Peoples
shall have breached any covenant or obligation contained in
the Agreement and such breach would entitle FTNC to terminate
the Agreement (without regard to the cure periods provided for
therein) and such breach shall not have been cured within (7)
days; or
(5) Any person (other than FTNC or a subsidiary
of FTNC), shall have filed an application or notice with the
Board of Governors of the Federal Reserve System , or other
federal or state bank regulatory authority, which application
or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
"Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after October 19, 1994:
(1) The acquisition by any person of beneficial
ownership of 25% or more of the then outstanding Peoples
Common Stock; or
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(2) The occurrence of the Initial Triggering
Event described in clause (1) of the definition of "Initial
Triggering Event", except that the percentage referenced in
clause (z) shall be 25%.
"Termination Event" shall mean each of the following:
(1) The Effective Date of the Merger;
(2) Termination of the Agreement in accordance
with the provisions thereof if such
termination occurs prior to the occurrence of
an Initial Triggering Event; or
(3) The passage of 12 months after termination of
the Agreement if such termination follows the
occurrence of an Initial Triggering Event.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Peoples' management and the Peoples Board have
certain interests in the Merger that are in addition to their interests as
shareholders of Peoples generally. The Peoples Board was aware of these
interests and considered them, among other matters, in approving the Agreement
and the transactions contemplated thereby.
Indemnification. Pursuant to the Agreement, FTNC has agreed, among
other things, to (a) indemnify any person who is, has been or becomes, prior to
the Effective Date, a director, officer, employee, fiduciary or agent of
Peoples or any of its subsidiaries against any claims, based upon or arising
out of or pertaining to the Agreement or any of the transactions contemplated
thereby, whether asserted or threatened; and (b) maintain the indemnification
with respect to matters occurring before the Effective Date for such persons
provided by Peoples' articles of incorporation or bylaws for a period of not
less than 3 years following the Effective Date.
SHAREHOLDERS' DISSENTERS' RIGHTS
Any shareholder of Peoples entitled to vote on the Agreement has the
right to receive payment of the fair value of his shares of Peoples Common
Stock upon compliance with Sections 79-4-13.21 and 79-4-13.23 of the MBCA. A
shareholder may not dissent as to less than all of the shares that he
beneficially owns. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such beneficial owner
held of record by such nominee or fiduciary. A beneficial owner asserting
dissenters' rights to shares held on his behalf must submit to Peoples the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights. Any Peoples shareholder
intending to enforce this right must not vote in favor of the Agreement and
must file a written notice of his intent to demand payment for his shares (the
"Objection Notice") with the Corporate Secretary of Peoples either before the
Peoples Special Meeting or before the vote is taken at the meeting. The
Objection Notice must state that the shareholder intends to demand payment for
his shares of Peoples Common Stock if the Merger if effected. A vote against
approval of the Agreement will not, in and of itself, constitute an Objection
Notice satisfying the requirements of Section 79-4-13.21 of the MBCA. A
failure to vote will not constitute a waiver of appraisal rights as long as the
requirements of Sections 79-4-13.01 through 79-4-13.31 of the MBCA are complied
with.
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HOWEVER, ANY SHAREHOLDER WHO EXECUTES A PROXY CARD AND WHO DESIRES TO EFFECT
HIS APPRAISAL RIGHTS MUST MARK THE PROXY CARD "AGAINST" THE PROPOSAL RELATING
TO THE MERGER BECAUSE IF THE PROXY CARD IS LEFT BLANK, IT WILL BE VOTED "FOR"
THE PROPOSAL RELATING TO THE MERGER. If the Agreement is approved by Peoples'
shareholders at the Peoples Special meeting, each shareholder who has filed an
Objection Notice will be notified by Peoples of such approval within 10 days of
the closing of the Merger (the "Dissenters' Notice"). The Dissenters' Notice
will (i) state where dissenting shareholders must (a) send the Payment Demand
(as defined below) and where and when they must (b) deposit their Peoples
Common Stock Certificates (the "Certificates"), (ii) inform holders of
uncertificated shares of Peoples Common Stock of the extent of any restrictions
on the transferability of such shares, (iii) be accompanied by a form for
demanding payment that includes the date of the first announcement to the news
media or to shareholders of the terms of the proposed Merger, (iv) set a date
by which Peoples must receive the Payment Demand, which may not be fewer than
30 or more than 60 days after the date the Dissenters' Notice is delivered, and
(v) be accompanied by a copy of Sections 79-4-13.01 through 79-4-13.31 of the
MBCA. Within the time prescribed in the Dissenters' Notice, a shareholder
electing to dissent must make a demand for payment (the "Payment Demand"),
certify whether he acquired beneficial ownership of the shares of Peoples
Common Stock before October 19, 1994, (the date of the first public
announcement of the terms of the Agreement), and deposit his Certificates in
accordance with the terms of the Dissenters' Notice. Upon filing the Payment
Demand and depositing the Certificates, the shareholder will retain all other
rights of a shareholder until these rights are cancelled or modified by
consummation of the Merger. FAILURE TO COMPLY WITH THESE PROCEDURES WILL CAUSE
THE SHAREHOLDER TO LOSE HIS DISSENTERS' RIGHTS TO PAYMENT FOR THE SHARES.
CONSEQUENTLY, ANY PEOPLES SHAREHOLDER WHO DESIRES TO EXERCISE HIS RIGHTS TO
PAYMENT FOR HIS SHARES IS URGED TO CONSULT HIS LEGAL ADVISER BEFORE ATTEMPTING
TO EXERCISE SUCH RIGHTS.
As soon as the Merger is consummated, or upon receipt of a Payment
Demand, Peoples shall, pursuant to Section 79-4-13.25, pay to each dissenting
shareholder who has complied with the requirements of Section 79-4-13.23 of the
MBCA the amount that Peoples' estimates to be the fair value of the shares of
Peoples Common Stock, plus accrued interest. Section 79-4-13.25 of the MBCA
requires the payment to be accompanied by (i) certain of Peoples' financial
statements, (ii) a statement of Peoples' estimate of fair value of the shares
and explanation of how interest was calculated, (iii) notification of rights to
demand payment, and (iv) a copy of Section 79-4-13.01 through 79-4-13.31 of the
MBCA. As authorized by Section 79-4-13.27, Peoples intends to delay any
payments with respect to any shares (the "after-acquired shares") held by a
dissenting shareholder which were not held by such shareholder on October 19,
1994, the date of the first public announcement of the terms of the Agreement.
When payments are so withheld, Section 79-4-13.27(b) and 79-4-13.28(a) will
require Peoples, after the Merger, to send to the holder of the after-acquired
shares an offer to pay the holder an amount equal to Peoples' estimate of their
fair value plus accrued interest, together with an explanation of the
calculation of interest and a statement of the holder's right to demand payment
under Section 79-4-13.28.
If the Merger is not consummated within 60 days after the date set for
demanding payment and depositing Certificates, Peoples shall return the
deposited Certificates and release the transfer restrictions imposed on
uncertificated shares. If, after returning deposited Certificates and
releasing transfer restrictions, the Merger is consummated, Peoples must send a
new Dissenters' Notice and repeat the payment demand procedure.
If the dissenting shareholder believes that the amount paid by Peoples
pursuant to Section 79-4-13.25 or offered under Section 79-4--13.27 is less
than the fair value of his shares or that the interest due is calculated
incorrectly, or if Peoples fails to make payment (or, if the Merger has not
been consummated, Peoples does not return the deposited Certificates or release
the transfer restrictions
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imposed on uncertificated shares) within 60 days after the date set in the
Dissenters' Notice, then the dissenting shareholder may, within 30 days after
(i) Peoples made or offered payment for the shares or failed to pay for the
shares or (ii) Peoples failed to return deposited Certificates or release
restriction on uncertificated shares timely, notify Peoples in writing of his
own estimate of the fair value of such shares (including interest due) and
demand payment of such estimate (less any payment previously received).
FAILURE TO NOTIFY PEOPLES IN WRITING OF A DEMAND FOR PAYMENT WITHIN 30 DAYS
AFTER PEOPLES MADE OR OFFERED PAYMENT FOR SUCH SHARES WILL CONSTITUTE A WAIVER
OF THE RIGHT TO DEMAND PAYMENT.
If Peoples and the dissenting shareholder cannot agree on a fair price
within 60 days after Peoples receives such a demand for payment, the statute
provides that Peoples will institute judicial proceedings in the Mississippi
Chancery Court in Tate County (the "Court") to fix (i) the fair value of the
shares immediately before consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger, unless such
exclusion would be inequitable and (ii) the accrued interest. The "fair value"
of the Peoples Common Stock could be more than, the same as, or less than that
produced by the Exchange Ratio. Peoples must make all dissenters whose demands
remain unsettled parties to the proceeding and all such parties must be served
with a copy of the petition. The Court may, in its discretion, appoint an
appraiser to receive evidence and recommend a decision on the question of fair
value. The Court is required to issue a judgment for the amount, if any, by
which the fair value of the shares, as determined by the Court, plus interest,
exceeds the amount paid by Peoples or for the fair value, plus accrued
interest, of his after-acquired shares for which Peoples elected to withhold
payment. If Peoples does not institute such proceeding within such 60 day
period, Peoples shall pay each dissenting shareholder whose demand remains
unsettled the respective amount demanded by each shareholder.
The Court will assess the costs and expenses of such proceeding
(including reasonable compensation for and the expenses of the appraiser but
excluding fees and expenses of counsel and experts) against Peoples, except
that the Court may assess such costs and expenses as it deems appropriate
against any or all of the dissenting shareholders if it finds that their demand
for additional payment was arbitrary, vexatious or otherwise not in good faith.
The Court may assess fees and expenses of counsel and experts in amounts the
Court finds equitable: (i) against Peoples if the Court finds that Peoples did
not substantially comply with the relevant requirements of the MBCA or (ii)
against either Peoples or any dissenting shareholder, if the Court finds that
the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith. If the Court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters and
that the fees of such counsel should be assessed against Peoples, the Court may
award reasonable fees to such counsel to be paid out of amounts awarded to
benefitted dissenters.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTION
79-4-13.01 THROUGH 79-4-13.31 OF THE MBCA IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF SUCH PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH SECTIONS, WHICH ARE INCLUDED AS APPENDIX "C" HEREOF.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below represents a summary
of the opinion of Baker, Donelson, Bearman & Caldwell, a Professional
Corporation, counsel to FTNC. It may not be applicable to a shareholder who
acquired his shares of Peoples Common Stock pursuant to the exercise of
employee stock options or rights or otherwise as compensation. Peoples
shareholders are urged to consult their own tax advisers as to the specific tax
consequences to them of the Merger, including the applicability and effect of
federal, state, local and other tax laws.
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General. It is intended that for federal income tax purposes the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code, and that, accordingly, (a) no gain or loss will be recognized by
either FTNC or Peoples as a result of the Merger, (b) no gain or loss will be
recognized by the Peoples shareholders upon the receipt of FTNC Common Stock in
exchange for Peoples Common Stock in connection with the Merger (except as
discussed below with respect to cash received in lieu of a fractional share
interest in FTNC Common Stock); (c) the tax basis of the FTNC Common Stock to
be received by the Peoples shareholders in connection with the Merger will be
the same as the basis in the Peoples Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest in
which cash is received); and (d) the holding period of the FTNC Common Stock to
be received by the Peoples shareholders in connection with the Merger will
include the holding period of the Peoples Common Stock surrendered in exchange
therefor, provided that the Peoples Common Stock is held as a capital asset at
the Effective Date. Consummation of the Merger is dependent upon, among other
conditions, receipt by FTNC and Peoples of an opinion of counsel to FTNC, dated
as of the Effective Date, substantially to this effect.
Consequences of Receipt of Cash in Lieu of Fractional Shares. A
Peoples shareholder who is entitled to receive cash in lieu of a fractional
share interest of FTNC Common Stock in connection with the Merger will
recognize, as of the Effective Date, gain (or loss) equal to the difference
between such cash amount and the shareholder's basis in the fractional share
interest. Any gain (or loss) recognized will be capital gain (or loss) if the
Peoples Common Stock is held by such shareholder as a capital asset at the
Effective Date. Any capital gain (or loss) will be a long-term capital gain
(or loss) if the holding period for the shares of Peoples Common Stock is more
than one (1) year.
No IRS Rulings. The parties do not intend to request a ruling from
the IRS regarding the federal income tax consequences of the Merger. An
opinion of counsel will be furnished to the Peoples shareholders stating that
the Merger should qualify as a "reorganization" within the meaning of Section
368(a) of the Code, but any such opinion of counsel is not binding on the IRS.
Cash Received by Peoples Shareholders Who Dissent. A shareholder of
Peoples who perfects his dissenter's rights under the laws of the State of
Mississippi and who receives a payment in cash of the value of his shares of
Peoples Common Stock will generally be treated as having received such payment
in complete redemption of such stock under Section 302(b)(3) of the Code. In
general, if the shares of Peoples Common Stock are held by the shareholder as a
capital asset at the Effective Date, the shareholder will recognize capital
gain or loss measured by the difference between the amount of cash received by
the shareholder and the basis for such shares. However, this general rule is
subject to the conditions and limitations of Section 302 of the Code, including
the attribution rules of Section 318, and the treatment of each dissenting
shareholder of Peoples will depend on his individual circumstances. Each
Peoples shareholder who contemplates exercising his dissenter's rights should
consult his own tax advisor as to the possibility that any payment to him will
be treated as dividend income.
ACCOUNTING TREATMENT
FTNC has delivered a notice under section (B)(5) of Article V of the
Agreement with the effect that the Merger will be accounted for under the
purchase method of accounting, not the pooling-of-interests method of
accounting, under GAAP. Under the purchase method of accounting, the purchase
price will be allocated to assets acquired and liabilities assumed based on
their estimated fair values, net of applicable income tax effects, at the
Effective Date. Income of the combined company will not include income (or
loss) of Peoples prior to the Effective Date.
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The unaudited pro forma financial information contained in this Proxy
Statement--Prospectus has been prepared using the purchase method of accounting
to account for the Merger. See "Summary -- Equivalent and Pro Forma Share
Data," "--Selected Financial Data and Ratios" and "Index to Pro Forma Financial
Information."
EXPENSES
The Agreement provides, in general, that FTNC and Peoples will each
pay its own expenses in connection with the Agreement and the transactions
contemplated thereby, including fees and expenses of brokers, finders,
financial consultants, accountants and counsel ("Transaction Expenses"), except
that FTNC and Peoples will divide equally the costs of printing this Proxy
Statement-Prospectus and any other documents required in connection with the
Merger. In addition, Peoples has agreed that its Transaction Expenses will not
exceed $100,000, and FTNC has agreed to reimburse Peoples for Peoples'
Transaction Expenses up to $100,000 if FTNC exercises its termination right if
the Common Stock Average Price is less than $38. See "Waiver and Amendment;
Termination."
RESALE OF FTNC COMMON STOCK
The shares of FTNC Common Stock issued pursuant to the Agreement will
be freely transferable under the Securities Act except for shares issued to any
shareholder who may be deemed to be an "affiliate" of Peoples for purposes of
Rule 145 under the Securities Act as of the date of the Special Meeting.
Affiliates may not sell their shares of Peoples Common Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 promulgated under the Securities Act or another applicable exemption
from the registration requirements of the Securities Act. Persons who may be
deemed to be affiliates of Peoples generally include individuals or entities
that control, are controlled by or are under common control with Peoples and
may include certain officers and directors of Peoples as well as principal
shareholders of Peoples.
Peoples has agreed in the Agreement to use its best efforts to cause
each director, executive officer and other person who is an affiliate of
Peoples to enter into and deliver to FTNC an agreement at the time of execution
of the Agreement or on such later date (not later than 40 days prior to the
Effective Date) as a person becomes an affiliate providing that such person
will not, directly or indirectly, (a) sell, pledge, transfer or otherwise
dispose of shares of FTNC Common Stock to be received by such person in the
Merger except in compliance with the applicable provisions of the Securities
Act and rules and regulations thereunder, or (b) sell, pledge, transfer or
otherwise dispose of or take any action which would reduce such person's risk
with respect to shares of Peoples Common Stock owned by such person or shares
of FTNC Common Stock to be received by such person in the Merger during the
periods when any such sale, pledge, transfer, disposition or action would,
under GAAP or the rules, regulations or interpretations of the SEC, disqualify
the Merger for pooling-of-interests accounting treatment. Such periods in
general encompass the period commencing 30 days prior to the Merger and ending
at the time of the publication of financial results covering at least 30 days
of combined operations of FTNC and Peoples. It is FTNC's intention to account
for the Merger as a purchase, not a pooling-of-interests. The restriction
described in clause (b) above will not apply if the Merger is accounted for as
a purchase.
THE NASDAQ STOCK MARKET
FTNC Common Stock is included for quotation on the Nasdaq Stock Market
on its National Market. The FTNC Common Stock issued to the shareholders of
Peoples pursuant to the Agreement will be included for quotation on the Nasdaq
Stock Market.
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, FTNC is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Under the BHCA, bank holding companies may not in general
directly or indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all the assets of any company, including a bank,
without the prior approval of the Federal Reserve Board. The BHCA also
restricts the types of activities in which a bank holding company and its
subsidiaries may engage. Generally, activities are limited to banking and
activities found by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto.
In addition, the BHCA prohibits the Federal Reserve Board from approving
an application by a bank holding company to acquire shares of a bank or bank
holding company located outside the acquiror's principal state of operations
unless such an acquisition is specifically authorized by statute in the state
in which the bank or bank holding company whose shares are to be acquired is
located. Tennessee has adopted legislation that authorizes nationwide
interstate bank acquisitions, subject to certain state law reciprocity
requirements, including the filing of an application with and approval of the
Tennessee Commissioner of Financial Institutions. The Tennessee Bank Structure
Act of 1974 restricts the acquisition by bank holding companies of banks in
Tennessee. A bank holding company is prohibited from acquiring any bank in
Tennessee as long as banks that it controls retain 16 1/2% or more of the total
deposits in individual, partnership and corporate demand and other transaction
accounts and in savings accounts and time deposits in all federally inured
financial institutions in Tennessee, subject to certain limitations and
exclusions. As of December 31, 1993, FTNC estimates that it held approximately
12% of such deposits. Also, under this act, no bank holding company may
acquire any bank in operation for less than five years or begin a de novo bank
in any county in Tennessee with a population, in 1970, of 200,000 or less,
subject to certain exceptions. Under Tennessee law, branch banking is
permitted in any county in the state. As to certain changes in the laws
applicable to banks that have been enacted, see " --- Interstate Act."
FTNC's subsidiary banks (the "Subsidiary Banks") are subject to
supervision and examination by applicable federal and state banking agencies.
FTB is a national banking association subject to regulation and supervision by
the Comptroller of the Currency (the "Comptroller"), as is First Tennessee bank
National Association Mississippi, which is headquartered in Southaven,
Mississippi. The remaining Subsidiary Banks are Cleveland Bank & Trust Company
and Peoples and Union Bank, which are Tennessee state-chartered banks, and
Planters Bank, which is a Mississippi state-chartered bank, none of which are
members of the Federal Reserve System, and therefore are subject to the
regulations of and supervision by the Federal Deposit Insurance Corporation
(the "FDIC") as well as state banking authorities. The Subsidiary Banks are
also subject to various requirements and restrictions under federal and state
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon and limitations on the types of investments that may be made
and the type of services that may be offered. Various consumer laws and
regulations also affect the operations of the Subsidiary Banks. In addition to
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
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PAYMENT OF DIVIDENDS
FTNC is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of cash flow of FTNC, including cash flow
to pay dividends on its stock or principal (premium, if any) and interest on
debt securities, is dividends from the Subsidiary Banks. There are statutory
and regulatory limitations on the payment of dividends by the Subsidiary Banks
to FTNC, as well as by FTNC to its shareholders.
Each Subsidiary Bank that is a national bank is required by federal law to
obtain the prior approval of the Comptroller for the payment of dividends if
the total of all dividends declared by the board of directors of such
Subsidiary Bank in any year will exceed the total of (i) its net profits (as
defined and interpreted by regulation) for that year plus (ii) the retained net
profits (as defined and interpreted by regulation) for the preceding two years,
less any required transfers to surplus. A national bank also can pay dividends
only to the extent that retained net profits (including the portion transferred
to surplus) exceed bad debts (as defined by regulation).
State-chartered banks are subject to varying restrictions on the payments
of dividends under applicable state laws. Tennessee law imposes dividend
restrictions on Tennessee state banks substantially similar to those imposed
under federal law on national banks, as described above. Mississippi law
prohibits Mississippi state banks from declaring a dividend without the prior
written approval of the Mississippi Banking Commissioner.
If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or a holding company is engaged in or is about to engage
in an unsafe or unsound practice (with, depending on the financial condition of
the depository institution or holding company, could include the payment of
dividends), such authority may require that such institution or holding company
cease and desist from such practice. The federal banking agencies have
indicated that paying dividends that deplete a depository institution's or
holding company's capital base to an inadequate level would be such an unsafe
and unsound banking practice. Moreover, the Federal Reserve Board, the
Comptroller and the FDIC have issued policy statements which provide that bank
holding companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
In addition, under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), a FDIC-insured depository institution may not pay any
dividend if payment would cause it to become undercapitalized or once it is
under capitalized. See " -- FDICIA."
At September 30, 1994, under dividend restrictions imposed under
applicable federal and state laws, the Subsidiary Banks, without obtaining
regulatory approvals, could legally declare aggregate dividends of
approximately $237.9 million.
The payment of dividends by FTNC and the Subsidiary Banks may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which FTNC and its
nonbank subsidiaries can borrow or otherwise obtain credit from the Subsidiary
Banks. There are also legal restrictions on the Subsidiary Banks' purchases of
or investments in the securities of and purchase of assets from FTNC and its
nonbank subsidiaries, a bank's loans or extensions of credit to third parties,
collateralized by the
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38
securities or obligations of FTNC and its nonbank subsidiaries, the issuance of
guaranties, acceptances and letters of credit on behalf of FTNC and its nonbank
subsidiaries, and certain bank transactions with FTNC and its nonbank
subsidiaries, or with respect to which FTNC and it nonbank subsidiaries, act as
agent, participates or has a financial interest. Subject to certain limited
exceptions, a Subsidiary Bank (including for purposes of this paragraph all
subsidiaries of such Subsidiary Bank) may not extend credit to FTNC or to any
other affiliate (other than another Subsidiary Bank) in an amount which exceeds
10% of the Subsidiary Bank's capital stock and surplus and may not extend
credit in the aggregate to such affiliates in an amount which exceeds 20% of
its capital stock and surplus. Further, there are legal requirements as to the
type, amount and quality of collateral which must secure such extensions of
credit by the Subsidiary Banks to FTNC or to such other affiliates. Also,
extensions of credit and other transactions between the Subsidiary Bank and
FTNC or such other affiliates must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to such Subsidiary Bank as those prevailing at the time for
comparable transactions with non-affiliated companies. Also, FTNC and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum guideline for the ratio of total capital
("Total Capital")to risk-weighted assets (including certain off-balance-sheet
items, such as standby letters of credit) is 8%, and the minimum ratio of Tier
I Capital (defined below) to risk--weighted assets is 4%. At least half of the
Total must be composed of common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist
of subordinated debt, other preferred stock and a limited amount of loan loss
reserves. At September 30, 1994, FTNC's consolidated Tier 1 Capital and Total
Capital ratios were 9.94% and 12.36%, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. The minimum guideline for the
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets (the "Leverage Ratio"), of 3% for bank holding companies that
meet certain specific criteria, including having the highest regulatory rating.
All other bank holding companies generally are required to maintain a Leverage
Ratio of at least 3%, plus an additional cushion of 100 to 200 basis points.
FTNC's Leverage Ratio at September 30, 1994 was 7.01%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve Board has indicated
that it will consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
Each of the Subsidiary Banks is subject to risk-based and leverage capital
requirements similar to those described above adopted by the Comptroller or the
FDIC, as the case may be. FTNC believes that each of the Subsidiary Banks was
in compliance with applicable minimum capital requirements as of September 30,
1994. Neither FTNC nor any of the Subsidiary Banks has been advised by any
federal banking agency of any specific minimum Leverage Ratio requirement
applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restriction on its business. See "-- FDICIA."
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39
All of the federal banking agencies have proposed regulations that would
add an additional risk-based capital requirement based upon the amount of an
institution's exposure to interest rate risk. In addition, bank regulators
continue to indicate their desire generally to raise capital requirements
applicable to banking organizations beyond their current levels. However, the
management of FTNC is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.
HOLDING COMPANY STRUCTURE AND SUPPORT OF SUBSIDIARY BANKS
Because FTNC is a holding company, its right to participate in the assets
of any subsidiary upon the latter's liquidation or reorganization will be
subject to the prior claims of the subsidiary's creditors (including depositors
in the case of bank subsidiaries) except to the extent that FTNC may itself be
a creditor with recognized claims against the subsidiary.
Under Federal Reserve Board policy, FTNC is expected to act as a source of
financial strength to, and commit resource to support, each of the Subsidiary
Banks. This support may be required at times when, absent such Federal Reserve
Board policy, FTNC may not be inclined to provide it. In addition, any capital
loans by a bank holding company to any of its subsidiary banks are subordinate
in right of payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. The FDIC's claim for damages is superior to claims
of shareholders of the insured depository institution or its holding company
but is subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The Subsidiary Banks are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of the Subsidiary Banks would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against
FTNC's other Subsidiary Banks and a potential loss of FTNC's investment in such
Subsidiary Banks.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") which was enacted on December 19, 1991, substantially revised the
depository institution regulatory and funding provisions of the FDIA and made
revisions to several other federal banking statutes. Among other things,
FDICIA requires the federal banking regulators to take "prompt corrective
action" in respect of FDIC-insured depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized"and "critically undercapitalized." Under applicable
regulations, a FDIC-insured depository institution is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5%, a risk adjusted
Tier 1 Capital Ratio of at least 6% and a Total Capital Ratio of at least 10%
and is not subject to a directive,
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40
order or written agreement to meet and maintain specific capital levels. An
inured depository institution is defined to be adequately capitalized if it
meets all of its minimum capital requirements as described above. In addition,
a insured depository institution will be considered undercapitalize it fails to
meet any minimum required measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
maintain a level of tangible equity equal to not less than 2% of total assets.
An insured depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
The capital-based prompt corrective action provision of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institutions.
However, the Federal Reserve Board has indicated that, in regulating bank
holding companies, it will take appropriate action at the holding company level
based on an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.
Although the capital categories defined under the prompt corrective action
regulations are not directly applicable to FTNC under existing law and
regulations, if FTNC were placed in a capital category FTNC believes that it
would qualify as well-capitalized as of September 30, 1994.
FDICIA generally prohibits an FDIC-inured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may
not accept a capital plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring
the depository institution's capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
FTNC believes that at September 30, 1994 all of the Subsidiary Banks were
well capitalized under the criteria discussed above.
FDICIA contain numerous other provisions, including new accounting, audit
and reporting requirements, beginning in 1995 termination of the "too big to
fail" doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, new regulatory standards in such areas as asset
quality, earnings and compensation and revised regulatory standards for, among
other things, powers of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days prior notice
of the closing of any branches.
Various other legislation, including proposals to revise the bank
regulatory system and to limit the investments that a depository institution
may make with insured funds, is from time to time introduced in Congress.
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41
INTERSTATE ACT
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Act"), which was enacted on September 29, 1994, among other things
and subject to certain conditions and exceptions, (i) permits bank holding
company acquisitions commencing one year after enactment of banks of a minimum
age of up to five years as established by state law in any state, (ii) mergers
of national and state banks after May 31, 1997 across state lines unless the
home state of either bank has opted out of the interstate bank merger
provision, (iii) branching de novo by national and state banks into other
states if the state has opted-in to this provision of the Interstate Act, and
(iv) certain interstate bank agency activities after one year after enactment.
Regulations have not yet been issued under the Interstate Act.
BROKERED DEPOSITS
The FDIC has adopted regulations under FDICIA governing the receipt of
brokered deposits. Under the regulations, a bank cannot accept a rollover or
renew brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDICIA. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. Whether or not it has obtained such a
waiver, an adequately capitalized bank may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates
specified by regulation. There are no such restrictions on a bank that is well
capitalized. Because it believes that all the Subsidiary Banks were well
capitalized as of September 30, 1994, FTNC believes the brokered deposits
regulation will have not material effect on the funding or liquidity of any of
the Subsidiary Banks.
FDIC INSURANCE PREMIUMS
The Subsidiary Banks are required to pay semiannual FDIC deposit insurance
assessments. As required by FDICIA, the FDIC adopted a risk-based premium
schedule which increased the assessment rates for most FDIC-insured depository
institutions. Under the schedule, the premiums initially range from $.23 to
$.31 for every $100 of deposits. Each financial institution is assigned to one
of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- and further assigned to one of three subgroup within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and other information
relevant to the institution's financial condition and the risk posed to the
applicable FDIC deposit insurance fund. The actual assessment rate applicable
to a particular institution will, therefore, depend in part upon the risk
assessment classification so assigned to the institution by the FDIC.
The FDIC is authorized by federal law to change insurance premiums in
certain circumstances. Any increase in premiums would have an adverse effect
on the Subsidiary Banks' and FTNC's earnings. Recently, the FDIC has indicated
an intent to lower the premiums.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depositary institution would be
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42
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
INFORMATION CONCERNING PEOPLES
DESCRIPTION OF BUSINESS
General. Peoples was organized as a Mississippi corporation in 1982
for the purpose of becoming the one bank holding company for Peoples Bank and
is registered as a bank holding company under the Bank Holding Company Act of
1956, as amended. Peoples' primary activity is its ownership of all the shares
of Peoples Bank. Peoples Bank was chartered as a Mississippi state bank in
1916. Peoples Bank is a community oriented institution, which presently
operates a general banking business in Senatobia, Mississippi, providing
customary banking services such as checking and savings accounts, various types
of time deposits, safe deposit facilities and money transfers and certain
fiduciary services through its trust department. Peoples Bank also finances
commercial transactions and makes and services both secured and unsecured loans
to individuals, firms and corporations. Commercial lending operations include
various types of credit services for the customers of Peoples Bank. Peoples
Bank's installment loan department makes direct loans to individuals for
personal, automobile, real estate, home improvement, business and collateral
needs.
The management of Peoples believes that the services presently
provided by Peoples Bank are responsive to the convenience and needs of the
community served by Peoples Bank. Management continually strives to provide
for the credit needs of the community it serves by providing its customers
competitive returns on each category of deposit on which interest is earned.
There is no individual customer or small group of customers the loss of which
would have a material impact on the operation of Peoples.
Competitive Conditions. Peoples does business in Tate County,
Mississippi. Two other commercial banks compete directly with Peoples Bank in
Tate County. Peoples Bank is subject to substantial competition in all aspects
of its business. Intense competition for loans and deposits comes from other
financial institutions in the area. In certain aspects of its banking
business, Peoples Bank also competes with credit unions, small loan companies,
insurance companies, mortgage companies, finance companies, brokerage houses
and other financial institutions, some of which are not subject to the same
degree of regulation and restriction as Peoples Bank and many of which have
financial resources greater than those of Peoples.
Peoples Bank currently employs 43 persons.
Supervision and Regulation. Peoples is subject to applicable
provisions of Mississippi law and the regulations and supervision of the
Federal Reserve Board under the BHCA. Peoples Bank is subject to applicable
provisions of Mississippi law, insofar as they do not conflict with or are not
preempted by federal law, including laws related to usury, various consumer and
commercial loans and the operation of branch banks, and the regulations and
supervision of the Federal Deposit Insurance Corporation.
Property. Peoples' principal asset is its ownership of the shares of
its wholly-owned subsidiary, Peoples Bank. All properties of Peoples Bank are
owned by Peoples Bank. Peoples Bank operates from its main office facility at
207 East Main Street in Senatobia and from branch locations at West Main Street
and Highway 51 North in Senatobia and on Highway 51 North in Coldwater.
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43
Directors and Executive Officers. The members of the Board of
Directors of Peoples are elected by its shareholders at the annual meeting to
serve until the next annual meeting and until their successors are duly elected
and qualified.
The name of each director, his age, his current principal occupation
(which has continued for at least five years unless otherwise indicated), the
name and principal business of the organization in which his occupation is
carried on (which organization is not an affiliate of Peoples unless
indicated), his directorships, if any, in publicly held companies, and the year
he was first elected to his position with Peoples and Peoples Bank are as
follows:
James Edward Cahill, Jr., 57, is an attorney and owner of Cahill Oil
Company. He became a director of Peoples and Peoples Bank in 1988.
William E. Callicott, 70, is the retired owner of Callicott Insurance
Agency and former mayor of Senatobia. He became a director of Peoples
and Peoples Bank in 1992.
Leland Gough, 69, is president and chief executive officer of Peoples
and Peoples Bank. He became a director of Peoples Bank in 1973 and
became a director of Peoples in 1982.
James Stephen Hale, 40, is a contractor and mayor of Senatobia. He
became a director of Peoples and Peoples Bank in 1993.
James Richards Johnson, Jr., 79, Chairman of the Peoples Board, is a
realtor and former mayor of Senatobia. He became a director of
Peoples Bank in 1967 and a director of Peoples in 1982.
John Thomas Lamar, Jr., 42, is an attorney. He became a director of
Peoples and Peoples Bank in 1993.
Walter A. McKellar, 55, is owner and operator of CMR Ranch, a cattle
and farming operation. He became a director of Peoples Bank and
Peoples in 1992.
Sam A. Meacham, 85, is the retired owner of Sam Meacham
Ford-Lincoln-Mercury, an automobile dealership. He became a director
of Peoples Bank in 1970 and a director of Peoples in 1982. Mr.
Meacham retired from the Peoples Board, effective December 31, 1994.
The executive officers of Peoples consist of Mr. Gough and the
following individuals:
John P. Champion, 52, is executive vice president of Peoples Bank, and
has been at Peoples Bank since 1973.
Rufus Warren, 41, is secretary and treasurer of Peoples and
vice-president and cashier of Peoples Bank, having held such position
since 1984.
No family relationships exist among the individuals listed above.
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44
SELECTED STATISTICAL DATA
Loans By Type
-------------
(In Thousands)
Description 9/30/94 9/30/93 12/31/93 12/31/92
------------ -------- ------- -------- --------
Real Estate $ 23,618 $ 23,220 $ 23,434 $ 20,027
Commercial 6,494 4,219 4,962 3,604
Consumer 8,667 7,697 7,820 6,699
Other (Agri crop 8,393 7,189 7,126 6,145
& other)
-------- -------- -------- --------
$ 47,172 $ 42,325 $ 43,342 $ 36,475
Unearned interest (2,559) (2,315) (2,365) (1,664)
& fees
Allowance for loan (860) (784) (801) (751)
losses
-------- ------- ------- --------
Loans, net $ 43,753 $ 39,226 $ 40,176 $ 34,060
======== ======== ======== ========
Nonaccrual, Past Due and Restructured Loans
-------------------------------------------
(In Thousands)
9/30/94 9/30/93 12/31/93 12/31/92
------- ------- -------- --------
Accruing loans contractually $ 14 $ 77 $ 89 $ 134
90 days or more as to interest
or principal payments
Nonaccrual loans 171 $ 135 114 271
Restructured loans 0 0 0 0
------- ------- ------- -------
Total nonperforming loans $ 185 $ 212 $ 203 $ 405
======= ======= ======= =======
Analysis of Allowance for Loan Losses
-------------------------------------
(In Thousands)
Nine Months Ending Fiscal Year Ending
September 30 December 31
------------------ ------------------
1994 1993 1993 1992
---- ----- ---- ----
Balance, beginning of period $801 $751 $751 $701
Amounts charged off:
Real Estate -- -- -- 40
Commercial 20 46 46 14
Consumer 34 39 61 86
---- ----- ---- ----
Total charged off $ 54 $ 85 $107 $140
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45
Recoveries on amounts
charged off:
Real Estate -- -- -- --
Commercial 5 9 13 10
Consumer 19 19 33 14
---- ---- ---- ----
Total recoveries 24 28 46 24
---- ---- ---- ----
Net charge-offs 30 57 61 116
Provision for loan losses 90 90 111 166
---- ---- ---- ----
$861 $784 $801 $751
Balance, end of period Ratio
of net charge-offs during
the period to average loans
outstanding during the period 0.07% 0.16% 0.34%
Allocation for Allowance for Loan Losses
(In Thousands)
September 30 December 31
------------ -----------
1994 1993 1993 1992
---- ---- ---- ----
Real Estate $310 $306 $304 $315
Commercial 198 165 96 75
Consumer 164 148 144 143
Other (Agri crop
& other) 189 165 257 218
---- ---- ---- ----
Total $861 $784 $801 $751
==== ==== ==== ====
Percentage Distribution of Allowance for Loan Losses and Categories of Loans as Percent of Gross Loans at December 31
- ---------------------------------------------------------------------------------------------------------------------
1993 1992
----------------------------- ----------------------------
Allowance Loans Allowance Loans
--------- ----- --------- -----
Real Estate 38% 38% 42% 42%
Commercial 12 12 10 10
Consumer 18 18 19 19
Other (Agri crop & 32 32 29 29
other) -- -- --
100.00% 100.00% 100.00% 100.00%
Percentage Distribution of Allowance for Loan Losses and Categories of Loans as Percent of Gross Loans at September 30
- ----------------------------------------------------------------------------------------------------------------------
1994 1993
----------------------------- ----------------------------
Allowance Loans Allowance Loans
--------- ----- --------- -----
Real Estate 36% 36% 39% 39%
Commercial 23 23 21 21
Consumer 19 19 19 19
Other (Agri crop & 22 22 21 21
other) -- -- -- --
100.00% 100.00% 100.00% 100.00%
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46
Average Deposit Distribution and Average Interest Rates
-------------------------------------------------------
(Dollars in Thousands)
YEAR ENDED
December 31, 1993 December 31, 1992
---------------------------- -----------------------------
Average Interest Average Average Interest Average
Balance Expense Rate Balance Expense Rate
------- -------- ------- ------- -------- -------
Noninterest bearing accounts $10,455 - - $11,288 - -
NOW accounts 15,814 $ 446 2.82% 13,145 $ 500 3.80%
Money Market accounts 2,687 74 2.75 5,764 86 1.49
Savings accounts 11,460 377 3.29 9,295 418 4.50
Certificates of deposit
$100,000 and greater 11,204 390 3.48 10,100 468 4.63
Less than $100,000 24,266 1,008 4.15 23,968 1,144 4.77
------- ------ ----- ------- ------ -----
Total $75,886 $2,295 3.02% $73,560 $2,616 3.56%
======= ====== ===== ======= ====== =====
Nine Months Ended September 30, 1994 September 30, 1993
Average Balance Interest Expense Average Rate Average Balance Interest Expense Average Rate
Noninterest
bearing accounts $11,230 --- --- $10,081 --- ---
NOW accounts 17,137 $ 348 2.03% 16,014 $ 339 2.82%
Money Market
accounts 2,685 55 2.05 2,700 56 2.77
Savings accounts 11,325 275 2.43 11,395 282 3.30
Certificates of
deposit $100,000
and greater 12,210 352 2.89 11,146 280 3.35
Less than $100,000 25,572 780 3.05 23,833 761 4.26
------- ------ ----- ------- ------ -----
Totals $80,159 $1,810 2.26% $75,169 $1,718 2.29%
======= ====== ===== ======= ====== =====
Maturity Distribution of Certificates of Deposit of $100,000 and Over
---------------------------------------------------------------------
(In Thousands)
At December 31, 1993 At September 30, 1994
Certificates IRA Accounts Total Certificates of Deposit IRA Accounts Total
-------------- ------------ ----- ----------------------- ------------ -----
of Deposit at 9-30-94
---------- ----------
Less than three months $ 4,652 --- $ 4,652 $ 4,945 $361 $ 5,306
Three to twelve months 6,707 $383 7,090 6,209 232 6,441
More than twelve months 443 443 376 112 488
---- --- --- --- --- ---
Total $11,802 $383 $12,185 $11,530 $705 $12,235
======= ==== ======= ======= ==== =======
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
The following discussion provides certain information concerning
Peoples' financial condition and results of operations. For a more complete
understanding of the following discussion, reference should be made to the
financial statements of Peoples and related notes thereto presented elsewhere
in this Proxy Statement-Prospectus.
Recent Development. In December of 1994, Peoples sold approximately
$8.0 million of securities classified as Available For Sale, resulting in a
loss of $962,000. Peoples determined to sell the securities in substantial
part to take advantage of higher interest rate yields. This transaction is
expected to result in an improvement to People's net interest income and its
rate sensitivity position.
Results of Operations September 30, 1994 Compared to September 30,
1993. Net income for the nine months ended September 30, 1994 was $1,277,000
or approximately $158,000 more than the
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47
nine months ended September 30, 1993 net income of $1,119,000. The increase
in net income was primarily due to an increase of approximately $82,000 in net
interest income and a decrease in the provision for income tax of $20,000.
These increases were offset by an increase in noninterest expenses.
Return on average assets for the nine months ended September 30, 1994
was 1.85% compared to 1.78% for 1993. Return on average equity was 15.70% and
14.43% for the 1994 and 1993 periods, respectively.
Peoples' provisions for loan losses is, in management's opinion,
sufficient to maintain an adequate allowance for loan losses and to support
increases in the loan portfolio. The provision for loan losses was $90,000 for
each nine month period.
Net interest income is the major component of Peoples' income. Net
interest income for the nine months ended September 30, 1994 was $2,960,000 an
increase of approximately $82,000 over the amount reported for the nine months
ended September 30, 1993. The increase in net interest income was primarily
attributable to the increase in average earning assets during nine months ended
September 30, 1994. Loan fee income earned for the nine months ended September
30, 1994 and September 30, 1993 was not significant.
Noninterest income was $480,000 for the nine months ended September
30, 1994, an increase of approximately $4,000 over the nine months ended
September 30, 1993. The primary sources of noninterest income are service
charges on deposit accounts and other fees and charges.
Total noninterest expenses for the nine months ended September 30,
1994 were $1,700,000 or approximately 3% more than the $1,651,000 reported for
the nine months ended September 30, 1993. Salaries and employee benefits
increased a combined $15,000 or 1.59%. Occupancy and equipment expenses
increased approximately $25,000 in 1994. Other noninterest expenses increased
$9,000 compared to 1993.
Financial Condition September 30, 1994 Compared to September 30, 1993.
Total assets of Peoples continued to grow in 1994, increasing 25% over total
assets at September 30, 1993. Investment securities increased $5.4 million, or
13%, accounting for the largest portion of the increase.
Loans increased $4.5 million to $43.7 million at September 30, 1994,
net of unearned interest. The allowance for loan losses at September 30, 1994
was $860,000, an increase of $76,000 over the allowance at September 30, 1993.
The adequacy of the allowance for loan losses is determined on an ongoing basis
using historical loan loss experience of Peoples, portfolio growth and asset
quality trends, and economic conditions within Peoples' trade area. Additional
allocations are made to the allowance for specifically identified potential
losses in the portfolio. The allowance for loan losses was 1.80% of loans
outstanding at September 30, 1994, compared to 1.85% at September 30, 1993.
Total deposits grew 13% to $85.8 million at September 30, 1994, as
compared to $76.3 million at September 30, 1993.
Total stockholders' equity at September 30, 1994 was $11,057,000 an
increase of $212,000 since September 30, 1993.
Peoples has no foreign loans and no concentrations of credit to
borrowers in any one industry. A concentration generally exists when more
than 10% of total loans are outstanding to borrowers in the same industry.
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48
Results of Operations 1993 Compared to 1992. Net income for the year
1993 was $1,440,000 or approximately $96,000 more than 1992 net income of
$1,344,000. The increase in net income was primarily due to an increase of
approximately $255,000 in net interest income offset by an increase in
operating expenses.
Return on average assets for the year 1993 was 1.69% compared to 1.67%
for 1992. Return on average equity was 14.10% and 14.54% in 1993 and 1992,
respectively. Peoples paid dividends of $3.50 per share in 1993 as compared to
$2.79 per share in 1992.
Peoples' provision for loan losses is, in management's opinion,
sufficient to maintain an adequate allowance for losses and to support
increases in the loan portfolio. The provision for loan losses for 1993 was
$111,000 compared to $167,000 for 1992. Net loans charged-off in 1993 were
$107,000 versus $140,000 in 1992.
Net interest income is the major component of Peoples' income. Net
interest income for the year 1993 was $3,865,000, an increase of approximately
$255,000 over the amount reported for the year 1992. The increase in net
interest income was primarily attributable to the increase in average earning
assets during 1993. Loan fee income earned in 1993 and 1992 was not
significant.
Noninterest income was $685,000 in 1993, an increase of approximately
$28,000 over 1992. The primary sources of noninterest income were service
charges on deposit accounts and other fees and charges.
Total noninterest expenses for 1993 were $2,364,000 or approximately
5% more than the $2,250,000 reported for 1992. Salaries and employee benefits
increased a combined $126,000 or 10%. Occupancy and equipment expenses
increased approximately $137,000 in 1993. Other noninterest expenses decreased
$149,000 compared to 1992. The majority of this decrease related to
professional fees in connection with training and installation of a new
computer system in 1992.
Financial Condition 1993 Compared to 1992. Total assets of Peoples
continued to grow in 1993, increasing 4% over total assets at December 31,
1992. At December 31, 1993, investment securities had an estimated market
value of approximately $911,000 greater than their carrying value. Management
does not foresee any significant change in its investment strategy as a
consequence of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity securities." Peoples adopted
Statement No. 115 effective January 1, 1994. Approximately 69% of the
investment securities portfolio was classified as "available for sale" in the
first quarter of 1994.
Loans increased $6.1 million to $40.9 million at December 31, 1993,
net of unearned interest. The allowance for loan losses at December 31, 1993
was $801,000, an increase of $50,000 over the allowance at December 31, 1992.
A summary of the changes in the allowance for 1993 and 1992 is included in the
Selected Statistical Data section. The adequacy of the allowance for loan
losses is determined on an ongoing basis using historical loan loss experience
of Peoples Bank, portfolio growth and asset quality trends, and economic
conditions within Peoples Bank's trade area. Additional allocations are made
to the allowance for specifically identified potential losses in the portfolio.
The allowance for loan losses was 1.95% of loans outstanding at December 31,
1993, compared to 2.16% at December 31, 1992.
It is Peoples' policy to place loans greater than 90 days past due on
nonaccrual status, unless certain criteria are met. At December 31, 1993,
nonaccrual loans were $114,000 compared to $271,000 at December 31, 1992.
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Total deposits grew 3.4% to $75.6 million at December 31, 1993, as
compared to $73.1 million at December 31, 1992.
Total stockholders' equity at December 31, 1993 was $10,700,000, an
increase of $968,000, since December 31, 1992. Net earnings retained during
1993, after paying dividends of $446,000 totaled $974,000. The equity to
assets ratio was 12.34% at December 31, 1993, compared to 11.70% at December
31, 1992.
Results of Operations 1992 Compared to 1991. Net income for 1992 was
$1,344,000, an increase of 14.5% over 1991 net income of $1,174,000. Net
income per share was $11.20 in 1992 compared to $8.29 in 1991. The 1992
increase in net income was primarily due to an increase of $481,000 in net
interest income offset by an increase in operating expenses.
Return on average assets for the year 1992 was 1.67% versus 1.53% for
1991. Return on average equity for 1992 was 14.54% compared to 13.20% for
1991. Dividends per share were $2.79 in 1992 and $2.96 in 1991.
Net interest income, the major component of Peoples' income, increased
approximately $481,000 in 1992. The provision for loan losses increased
$50,000 in 1992.
Noninterest income increased approximately $30,000 in 1992 versus
1991, excluding the provision for loan losses noted above. Equipment expenses
increased primarily as a result of implementation of a new data processing
system.
Financial Condition 1992 Compared to 1991. Total assets increased by
$5.3 million, or 7%. Investment securities increased $2.5 million over 1991.
Loan decreased $38,000 during 1992. Peoples' allowance for loan losses
increased $50,000 to $750,000 or 3.40% of outstanding loans. The loan to
deposit ratio at December 31, 1992 was 46%.
Total deposits at December 31, 1992 were $73,145,000, a 7% increase
over total deposits at December 31, 1991 of $68,210,000.
Total stockholders' equity increased $981,000 or 11.21% from December
31, 1991 to December 31, 1992. This increase consisted of net earnings
retained of $981,000. The equity to assets ratio at December 31, 1991 and 1991
was 11.70% and 11.23% respectively.
OWNERSHIP OF PEOPLES COMMON STOCK AND DIVIDENDS
Ownership of Principal Shareholders. As of September 30, 1994, there
were 133,000 shares of Peoples Common Stock, its only class of voting
securities, outstanding and approximately 264 shareholders of record of such
shares. The following table provides information concerning the number of
shares of Peoples Common Stock beneficially owned, directly or indirectly, by
more than 5% shareholders of Peoples Common Stock as of September 30, 1994, and
the number of shares of FTNC Common Stock to be owned by such persons on the
Effective Date of the Merger. Peoples is not aware of any shares of FTNC
Common Stock beneficially owned by the persons in the tables except as
disclosed therein. Except as set forth below, no person is known by Peoples to
be the beneficial owner of more than 5% of the outstanding shares of Peoples
Common Stock. The number and percentage of shares of
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50
FTNC Common Stock beneficially owned on the Effective Date of the Merger in the
tables in this section are based upon a conversion ratio of 3.1658 FTNC Common
Shares for each Peoples Common Share and assuming _____________ FTNC Common
Shares will be outstanding immediately prior to the Merger. Unless otherwise
noted, the named person has sole voting and investment power with respect to
the shares indicated.
Number Percent Number of FTNC Percent of Total
Beneficial Owner of of Common Shares to FTNC Common
---------------- Peoples Total Peoples be Beneficially Shares to be
Common Shares Owned on Effective Outstanding on
Shares Owned Outstanding Date Effective Date
------------ -------------- -------------------- -------------------
William P. or Susan M. Johnson 7,625 5.73% 24,139
George W. Weeks, Jr. 9,857(1) 7.41% 31,205
(1)10 shares are held individually. The balance of the shares are held by
Mr. Weeks as trustee for two trusts for the benefit of Mr. Weeks' two sons.
Ownership by Directors and Executive Officers of Peoples. The
following information pertains to shares of Peoples Common Stock beneficially
owned, directly or indirectly, by each director, by each executive officer, and
by all directors and executive officers as a group, as of September 30, 1994,
and to the number of shares of FTNC Common Stock to be owned by such persons on
the Executive Date of the Merger. Unless otherwise noted, the named persons
have sole voting and investment power with respect to the shares indicated.
Beneficial Owner Number Percent Number of FTNC Percent of Total
---------------- of of Common Shares to FTNC Common
Peoples Total Peoples be Beneficially Shares to be
Common Shares Owned on Effective Outstanding on
Shares Owned Outstanding Date Effective Date
------------ -------------- ------------------ -------------------
James Edward Cahill, Jr. 6,272 4.72% 19,855 *
William E. Callicott 500 .38% 1,582 *
John P. Champion 280(1) .21% 886 *
Leland Gough 1,227 .92% 3,884 *
James Stephen Hale 45 .03% 142 *
James Richards Johnson, Jr. 2,372 1.78% 7,509 *
John Thomas Lamar, Jr. 587(2) .44% 1,858 *
Walter A. McKellar 582(3) .44% 1,842 *
Sam A. Meacham(4) 3,687 2.77% 11,672 *
E. Rufus Warren 16 .01% 50 *
All Directors and Executive
Officers as a Group (10 individuals
including those named above)
15,288 11.49% 48,398 %
---
1 All shares held jointly with spouse.
2 Includes 477 shares held jointly with spouse.
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3 Includes 499 shares held jointly with spouse.
4 Retired, effective December 31, 1994
* Less than 0.1%
Dividends. The shareholders of Peoples Common Stock are entitled to
such dividends as may be declared from time to time by the Peoples Board. Cash
dividends generally are declared annually and have been declared as stated in
the following table (through January 30, 1995).
1995 __ $0
1994 -- $3.50
1993 -- $3.50
The Agreement restricts the ability of Peoples to declare and pay
dividends except for the dividend of $3.50 payable in December, 1994. See "The
Merger -- Conduct of Business Pending Merger." Peoples' ability to pay
dividends also is dependent upon the earnings and financial conditions of
Peoples Bank. Dividend payments by Peoples Bank are subject to certain
regulatory restrictions. As of September 30, 1994, $68,877 was available for
distribution to Peoples from Peoples Bank as dividends without prior regulatory
approval.
DESCRIPTION OF FTNC CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of FTNC currently consists of 5,000,000
shares of Preferred Stock, without par value ("Preferred Stock"), which may be
issued from time to time by resolution of the FTNC Board and 100,000,000 shares
of FTNC Common Stock. As of September 30, 1994, there were 32,202,722 shares
of FTNC Common Stock and no shares of Preferred Stock outstanding. As of that
date, approximately 3.3 million shares of FTNC Common Stock were reserved for
issuance under various employee stock plans and FTNC's dividend reinvestment
plan, approximately 2.3 million shares were reserved for issuance in connection
with other pending acquisitions (See page PF-1 as to other pending acquisitions
and a repurchase of FTNC Common Stock), and 322,027 shares of Preferred Stock
were reserved for issuance under the Rights Plan. Also, FTNC has on file with
the SEC an effective shelf registration pursuant to which it may offer from
time to time, at its discretion, senior or subordinated debt securities,
preferred stock, including depository shares, and FTNC Common Stock at an
aggregate initial offering price not to exceed $300 million.
PREFERRED STOCK
The FTNC Board is authorized, without further action by the shareholders,
to provide for the issuance of up to 5,000,000 shares of Preferred Stock,
without par value, from time to time in one or more series and, with respect to
each such series, has the authority to fix the powers (including voting power),
designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions thereof.
Currently, no shares of Preferred Stock are outstanding.
FTNC COMMON STOCK
The FTNC Board is authorized to issue a maximum of 100,000,000 shares of
Common Stock, $2.50 par value per share. The holders of the FTNC Common Stock
are entitled to receive, ratably, such dividends as may be declared by the FTNC
Board from funds legally available therefor. The holders of the outstanding
shares of FTNC Common Stock are entitled to one vote for each such share on all
matters presented to shareholders and are not entitled to cumulate votes for
the election of directors. Upon any dissolution, liquidation or winding up of
FTNC resulting in a distribution of assets to the shareholders, the holders of
FTNC Common Stock are entitled to receive such assets ratably according to
their respective holdings after payment of all liabilities and obligations and
satisfaction of the liquidation preferences of any shares of Preferred Stock at
the time outstanding. The shares of
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52
FTNC Common Stock have no preemptive, redemption, subscription or conversion
rights. The shares of FTNC Common Stock will be, when issued in accordance
with the Agreement, fully paid and nonassessable. Under FTNC's Charter, the
FTNC Board is authorized to issue authorized shares of FTNC Common Stock
without further action by FTNC's shareholders. However, the FTNC Common Stock
is traded in the over-the-counter market and is quoted on the Nasdaq Stock
Market's National Market, which requires shareholder approval of the issuance
of additional shares of FTNC Common Stock in certain situations. The Transfer
Agent for the Common Stock is Norwest Bank Minnesota, National Association.
The FTNC Board is divided into three classes, which results in
approximately 1/3 of the directors being elected each year. In addition, the
Charter and the Bylaws, among other things, generally give to the FTNC Board
the authority to fix the number of directors on the FTNC Board and to remove
directors from and fill vacancies on the FTNC Board, other than removal for
cause and the filling of vacancies created thereby which are reserved to
shareholders exercising at least a majority of the voting power of all
outstanding voting stock of FTNC. To change these provisions of the Bylaws,
other than by action of the FTNC Board, and to amend these provisions of the
Charter or to adopt any provision of the Charter inconsistent with such Bylaw
provisions, would require approval by the holders of at least 80% of the voting
power of all outstanding voting stock. Such classification of the FTNC Board
and such other provisions of the Charter and the Bylaws may have a significant
effect on the ability of the shareholders of FTNC to change the composition of
an incumbent FTNC Board or to benefit from certain transactions which are
opposed by the FTNC Board.
SHAREHOLDER PROTECTION RIGHTS PLAN
Each share of FTNC Common Stock has, and each share of the FTNC Common
Stock issued in the Merger will have, attached to it one right (a "Right")
issued pursuant to a Shareholder Protection Rights Agreement dated as of
September 7, 1989 (the "Rights Plan"). Each Right entitles its holder to
purchase 1/100th of a share of Participating Preferred Stock, without par
value, for $76.67 (the "Exercise Price"), subject to adjustment, upon the
business day following the earlier of (i) the 10th day after commencement of a
tender or exchange offer which, if consummated, would result in a person's
becoming the beneficial owner of 10% or more of the outstanding shares of FTNC
Common Stock (an "Acquiring Person") and (ii) the first date (the "Flip-in
Date") of public announcement that a person has become an Acquiring Person.
The Rights will expire on the earliest of (i) the Exchange Time (defined
below), (ii) September 18, 1999 and (iii) the date on which the Rights are
redeemed as described below. The FTNC Board may, at its option, at any time
prior to the Flip-in Date, redeem all the Rights at a price of $.01 per Right.
If a Flip-in Date occurs, each Right (other than Rights beneficially owned
by the Acquiring Person or its affiliates, associates or transferees, which
Rights will become void), to the extent permitted by applicable law, will
constitute the right to purchase shares of FTNC Common Stock or Participating
Preferred Stock having an aggregate market price equal to twice the Exercise
Price for an amount in cash equal to the then-current Exercise Price. In
addition, the FTNC Board may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the beneficial owner of
more than 50% of the outstanding shares of FTNC Common Stock, elect to exchange
the Rights (other than Rights beneficially owned by the Acquiring Person or its
affiliates, associates or transferees) for shares of FTNC Common Stock or
Participating Preferred Stock at an exchange ratio of one share of FTNC Common
Stock or 1/100th of a share of Participating Preferred Stock per Right (the
"Exchange Time").
FTNC may not agree to be acquired by an Acquiring Person without providing
that each Right, upon such acquisition, will constitute the right to purchase
common stock of the Acquiring Person having an aggregate market price equal to
twice the Exercise Price for an amount in cash equal to the then-current
Exercise Price.
The Rights will not prevent a takeover of FTNC. The Rights, however, may
have certain anti-takeover effects. The Rights may cause substantial dilution
to a person or group that acquires 10% or more of the outstanding FTNC Common
Stock unless the Rights are first redeemed by the FTNC Board.
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SUBORDINATED CAPITAL NOTES DUE 1999
On June 10, 1987, FTNC issued $75,000,000 principal amount of 10 3/8%
Subordinated Capital Notes Due 1999 (the "Capital Notes"). The Capital Notes
currently constitute Tier 2 capital under the Federal Reserve Board's
risk-based capital guidelines. Pursuant to the Indenture, dated as of June 1,
1987 (the "Indenture"), between FTNC and BankAmerica National Trust Company,
formerly Security Pacific National Trust Company (New York), Trustee, at
maturity the Capital Notes are required to be exchanged for Common Stock,
Preferred Stock or certain other eligible capital securities to be issued by
FTNC ("Capital Securities") having a market value equal to the principal amount
of the Capital Notes, except to the extent that FTNC, at its option, shall
elect to pay in cash such principal amount from amounts representing proceeds
of other issuances of Capital Securities designated for such use.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
FTNC ia a Tennessee corporation subject to the provisions of the TBCA.
Peoples is a Mississippi corporation subject to the provisions of the MBCA.
Shareholders of Peoples, whose rights are governed by Peoples' Articles of
Incorporation and Bylaws and by the MBCA, will, upon consummation of the
Merger, become shareholders of FTNC whose rights will then be governed by the
Charter and Bylaws of FTNC and by the TBCA. The following is a summary of the
material differences in the rights of shareholders of FTNC and Peoples and is
qualified in its entirety by reference to the governing law and the Articles of
Incorporation or Charter and Bylaws of each of FTNC and Peoples. Certain
topics discussed below are also subject to federal law and the regulations
promulgated thereunder. See "Certain Regulatory Considerations."
SPECIAL MEETINGS OF SHAREHOLDERS
The Peoples Bylaws authorize the president, the chairman of the board, a
majority of the Peoples Board or the holders of not less than twenty percent of
the outstanding shares of Peoples to call a special meeting of shareholders.
FTNC's Bylaws authorize the chairman of the FTNC board or the Secretary at
the request of a majority of the FTNC Board, or the holders of not less than
one-tenth of the outstanding shares entitled to vote to call a special meeting
of shareholders for any purpose. Such a call shall state the purpose or
purposes of the purposed meeting.
REMOVAL OF DIRECTORS
Peoples' Bylaws provide that any or all directors may be removed without
cause by affirmative vote of the shareholders or with cause by a majority vote
of the entire Peoples Board. Peoples' Articles define "cause" as final
conviction of a felony, unsound mind, bankruptcy, nonacceptance of office or
conduct prejudicial to Peoples' interest. The MBCA provides that where
cumulative voting is authorized a director may be removed if the votes in favor
of removal exceed the votes sufficient to elect the director under cumulative
voting.
FTNC's Charter provides that any director is subject to removal by
shareholders only for cause by the affirmative vote of the majority of the
shares entitled to vote.
CUMULATIVE VOTING
Under the MBCA shareholders have a right to cumulate their votes for
directors unless the corporation's articles of incorporation provide otherwise.
Shareholders of Peoples have this right.
Under the TBCA shareholders do not have a right to cumulate their votes
for directors unless the charter so provides. Shareholders of FTNC do not have
the right so to cumulate their votes.
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54
SHAREHOLDER PROPOSALS AND NOMINATIONS
Pursuant to FTNC's Bylaws, shareholder proposals and director nominations
must be in writing and delivered or mailed to the Secretary of FTNC no less
than 30 nor more than 60 days prior to the date of a meeting of shareholders;
provided, however, that if fewer than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder will be timely if it is delivered or received not later than
the close of business on the 10th day following the earlier of the day on which
such notice of the date of such meeting was mailed or the date on which such
public disclosure was made.
Neither Peoples' Articles of Incorporation nor its Bylaws contain
provisions concerning shareholder proposals or director nominations.
ACTION BY WRITTEN CONSENT
Peoples Bylaws provide that the shareholders may take action without a
meeting if written consent setting forth the action to be taken is signed by
all the shareholders entitled to vote thereon.
The TBCA provides that action may be taken without a shareholders' meeting
and vote, if all shareholders entitled to vote on the action consent to taking
such action without a meeting. Action by written consent of the FTNC
shareholders is impracticable given the number of holders of FTNC common stock.
REQUIRED VOTE TO AUTHORIZE CERTAIN ACTIONS
The Peoples Articles provide that the Board may authorize the issuance of
Peoples Common Stock without shareholder approval, except that to authorize the
issuance of any shares in excess of 100,000 shares requires a unanimous vote of
the Peoples Board. The Peoples Articles also provide that the affirmative vote
of eighty percent of the outstanding voting stock of Peoples is required to
approve any of the following transactions if the Peoples Board does not
recommend a vote in favor of any of them: a merger or consolidation of Peoples
or a sale, exchange or lease of all or substantially all of the assets of
Peoples. The same eighty percent vote requirement is required to amend this
provision of the Peoples Articles.
The TBCA provides that the approval of the FTNC Board and of a majority of
the outstanding shares of FTNC entitled to vote thereon would generally be
required to approve a merger or to sell, lease or exchange or otherwise dispose
of substantially all of FTNC's assets. No shareholder vote is required,
however, in certain situations, including certain mergers in which the number
of voting shares outstanding immediately after the merger plus the number of
shares issuable as a result of the merger will not exceed by more than 20% the
number of voting shares of the surviving corporation outstanding immediately
before the merger. In accordance with the TBCA, submission by the FTNC Board
of any such action may be conditioned on any basis, including without
limitation, conditions regarding a super-majority voting requirement or that no
more than a certain number of shares indicate that they will seek dissenters'
rights. With respect to a sale, lease or exchange or other disposition of all
the assets of FTNC, no shareholder vote would be required if such transfer were
conducted in the regular course of business or if such transfer were made to a
wholly- owned subsidiary of FTNC.
AMENDMENT OF ARTICLES OF INCORPORATION OR CHARTER AND BYLAWS
The MBCA provides that the Articles of Incorporation may be amended by a
majority of the votes entitled to vote on the amendment. The MBCA also
requires that an amendment to the Articles of Incorporation which adds, changes
or deletes a greater quorum or voting requirement must meet the quorum
requirement and voting requirement as set out in the proposed amendment or as
then in effect, whichever requirement is greater. The Peoples Articles fixes
the maximum size of the Peoples Board at 8 directors and requires the
affirmative vote of eighty percent of the outstanding voting stock of Peoples
to amend or repeal this provision. The Bylaws of Peoples provides that a
majority vote of the outstanding shares or a majority of the entire Board of
Directors may amend, add to or repeal the Bylaws. Also see " -Required Vote to
Authorize Certain Actions."
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55
FTNC's Charter provides that any amendment to the Charter which is
inconsistent with any provision of the Bylaws may be adopted only by the
affirmative vote of the holders of at least 80% of the voting power of all
outstanding stock. FTNC's Bylaws may be amended or repealed by a vote of a
majority of all the directors of FTNC, at any regular or special meeting of the
FTNC Board. In addition, the shareholders of FTNC may make, alter, amend or
repeal the Bylaws at any annual meeting or at a special meeting called for that
purpose, if at least 80% of the voting power of all outstanding voting stock
approves the amendment. The Charter also provides that at least 80% of the
voting power of all outstanding voting stock must approve an amendment to the
Charter and Bylaws to change the classification of the FTNC Board or the 80%
voting requirement for an amendment of the Bylaws.
INDEMNIFICATION
Both the TBCA and the MBCA provide in certain situations for mandatory and
permissive indemnification of directors and officers. Pursuant to the MBCA, a
corporation may provide for additional rights of indemnification for its
directors and officers except that a corporation may not provide
indemnification for gross negligence or willful misconduct of a director or
officer. Peoples' bylaws provides that its directors, officers and employees
may be indemnified for reasonable expenses incurred in connection with such
positions with Peoples. No person, however, shall be indemnified in connection
with a matter as to which he is finally adjudged liable for gross negligence,
willful misconduct or criminal acts in the performance of his duties to
Peoples, and no person shall be indemnified in connection with a suit that is a
subject of a compromise settlement except with the approval of an appropriate
court or the holders of a majority of the outstanding shares or the Peoples
Board acting solely by the vote of disinterested directors constituting a
majority of the entire Peoples Board. Such indemnification is not exclusive of
other rights to which such persons may be entitled as a matter of law.
The TBCA also provides that the statutory indemnification is not to be
deemed exclusive of any other rights to which a director seeking
indemnification may be entitled. No such indemnification may be made if a
final adjudication adverse to the director or officer establishes his liability
(1) for any breach of loyalty to the corporation or its shareholders; (2) for
acts of omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; or (3) for unlawful distributions.
FTNC has provided additional indemnification to its directors and certain
officers designated by the FTNC Board in a shareholder-approved bylaw amendment
and individual indemnity agreements which provide indemnification to the
maximum extent not prohibited by law.
BUSINESS COMBINATIONS
The Mississippi Shareholder Protection Act (MSPA) regulates business
combinations such as merger, consolidations and asset purchases where before or
after the transaction the acquiror was an "interested shareholder." Under the
MSPA, an "interested shareholder" is the beneficial owner, directly or
indirectly, of 20% or more of the voting power of the outstanding stock of the
corporation or is an affiliate of the corporation and at any time within the
two year period prior to the date in question was the beneficial owner,
directly or indirectly, of 20% or more of the voting power of the outstanding
stock of the corporation.
The MSPA requires a business combination with an interested shareholder to
be approved by (i) 80% of the votes entitled to be cast by outstanding shares
of voting stock, voting as a single class and (ii) 2/3 of the votes entitled to
be cast which are held by the disinterested shareholders of the corporation,
voting as a single class. However, a business combination is not subject to
these voting requirements if the business combination meets certain fairness
standards set forth in the MSPA or is approved by 80% of certain directors of
the corporation.
The MSPA applies to domestic corporations which have securities listed on
a securities exchange registered under the Exchange Act. No shares of stock of
Peoples are registered on such an exchange.
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The Peoples Bylaws provide that the directors must consider all factors
they deem relevant in evaluating any proposed tender or exchange offer for the
Peoples Common Stock, any proposed merger or consolidation of Peoples with or
into another corporation and any proposal to purchase or otherwise acquire all
the assets of Peoples. The directors are required to evaluate whether the
proposal is in the best interest of Peoples by considering the best interests
of its shareholders and other factors that the directors determine to be
relevant, including the social, legal and economic effects on employees,
customers and communities served by Peoples. The directors are required to
evaluate the consideration being offered to the shareholders in relation to the
then current market value of Peoples Common Stock in a freely negotiated
transaction and the directors' estimate of the future value of the shares of
Peoples as an independent entity.
Tennessee's Business Combination Act ("BCA") provides that a party owning
10% or more of stock in a "resident domestic corporation" (such party is called
an "interested shareholder") cannot engage in a business combination with the
resident domestic corporation unless the combination (1) takes place at least 5
years after the interested shareholder first acquired 10% or more of the
resident domestic corporation, and (ii) either (A) is approved by at least 2/3
of the non-interested voting shares of the resident domestic corporation or (B)
satisfies certain fairness conditions specified in the BCA.
These provisions of the BCA apply unless one of two events occurs. A
business combination with an entity can proceed without delay when approved by
the target corporation's board of directors before that entity becomes an
interested shareholder, or the resident corporation may enact a charter
amendment or bylaw to remove itself entirely from the BCA. This charter
amendment or bylaw must be approved by a majority of the shareholders who have
held shares for more than one year prior to the vote. It may not take effect
for at least 2 years after the vote. FTNC has not adopted a charter or bylaw
amendment removing FTNC from coverage under BCA.
The BCA further provides an exemption from liability for officers and
directors of resident domestic corporation who do not approve apposed business
combinations or charter amendments and bylaws removing their corporations from
the BCA's coverage as long as the officers and directors act in "good faith
belief" that the proposed business combination would adversely affect their
corporation's employees, customers, suppliers, or the communities in which
their corporation operates and such factors are permitted to be considered by
the board of directors under the charter.
The United States Court of Appeals for the Sixth Circuit has held that the
BCA is unconstitutional as it applies to target corporations organized under
the laws of states other than Tennessee (such as Peoples).
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act ("TACPA") is the
vehicle through which the Business Combination Act and the TCSAA can govern
foreign corporations. The TACPA provides that an authorized corporation can
adopt a bylaw or a charter provision electing to be subject to the operative
provisions of the Business Combination Act and the TCSAA, which then become
applicable "to the same extent as such provisions apply to a resident domestic
corporation." Authorized corporations are those that are required to obtain a
certificate authority from the Tennessee Secretary of State and that satisfy
any two of certain tests including having its principal place of business
located in Tennessee; having a significant subsidiary located in Tennessee;
having a majority of such corporation's fixed assets located in Tennessee;
having more than 10% of the beneficial owners of the voting stock or more than
10% of such corporation's shares of voting stock beneficially owned by
residents of Tennessee; employing more than 250 individuals in Tennessee or
having an annual payroll paid to residents of Tennessee that is in excess of $5
million; producing goods and/or services in Tennessee that result in annual
gross receipts in excess of $10 million; or having physical assets and/or
deposits located within Tennessee that exceed $10 million in value.
United States Court of Appeals for the Sixth Circuit, however, has held
the TACPA unconstitutional as it applies to target corporations organized under
the laws of states other than Tennessee (such as Peoples).
- 52 -
57
The MBCA contains no similar provisions with respect to authorized
corporation protection.
CONFLICT OF INTEREST TRANSACTIONS
The MBCA generally permits transactions involving Peoples and an
interested director of Peoples if (i) the material facts are disclosed and a
majority of disinterested directors consents, (ii) the material facts are
disclosed and a two-thirds majority of disinterested shares entitled to vote
thereon consents or (iii) the transaction is fair to Peoples. The Peoples
Bylaws provide that no contract or other transaction between Peoples and any
other corporation will be affected by the fact that a director is interested in
or a director or officer of the other corporation and that a director may be a
party to or interested in a contract with Peoples. The Peoples Bylaws provide
that every person who becomes a director is relieved from liability that might
otherwise exist from contracting with Peoples for himself or herself or any
corporation in which the director may be interested.
The TBCA generally permits transactions involving FTNC and an interested
director of FTNC if (i) the material facts are disclosed and a majority of
disinterested directors or a committee of the FTNC Board consents, (ii) the
material facts are disclosed and a majority of disinterested shares entitled to
vote thereon consents or (iii) the transaction is fair to FTNC. The TCBA
prohibits loans to directors by FTNC unless approved by majority vote of
disinterested shareholders or the FTNC Board determines that the loan benefits
FTNC and either approves the specific loan or a general plan of loans by FTNC.
INSPECTION RIGHTS
Both the MBCA and the TBCA contain provisions granting shareholders the
right to inspect certain records of each corporation. Under the MBCA, a
shareholder of Peoples is entitled to inspect and copy, during regular business
hours at Peoples principal office, the articles of incorporation, bylaws,
resolutions of the board creating classes or series of shares, minutes of
shareholder meetings and actions taken without a meeting during the past three
years, written communications to shareholders generally within the past three
years including financial statements, a list of the names and business
addresses of the current directors and officers of Peoples and its most recent
annual report delivered to the Mississippi Secretary of State. In addition, a
shareholder who makes a demand in good faith, for a proper purpose, and
describes with reasonable particularity his purpose and the records he desires
to inspect, and the records are directly connected with his purpose, may upon
five business days' written notice inspect and copy excerpts from minutes of
board meetings, records of any action of a board committee acting in place of
the board, minutes of shareholder meetings, records of action taken by the
shareholders without a meeting, accounting records of Peoples and the record of
shareholders.
Under the TCBA, FTNC shareholders are also entitled to inspect and copy,
during regular business hours at FTNC's principal office, the minutes of
shareholder meetings, charter, bylaws, annual reports, and certain other
records of the corporation, provided the shareholder gives the corporation
written notice of his demand at least five business days before the date on
which he wishes to inspect and copy the records. In addition, a shareholder
who makes a demand in good faith, for a proper purpose, and describes with
reasonable particularity his purpose and the records he desires to inspect, and
if the records are directly connected with his purpose, may also, upon five
days' written notice, inspect and copy accounting records of FTNC, records of
shareholders and excerpts from minutes of any meeting of the FTNC Board,
records of any action of a committee of the FTNC Board while acting in place of
the board, minutes of any meeting of shareholders, and records of action taken
by the shareholders or board without a meeting.
VACANCIES ON BOARD OF DIRECTORS
The Peoples Bylaws provide that newly created directorships resulting from
an increase in the number of directors and vacancies for any reasons may be
filled for the remainder of the unexpired term of the vacancy or until the next
annual meeting by a majority vote of the directors then in office, even if less
than a quorum exists.
- 53 -
58
Under the FTNC Bylaws newly created directorships resulting from an
increase in the number of directors and any vacancies on the FTNC Board must be
filled only by the FTNC Board. The TBCA provides that the term of a director
elected to fill a vacancy expires at the next shareholder's meeting at which
directors are elected.
CONTROL SHARE ACQUISITIONS
Both the Tennessee Control Share Acquisition Act ("TCSAA") and the
Mississippi Control Share Acquisition Act ("MCSAA") strip a purchaser's shares
of voting rights any time an acquisition of shares in a covered corporation
brings the purchaser's voting power to 1/5, 1/3 or a majority of all voting
power. The purchaser's voting rights can be established only by a majority
vote if the purchaser announces a good faith intention to make the control
share acquisition. Under the TCSAA, the purchaser can demand such a meeting
before acquiring a control share only if it holds at least 10% of the
outstanding shares. Under the MCSAA, the control shares will regain the voting
rights 3 years after the date of a shareholder's vote which failed to approve
the voting rights of such control shares.
The MCSAA applies to corporations which have securities registered under
Section 12 or Section 15(d) of the Exchange Act and have either: (1) more than
10% of its shareholders resident in Mississippi, (ii) more than 10% of its
shares hold by Mississippi residents or (iii) 500 shareholders resident in
Mississippi. A corporation which does not meet all of these criteria may elect
to be covered by the MCSAA if it has 100 or more shareholders of record and
meets one of the criteria of (i) - (iii) above. Peoples does not have
securities registered under the Exchange Act and has not elected to be covered
by the MCSAA.
The TCSAA applies to corporations which have 100 or more shareholders and
its principal place of business or principal office in Tennessee and either (i)
more than 10% of its shareholders reside in Tennessee, (ii) more than 10% of
its shares are owned by shareholders who reside in Tennessee, or (iii) 10,000
or more shareholders reside in Tennessee, and the corporation elect to be
governed by the TCSAA. In addition, pursuant to the Tennessee Authorize
Corporation Act certain other corporations which do not meet the criteria of
TCSAA may elect to be covered by the TCSAA. FTNC has not elected to be
governed by the TCSAA.
TENDER OFFERS
The Mississippi Business Tender Offer law of 1980 ("MBTOL") applies to
tender offers directed at corporations (the "subject company") that have
"substantial assets" in Mississippi and at least 20 percent of its outstanding
equity securities are owned by residents of Mississippi, The MBTOL requires an
offeror making a tender offer for a subject company to file with the Secretary
of State a registration statement. When the offeror intends to gain control of
the subject company, the registration statement must indicate any plans the
offeror has for the offeree. The Secretary of State may require additional
information material concerning the takeover and may call for hearings.
Certain transactions are exempted from the MBTOL, including an offer in which
the consideration is in whole or part securities registered under the
Securities Act of 1933.
Tennessee's Investor Protection Act ("TIPA") applies to tender offers
directed at corporations (called "offeree companies") that have "substantial
assets" in Tennessee and that are either incorporated in or have a principal
office in Tennessee. The TIPA requires an offeror making a tender offer for an
offeree company to file with the commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree. The Commissioner may require additional
information related to the takeover offer and may call for hearings. The TIPA
does not apply to an offer that the offeree company's board of directors
recommends to its shareholders.
GREENMAIL ACT
The Tennessee Greenmail Act ("TGA") applies to any corporation chartered
under the laws of Tennessee which has a class of voting stock registered or
traded on a national securities exchange or registered with the SEC pursuant to
Section 12(g) of the Exchange Act, such as FTNC. The TGA provides that it is
unlawful for any corporation
- 54 -
59
or subsidiary to purchase, either directly or indirectly, any if its shares at
a price above the market value, as defined in the TGA, from any person who
holds more than 3% of the class of the securities purchased if such person has
held such shares for less than 2 years, unless either the purchase is first
approved by the affirmative vote of a majority of the outstanding shares of
each class of voting stock issued or the corporation the corporation makes an
offer of at least equal value per share to all holders of shares of such class.
The MBCA contains no similar provisions with respect to such purchases of
shares by a corporation.
DISSENTERS' RIGHTS
The MBCA and TBCA generally provide dissenters' rights for mergers and
share exchanges that would require shareholder approval, sales of substantially
all the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in
respect of a dissent's shares. Under TBCA, however, dissenters' rights are not
available as to any shares which are listed on an exchange registered under
Section 6 of the Exchange Act or are "national market system" securities as
defined in rules promulgated pursuant to the Exchange Act (such as FTNC Common
Stock).
RIGHTS OF HOLDERS OF CAPITAL NOTES
On June 10, 1987, FTNC issued Capital Notes due in 1999. At maturity, the
capital Notes will be exchanged for Capital Securities having a market value
equal to the principal amount of the notes. See "Description of FTNC Capital
Stock--Subordinated Capital Notes due 1999."
SHAREHOLDER RIGHTS PLAN
For a discussion of the FTNC Shareholder Rights Plan, see "Description of
FTNC Stock-Shareholder Rights Plan." The Peoples Board has not adopted a
shareholder rights plan.
VALIDITY OF COMMON STOCK
A legal opinion to the effect that the shares of FTNC Common Stock and
associated Rights offered hereby, when issued in accordance with the Agreement,
will be validly issued, fully paid and nonassessable, has been rendered by
Clyde A. Billings, Jr., Vice President and Counsel, First Tennessee National
Corporation. Mr. Billings beneficially owns approximately 10,400 shares of
FTNC Common Stock.
Baker, Donelson, Bearman & Caldwell, a Professional Corporation, has
rendered an opinion, summarized above in the section entitled "--Certain
Federal Income Tax Consequences." Attorneys in the firm beneficially own
approximately 25,000 shares of FTNC Common Stock.
EXPERTS
The consolidated financial statements of FTNC and its subsidiaries
incorporated in this Proxy Statement-Prospectus by reference from FTNC's Annual
Report on Form 10-K for the year ended December 31, 1993 have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
dated January 18, 1994, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Peoples as of December 31, 1993, and for the
year ended December 31, 1993, included in this Proxy Statement-Prospectus have
been audited by Williams & Pitts, as set forth in their report dated November
8, 1994, included herein. These financial statements are included herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. Representatives of Williams & Pitts are expected to
be present at the Special Meeting, will have an opportunity to make a statement
if they desire to do so, and are expected to be available to respond to
appropriate questions.
- 55 -
60
With respect to the 1991 financial statements of Home Financial
Corporation, a company acquired by FTNC during 1992 in a transaction accounted
for as a pooling-of-interests, Arthur Andersen LLP relied upon the report of
Baylor and Backus, independent accountants, whose report dated February 21,
1992, except with respect to the information discussed in Note 27, as to which
the date is October 21, 1992, was incorporated by reference in FTNC's Form 10-K
for 1993 and is incorporated herein by reference.
The consolidated financial statements of Maryland National Mortgage
Corporation and subsidiaries, appearing in First Tennessee National
Corporation's Current Report on Form 8-K, dated October 1, 1993, for the year
ended December 31, 1992, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements
referred to above are incorporated herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
INDEX TO PRO FORMA FINANCIAL INFORMATION
Page
----
FTNC Pro Forma Combined Condensed Statement of Condition as of
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 2
FTNC Pro Forma Combined Condensed Statement of Condition as of
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 3
FTNC Pro Forma Combined Condensed Statements of Income for the Nine Months Ended
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 4
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 5
INDEX TO PEOPLES FINANCIAL INFORMATION
As of and for the Year Ended December 31, 1993
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Statement of Financial Condition as of December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Income for the Year Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of Changes in Stockholders' Equity for the Year Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . F-4
Statement of Cash Flows for the Year Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
As of and for the Years Ended December 31, 1992 and 1991 (Unaudited)
Statements of Financial Condition as of December 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Statements of Income for the Years Ended December 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Cash Flows for the Years Ended December 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
As of and for the Nine Months Ended September 30, 1994 and 1993 (Unaudited)
Statements of Financial Condition as of September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Income for the Nine Months Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . F-23
- 56 -
61
Statements of Changes in Stockholders' Equity for the Nine Months
Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Statements of Cash Flow for the Nine Months
Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
- 57 -
62
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of
condition as of September 30, 1994 and as of December 31, 1993 combine the
historical consolidated statements of condition of FTNC and Peoples as if the
Merger had been in effect on September 30, 1994 and on December 31, 1993, after
giving effect to a repurchase of the amount of FTNC Common Stock necessary to
complete the acquisition of Peoples, which was approved by the FTNC Board, and
purchase accounting adjustments identified on the statements. The unaudited
pro forma combined statements of income present the combined results of
operations of FTNC and Peoples for the nine month period ended September 30,
1994 and the year ended December 31, 1993, as if the Merger had been effective
on January 1, 1993, after giving effect to the repurchase of FTNC Common Stock
and purchase accounting adjustments.
The unaudited pro forma combined financial statements and accompying
notes reflect the application of the purchase method of accounting. Under this
method of accounting, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated fair values, net of
applicable income tax effects, at the Effective Date. FTNC's statements are
adjusted for the completed acquisitions of Planters Bank, Cleveland Bank and
Trust Company, Highland Capital Management Corp., and SNMC Management
Corporation, which were accounted for as pooling-of-interest, and accordingly,
reflect the financial position and results of operation of all companies on a
combined basis.
Pro forma results presented for the nine month period and for the year
are not necessarily indicative of the future financial position or future
results of operations of the combined company or of the financial position or
results of operations of the combined company that would have actually occurred
had the Merger been in effect as of the dates or for the periods presented.
On October 1, 1994, FTNC acquired Emerald Mortgage Company, Lynnwood,
Washington ("Emerald"), which was merged into Sunbelt National Mortgage
Corporation, for approximately 152,000 shares of FTNC Common Stock. At
September 30, 1994, Emerald had approximately $1.1 million in assets and $0.5
million in capital. The transaction is not included in the following pro forma
combined condensed statements of condition or income.
On January 3, 1995, FTB acquired Carl I. Brown and Company ("CIB"),
Kansas City, Missouri, for approximately 910,000 shares of FTNC Common Stock.
At July 31, 1994, CIB had total assets of approximately $139.4 million and a
servicing portfolio of $2.6 billion. The transaction is not included in the
following pro forma statements.
On October 19, 1994, FTNC announced the execution of a definitive
agreement to acquire Community Bancshares, Inc. ("Community"). Community will
be merged with and into FTNC , and based on a price of $45.75 per share for
FTNC Common Stock, each shareholder will receive .39067 shares of FTNC Common
Stock for each share of Community stock, for a total of approximately 1.34
million shares of FTNC Common Stock. The number of FTNC shares will be
adjusted if the price of FTNC Common Stock is outside the range of $43.52 to
$51.00. The transaction is subject to regulatory and Community shareholder
approvals and is expected to close in the first quarter of 1995. The
transaction is not included in the following pro forma statements.
PF-1
63
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED
STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1994
FTNC Adjust-
(Thousands) Pro Forma (1) Peoples ment (2) Pro Forma
===================================================================================================================
ASSETS
Cash and cash equivalents $ 890,728 $ 14,192 $ (21,904) $ 883,016
Investments in bank time deposits 2,745 2,745
Trading account securities inventory 223,227 223,227
Assets available for sale 1,655,826 1,655,826
Investment securities held to maturity 937,221 37,003 86 974,310
Net loans 6,011,184 43,752 6,054,936
Premises and equipment, net 148,492 984 149,476
Real estate acquired by foreclosure 21,609 43 21,652
Mortgage servicing rights 70,436 70,436
Other identifiable intangible assets 26,450 2,147 28,597
Goodwill 61,561 4,394 65,955
Customers' acceptances 3,562 3,562
Other assets 393,825 1,554 395,379
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 10,446,866 $ 97,528 $ (15,277) $ 10,529,117
===================================================================================================================
LIABILITIES
Deposits $ 7,593,883 $ 85,876 $ $ 7,679,759
Federal funds purchased and securities
sold under agreements to repurchase 1,155,809 1,155,809
Other borrowings 492,930 492,930
Long term debt 91,701 91,701
Acceptances outstanding 3,562 3,562
Other liabilities 356,984 595 357,579
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,694,869 86,471 --- 9,781,340
SHAREHOLDERS' EQUITY
Common stock 80,507 665 (775) 80,397
Surplus 94,397 10,165 (14,275) 90,287
Retained earnings 594,083 1,045 (1,045) 594,083
Net unrealized loss on marketable
equity securities (13,931) (818) 818 (13,931)
Deferred compensation on restricted stock
incentive plan (3,059) (3,059)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 751,997 11,057 (15,277) 747,777
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,446,866 $ 97,528 $ (15,277) $ 10,529,117
===================================================================================================================
(1) FTNC amounts as of September 30, 1994 do not include the acquisition of
Emerald Mortgage Company which closed October 1, 1994 and was immaterial,
or the pending acquisitions of Carl I. Brown and Co. and Community
Bancshares, Inc. scheduled to close in 1995.
(2) Reflects the transaction to purchase 465,000 shares of FTNC common stock
at a cost of approximately $21.9 millon, the issuance of 421,051 shares of
FTNC common stock to acquire Peoples Commercial Services, Inc. based on a
price of $42.00 per share, and the mark to market for purchase accounting
based on the September 30 statement of condition of Peoples.
PF-2
64
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF CONDITION
AS OF
DECEMBER 31, 1993
Adjust-
(Thousands) FTNC (1) Peoples ment (2) Pro Forma
==================================================================================================================
ASSETS
Cash and cash equivalents $ 760,747 $ 5,013 $ (21,904) $ 743,856
Investments in bank time deposits 7,637 7,637
Trading account securities inventory 178,663 178,663
Assets held for sale 1,152,721 1,152,721
Investment securities 2,220,087 39,273 681 2,260,041
Net loans 5,329,249 40,176 5,369,425
Premises and equipment, net 136,230 1,092 137,322
Real estate acquired by foreclosure 31,658 31,658
Mortgage servicing rights 82,625 82,625
Other identifiable intangible assets 28,905 1,890 30,795
Goodwill 62,565 4,413 66,978
Customers' acceptances 4,871 4,871
Other assets 370,739 1,161 371,900
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 10,366,697 $ 86,715 $ (14,920) $ 10,438,492
==================================================================================================================
LIABILITIES
Deposits $ 7,402,581 $ 75,608 $ 7,478,189
Federal funds purchased and securities
sold under agreements to repurchase 1,014,644 1,014,644
Other borrowings 746,561 746,561
Long term debt 92,043 92,043
Acceptances outstanding 4,871 4,871
Other liabilities 412,413 407 412,820
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 9,673,113 76,015 0 9,749,128
SHAREHOLDERS' EQUITY
Common stock 80,079 665 (775) 79,969
Surplus 90,198 10,165 (14,275) 86,088
Retained earnings 525,682 (130) 130 525,682
Deferred compensation on restricted stock
incentive plan (2,375) (2,375)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 693,584 10,700 (14,920) 689,364
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 10,366,697 $ 86,715 $ (14,920) $ 10,438,492
==================================================================================================================
(1) FTNC amounts as of December 31, 1993 include the acquisitions of SNMC
Management Corporation, Cleveland Bank and Trust Company, Highland Capital
Management Corp., and Planters Bank which have closed during 1994 and have
been accounted for as poolings of interests. Amounts do not include the
acquisition of Emerald Mortgage Company which closed October 1, 1994 and is
immaterial, or the pending acquisitions of Carl I. Brown and Co. and
Community Bancshares, Inc. scheduled to close in 1995.
(2) Reflects the transaction to purchase 465,000 shares of FTNC common stock
at a cost of approximately $21.9 millon, the issuance of 421,051 shares of
FTNC common stock to acquire Peoples Commercial Services, Inc. based on a
price of $42.00 per share, and the mark to market for purchase accounting
based on the December 31 statement of condition of Peoples.
PF-3
65
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
Adjust-
(Thousands) FTNC (1) Peoples ment (3) Pro Forma
============================================================================================================
Interest income:
Interest and fees on loans $ 381,904 $ 2,887 $ $ 384,791
Interest on investment securities 93,583 1,883 95,466
Interest on trading securities inventory 9,449 9,449
Interest on other earning assets 5,619 (670) 4,949
- ------------------------------------------------------------------------------------------------------------
Total interest income 490,555 4,770 (670) 494,655
- ------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 150,545 1,810 152,355
Interest on other borrowings 45,278 45,278
Interest on long-term debt 6,787 6,787
- ------------------------------------------------------------------------------------------------------------
Total interest expense 202,610 1,810 0 204,420
- ------------------------------------------------------------------------------------------------------------
Net interest income 287,945 2,960 (670) 290,235
Provision for loan losses 12,558 90 12,648
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 275,387 2,870 (670) 277,587
- ------------------------------------------------------------------------------------------------------------
Noninterest income:
Bond division 63,759 63,759
Service charges on deposit accounts 46,853 415 47,268
Mortgage banking 88,102 88,102
Bank card 22,620 22,620
Trust service 20,738 20,738
Securities gains (losses) 22,580 (20) 22,560
Other 35,096 85 35,181
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 299,748 480 0 300,228
- ------------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation, incentives, and benefits 226,735 964 227,699
Operations services 24,702 24,702
Occupancy 22,110 250 22,360
Communications and courier 19,699 19,699
Equipment rentals, depreciation, and
maintenance 17,709 17,709
Deposit insurance premium 12,250 140 12,390
Amortization of intangible assets 16,326 292 16,618
Other 78,089 346 78,435
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense 417,620 1,700 292 419,612
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 157,515 1,650 (962) 158,203
Applicable income taxes 48,267 474 (295) 48,446
- ------------------------------------------------------------------------------------------------------------
Net income $ 109,248 $ 1,176 $ (667) $ 109,757
============================================================================================================
Net income per common share $ 3.40 $ 8.84 $ $ 3.42
- ------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding (2) 32,132 133 32,132
- ------------------------------------------------------------------------------------------------------------
(1) FTNC amounts as of September 30, 1994 do not include the acquisition of
Emerald Mortgage Company which closed October 1, 1994 and is immaterial,
or the pending acquisitions of Carl I. Brown and Company and Community
Bancshares, Inc. scheduled to close in 1995.
(2) Pro forma weighted average shares outstanding have been calculated using
FTNC's current weighted average shares because the FTNC shares exchanged
for the shares of Peoples Commercial Services, Inc. had been repurchased
in contemplation of the acquisition.
(3) Interest on other earning assets is being reduced due to the loss of
earnings from funds used to repurchase FTNC shares. Amortization of
intangibles is increased to reflect the amortization of the premium paid
on purchased deposits and goodwill.
PF-4
66
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE YEAR ENDED
DECEMBER 31, 1993
Adjust-
(Thousands) FTNC (1) Peoples ment (3) Pro Forma
============================================================================================================
Interest income:
Interest and fees on loans $ 435,039 $ 3,546 $ $ 438,585
Interest on investment securities 176,764 2,516 179,280
Interest on trading securities inventory 9,304 9,304
Interest on other earning assets 3,875 98 (572) 3,401
- ------------------------------------------------------------------------------------------------------------
Total interest income 624,982 6,160 (572) 630,570
- ------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 197,103 2,295 199,398
Interest on other borrowings 55,106 55,106
Interest on long-term debt 9,315 9,315
- ------------------------------------------------------------------------------------------------------------
Total interest expense 261,524 2,295 0 263,819
- ------------------------------------------------------------------------------------------------------------
Net interest income 363,458 3,865 (572) 366,751
Provision for loan losses 35,697 111 35,808
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 327,761 3,754 (572) 330,943
- ------------------------------------------------------------------------------------------------------------
Noninterest income:
Bond division 91,525 91,525
Service charges on deposit accounts 57,420 520 57,940
Mortgage banking 85,640 85,640
Bank card 28,467 28,467
Trust service 26,532 26,532
Securities gains 805 805
Other 44,418 165 44,583
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 334,807 685 0 335,492
- ------------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation, incentives, and benefits 265,851 1,345 267,196
Operations services 28,482 28,482
Occupancy 24,863 393 25,256
Communications and courier 21,544 21,544
Equipment rentals, depreciation, and
maintenance 20,264 20,264
Deposit insurance premium 16,014 16,014
Amortization of intangible assets 30,811 366 31,177
Other 84,069 626 84,695
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense 491,898 2,364 366 494,628
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 170,670 2,075 (938) 171,807
Applicable income taxes 64,588 635 (355) 64,868
- ------------------------------------------------------------------------------------------------------------
Net income $ 106,082 $ 1,440 $ (583) $ 106,939
============================================================================================================
Net income per common share $ 3.31 $ 10.83 $ $ 3.34
- ------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (2) 32,031 133 32,031
- ------------------------------------------------------------------------------------------------------------
(1) FTNC amounts as of December 31, 1993 include the acquisitions of SNMC
Management Corporation, Cleveland Bank and Trust Company, Highland
Capital Management Corp., and Planters Bank which have closed during 1994
and have been accounted for as poolings of interests. Amounts do not
include the acquisition of Emerald Mortgage Company which closed October
1, 1994 and is immaterial, or the pending acquisitions of Carl I. Brown
and Co. and Community Bancshares, Inc. scheduled to close in 1995.
(2) Pro forma weighted average shares outstanding have been calculated using
FTNC's weighted average shares because the FTNC shares exchanged for
the shares of Peoples Commercial Services, Inc. had been repurchased in
contemplation of the acquisition.
(3) Interest on other earning assets is being reduced due to the loss of
earnings from funds used to repurchase FTNC shares. Amortization of
intangibles is increased to reflect the amortization of the premium paid
on purchased deposits and goodwill.
PF-5
67
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Peoples Commercial Services Corporation
Senatobia, Mississippi
We have audited the accompanying statement of financial condition of Peoples
Commercial Services Corporation as of December 31, 1993, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peoples Commercial Services
Corporation as of December 31, 1993, and the results of operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Williams & Pitts
- --------------------
Williams and Pitts
Certified Public Accountants
November 8, 1994
F-1
68
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993
(in thousands)
Assets
Cash and Due from Banks $ 5,013
Investment Securities (See Note 8) 39,273
Loans, Less Allowance for Loan
Losses (See Note 2) 40,176
Office Buildings and Equipment (See Note 3) 1,092
Interest Receivable 855
Other Assets 306
--------
Total Assets $ 86,715
========
Liabilities and Stockholder's Equity
Liabilities
Deposits
Demand $ 10,105
Interest Bearing Demand 17,364
Savings 11,521
Time 36,618
--------
Total Deposits 75,608
Accrued Interest 335
Income Taxes Payable 26
Other Liabilities 46
--------
Total Liabilities 76,015
--------
Stockholder's Equity
Common Stock, Par Value $5; 200 shares
authorized, 160 shares issued and
133 shares outstanding 665
Surplus 9,500
Retained Earnings (130)
Paid-in Capital 665
--------
Total Stockholder's Equity 10,700
--------
Total Liabilities and Stockholder's
Equity $ 86,715
========
See accompanying notes and accountants' report.
F-2
69
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands, except share data)
Interest Income
Interest and Fees on Loans $ 3,546
Interest on Investment Securities
U.S. Treasury Securities 223
Obligations of Other U.S. Government
Agencies and Corporations 1,726
Obligations of States and Political
Subdivisions 505
Other Securities 62
Interest on Federal Funds Sold 98
--------
Total Interest Income 6,160
Interest Expense on Deposits 2,295
--------
Net Interest Income 3,865
Provision for Loan Losses (See Note 2) 111
--------
Net Interest Income after Provision
for Loan Losses 3,754
--------
Other Income
Service Fees 520
Other 165
--------
Total Other Income 685
--------
Other Expenses
Salaries 1,046
Pensions and Other Employee
Benefits (See Note 5) 299
Occupancy Expenses 393
Other Operating Expenses 626
--------
Total Other Expenses 2,364
--------
Income Before Income Taxes 2,075
Income Taxes (See Note 6) 635
--------
Net Income $ 1,440
========
Net Income Per Common Share $ 10.82
========
See accompanying notes and accountants' report.
F-3
70
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
Number
of Common Retained Paid-In Treasury
Shares Stock Surplus Earnings Capital Stock Total
------ ------- --------- -------- --------- ------- -------
Balance as of
December 31, 1992 133 $ 665 $ 9,000 $ (599) $ 666 $ $ 9,732
Net Income 1,440 1,440
Dividends (466) (466)
Transfer 500 (500)
Purchase Treasury
Stock (6) (6)
Retire 100 shares
Treasury Stock (5) (1) 6
------ ------- --------- -------- -------- -------- -------
Balance as of
December 31, 1993 133 $ 665 $ 9,500 $ (130) $ 665 $ -0- $10,700
====== ======= ========= ======== ======== ======== =======
See accompanying notes and accountants' report.
F-4
71
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993
(in thousands)
Cash Flows from Operating Activities:
Net Income $ 1,440
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 212
Provision for Loan Losses 50
Decrease in Interest Receivable 125
(Increase)Decrease in Other Assets (136)
Increase(Decrease) in Accrued Interest 11
Increase(Decrease) in Other Liabilities 71
-------
Net Cash Provided by Operating Activities 1,773
-------
Cash Flows from Investing Activities:
Net Increase in Interest-Bearing Deposits 3,677
Net Decrease in Federal Funds Sold 3,600
Purchase of Investment Securities (21,748)
Proceeds from the Maturities, Sale, or Call
of Investment Securities 18,901
Net (Increase) in Loans (6,167)
Purchases of Equipment (116)
-------
Net Cash Provided by (Used in) Investing
Activities (1,853)
-------
Cash Flows from Financing Activities
Net (Decrease) in Non-Interest Bearing Deposits (1,214)
Dividends Paid (466)
Purchase of Treasury Stock (6)
-------
Net Cash Used in Financing Activities (1,686)
-------
Net Increase(Decrease) in Cash and Due
from Banks (1,766)
Cash and Due from Banks - Beginning of Year 6,779
-------
Cash and Due from Banks - End of Year $ 5,013
=======
See accompanying notes and accountants' report.
F-5
72
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(in thousands)
1. Summary of Significant Accounting Policies
Consolidation Policy:
These financial statements present the results of operations,
statement of cash flows and financial position of Peoples
Commercial Services Corporation and it's wholly owned subsidiary,
Peoples Bank. The bank services the Tate County, Mississippi area.
Investment Securities:
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments
to interest income. Gains and losses on disposition are based on the
net proceeds and the adjusted carrying value amount of the securities
sold, using the specific identification method.
Loans and Allowances for Loan Losses:
Loans are stated at the amount of unpaid principal, reduced by unearned
discounts and an allowance for loan losses. Unearned discounts on
installment loans are recognized as income over the term of the loans by
the rule of seventy-eighths. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal
amount outstanding. The allowance for loan losses is established through
a provision for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the
borrowers' ability to pay. Accrual of interest is discontinued on a loan
when management believes, after considering economic and business
conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful.
Office Buildings and Equipment:
Office equipment and buildings are stated at their cost less accumulated
depreciation computed principally on the straight-line method over the
estimated useful lives of the assets.
F-6
73
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(CONTINUED)
(in thousands)
1. Summary of Significant Accounting Policies (Continued)
Income Taxes:
Deferred income taxes are reported for temporary differences between
items of income and expense reported in the financial statements and
those for income tax purposes. The differences relate principally to
depreciation of an office building, accretion of discounts on investment
securities and provision for loan losses.
Earnings Per Share:
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding.
Cash and Cash Equivalents
For the purpose of presentation in the Statement of Cash Flows,
cash and cash equivalents are defined as those amounts included
in the balance sheet caption "Cash and Due from Banks".
2. Loans
Major classes of loans are as follows:
Secured by Residential Properties $16,450
Commercial Loans 4,962
Secured by Farm Land and
Agricultural Production 4,479
Loans to Individuals 7,820
Other Loans 9,631
-------
43,342
Less Unearned Discounts 2,365
Less Allowance for Loan Losses 801
-------
Loans - Net $40,176
=======
F-7
74
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STAEMENTS
DECEMBER 31, 1993
(CONTINUED)
(in thousands)
2. Loans (Continued)
Maturities of the fixed rate loans as of December 31, 1993 approximate the
following:
Due in One Year or Less $25,537
Due from One to Five Years 17,180
Due from Five to Ten Years 625
-------
Total Loans 43,342
Less: Unearned Discounts 2,365
Allowance for Loan Losses 801
-------
Loans - Net $40,176
=======
Loans on which the accrual of interest have been discontinued or
reduced amounted to $114 as of December 31, 1993. If interest on
those loans had been accrued such income would have approximated
$3. Interest income on these loans is recorded only when received.
Changes in the allowance for loan losses were as follows:
Balance, January 1, 1993 $ 751
Provision charged to operations 111
Loans charged off (107)
Recoveries 46
--------
Balance, December 31, 1993 $ 801
========
F-8
75
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(CONTINUED)
(in thousands)
3. Office Buildings and Equipment
Major classifications of these assets are summarized as follows:
Land $ 226
Buildings 1,344
Equipment 1,121
------
Total Cost 2,691
Accumulated Depreciation (1,599)
------
Land, Buildings and Equipment, net $1,092
======
4. Deposits
Certificates of deposit of $100 or more approximated $12,185
at December 31, 1993. Interest paid was as follows:
Interest Expense $2,295
Accrued Interest:
Beginning of Year 324
End of Year (335)
------
Interest Paid $2,284
======
5. Profit Sharing Plan
The board of directors determines funding to the noncontributory defined
contribution profit sharing plan. Contributions were $70 for the
years ended December 31, 1993. Plan costs are charged to employee
benefits expense. Anyone employed by the bank for one year is eligible.
F-9
76
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(CONTINUED)
(in thousands)
6. Income Taxes
Income tax expense is as follows:
Current Income Tax Expense $ 493
Deferred Tax Benefit 28
------
$ 521
======
Prepaid income taxes as of December 31, 1993 were $166. Income taxes paid
during 1993 were $635. As of December 31, 1993, the deferred tax benefit
recorded was $146.
7. Concentration of Loans
The majority of the Bank's loans have been granted to customers in the
Bank's market area. Most loan customers are depositors of the Bank. The
maturities and types of loans are set forth in Note 2.
8. Investment Securities
Carrying amounts and approximate market values of investment securities
are summarized as follows:
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
-------- ---------- ---------- -------
U.S. Treasury Securities $ 1,960 $ 35 $ $ 1,995
Obligations of Other U.S.
Government Agencies and
Corporations 26,432 442 89 26,785
Obligations of States and
Political Subdivisions 9,973 520 47 10,446
Corporate Debt Securities 734 46 780
Other Securities 174 4 178
-------- ---------- --------- -------
Total Investment Securities $ 39,273 $ 1,047 $ 136 $40,184
======== ========== ========= =======
F-10
77
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(CONTINUED)
(in thousands)
8. Investment Securities (Continued)
Maturities of investments are as follows:
Within One to
One Five
Year Years
---------------- ----------------
Book Market Book Market
------- -------- ------- --------
U.S. Treasury Securities $ 1,458 $ 1,481 $ 502 $ 514
Obligations of Other U.S.
Government Agencies and
Corporations 12,715 13,004
Obligations of States and
Political Subdivisions 404 415 2,380 2,591
Corporate Debt Securities 624 661
Other Securities
------- ------- ------- -------
Totals $ 1,862 $ 1,896 $16,221 $16,770
======= ======= ======= =======
F-11
78
Five to After
Ten Ten
Years Years Totals
- ---------------- ---------------- ----------------
Book Market Book Market Book Market
- ------- -------- ------- -------- ------- --------
$ 1,960 $ 1,995
$ 2,008 $ 1,951 $11,709 $11,830 26,432 26,785
5,433 5,690 1,756 1,750 9,973 10,446
110 119 734 780
174 178 174 178
- ------- ------- ------- ------- ------- -------
$ 7,551 $ 7,760 $13,639 $13,758 $39,273 $40,184
======= ======= ======= ======= ======= =======
Amounts pledged as collateral for deposits from governmental entities
approximated $18,870 at December 31, 1993.
F-12
79
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1992 AND 1991
(in thousands)
1992 1991
Assets -------- --------
Cash and Due from Banks $ 6,779 $ 4,091
Investment Securities (See Note 1) 36,426 32,348
Federal Funds 3,600 5,200
Loans, Less Allowance for Loan
Losses (See Note 2) 34,060 34,098
Office Buildings and Equipment (See Note 3) 1,187 883
Interest Receivable 980 1,091
Other Assets 168 219
------- --------
Total Assets $83,200 $ 77,930
======= ========
Liabilities and Stockholder's Equity
Liabilities
Deposits
Demand $11,318 $ 15,073
Interest Bearing Demand 16,982 11,255
Savings 10,960 4,642
Time 33,885 37,240
------- --------
Total Deposits 73,145 68,210
Accrued Interest 323 523
Other Liabilities 46
Notes Payable 400
------- --------
Total Liabilities 73,468 69,179
------- --------
Stockholder's Equity
Common Stock, Par Value $5; 200 shares
authorized 148 and 160 issued, 130
and 121 outstanding respectively 665 605
Surplus 9,000 8,450
Retained Earnings (599) (304)
Paid-In Capital 666
------- --------
Total Stockholder's Equity 9,732 8,751
------- --------
Total Liabilities and Stockholder's
Equity $83,200 $ 77,930
======= ========
F-13
80
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
(in thousands except share data)
1992 1991
-------- ---------
Interest Income
Interest and Fees on Loans $ 3,407 $ 3,808
Interest on Investment Securities
U.S. Treasury Securities 385 378
Obligations of Other U.S. Government
Agencies and Corporations 1,720 1,550
Obligations of States and Political
Subdivisions 540 599
Other Securities 42 21
Interest on Federal Funds Sold 132 309
-------- --------
Total Interest Income 6,226 6,665
Interest Expense on Deposits 2,616 3,536
-------- --------
Net Interest Income 3,610 3,129
Provision for Loan Losses (See Note 2) 167 246
-------- --------
Net Interest Income after Provision
for Loan Losses 3,443 2,883
-------- --------
Other Income
Service Fees 505 525
Other 152 102
-------- --------
Total Other Income 657 627
-------- --------
Operating Income 4,100 3,510
-------- --------
Other Expenses
Salaries 947 890
Pensions and Other Employee
Benefits (See Note 5) 272 249
Occupancy Expenses 256 216
Other Operating Expenses 775 626
-------- --------
Total Other Expenses 2,250 1,981
-------- --------
Income Before Income Taxes 1,850 1,529
Income Taxes (See Note 6) 506 355
-------- --------
Net Income $ 1,344 $ 1,174
======== ========
Net Income Per Common Share $ 10.34 $ 9.70
======== ========
F-14
81
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
(in thousands)
Number
of Common Retained Paid In Treasury
Shares Stock Surplus Earnings Capital Stock Total
------ ------- --------- -------- ------- -------- -------
Balance as of
December 31, 1990 144 $ 720 $ 8,450 $ (85) $ $ 9,085
Net Income 1,174 1,174
Dividends (358) (358)
Purchase Treasury
Stock (1,150) (1,150)
Retire Treasury
Stock (23) (115) (1,035) 1,150
----- ------- --------- -------- ------- ------- -------
Balance as of
December 31, 1991 121 $ 605 $ 8,450 $ (304) $ $ 8,751
Net Income 1,344 1,344
Dividends (363) (363)
Transfer 550 (550)
Stock Dividend 12 60 (726) 666
----- ------- --------- -------- ------- ------- -------
Balance as of
December 31, 1992 133 $ 665 $ 9,000 $ (599) $ 666 $ $ 9,732
===== ======= ========= ======== ======= ======= =======
F-15
82
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
(in thousands)
1992 1991
------- -------
Cash Flows from Operating Activities:
Net Income $ 1,344 $ 1,174
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 69 68
Provision for Loan Losses 167 246
Decrease in Interest Receivable 111 70
(Increase) Decrease in Other Assets 49 (7)
Increase(Decrease) in Accrued Interest (199) (222)
Increase(Decrease) in Other Liabilities (45) 45
------- -------
Net Cash Provided by Operating Activities 1,496 1,374
------- -------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Interest-Bearing Deposits 8,689 (1,652)
Net Decrease (Increase) in Federal Funds Sold 1,600 (1,400)
Purchase of Investment Securities (4,078) (4,105)
Net (Increase) Decrease in Loans (128) 216
Purchases of Equipment (374) (35)
------- -------
Net Cash Provided by (Used in) Investing
Activities 5,709 (6,976)
------- -------
Cash Flows from Financing Activities
Increase (Decrease) in Notes Payable (400) 400
Net Increase (Decrease) in Non-Interest Bearing
Deposits (3,754) 4,854
Dividends Paid (363) (358)
Purchase Treasury Stock (1,150)
------- -------
Net Cash Used in Financing Activities (4,517) 3,746
------- -------
Net Increase(Decrease) in Cash and Due
from Banks 2,688 (1,856)
Cash and Due from Banks - Beginning of Year 4,091 5,947
------- -------
Cash and Due from Banks - End of Year $ 6,779 $ 4,091
======= =======
F-16
83
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
(in thousands)
1. Summary of Significant Accounting Policies
Consolidation Policy:
These financial statements present the results of operations,
statement of cash flows and financial position of Peoples Commercial
Services Corporation and it's wholly owned subsidiary, Peoples Bank. The
bank services the Tate County, Mississippi area.
Investment Securities:
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments
to interest income. Gains and losses on disposition are based on the
net proceeds and the adjusted carrying value amount of the securities
sold, using the specific identification method.
Loans and Allowances for Loan Losses:
Loans are stated at the amount of unpaid principal, reduced by unearned
discounts and an allowance for loan losses. Unearned discounts on
installment loans are recognized as income over the term of the loans by
the rule of seventy-eighths. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal
amount outstanding. The allowance for loan losses is established through
a provision for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the
borrowers' ability to pay. Accrual of interest is discontinued on a loan
when management believes, after considering economic and business
conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful.
Office Buildings and Equipment:
Office equipment and buildings are stated at their cost less accumulated
depreciation computed principally on the straight-line method over the
estimated useful lives of the assets.
F-17
84
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
(CONTINUED)
(in thousands)
1. Summary of Significant Accounting Policies (Continued)
Income Taxes:
Deferred income taxes are reported for temporary differences between items
of income and expense reported in the financial statements and those
for income tax purposes. The differences relate principally to
depreciation of an office building, accretion of discounts on investment
securities and provision for loan losses.
Earnings Per Share:
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding.
Cash and Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows,
cash and cash equivalents are defined as those amounts included
in the balance sheet caption "Cash and Due from Banks".
2. Loans
Major classes of loans are as follows: 1992 1991
------- -------
Secured by Residential Properties $15,074 $15,515
Commercial Loans 3,604 6,094
Secured by Farm Land and
Agricultural Production 3,407 2,363
Loans to Individuals 6,698 6,703
Other Loans 7,692 5,213
------- -------
36,475 35,888
Less Unearned Discounts 1,664 1,089
Less Allowance for Loan Losses 751 701
------- -------
Loans - Net $34,060 $34,098
======= =======
F-18
85
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STAEMENTS
DECEMBER 31, 1992 AND 1991
(CONTINUED)
(in thousands)
2. Loans (Continued)
Maturities of the fixed rate loans as of December 31, 1992 approximate the
following:
1992 1991
------- --------
Due in One Year or Less $23,779 $26,676
Due from One to Five Years 12,556 8,796
Due from Five to Ten Years 140 416
------- -------
Total Loans 36,475 35,888
Less: Unearned Discounts 1,664 1,089
Allowance for Loan Losses 751 701
------- -------
Loans - Net $34,060 $34,098
======= =======
Loans on which the accrual of interest have been discontinued or
reduced amounted to $271 and $107 as of December 31, 1992
and 1991, respectively. If interest on those loans had been
accrued such income would have approximated $23 and $4
as of December 31, 1992 and 1991, respectively. Interest income
on these loans is recorded only when received.
Changes in the allowance for loan losses were as follows:
1992 1991
------ ------
Balance, beginning of the period $ 701 $ 701
Provision charged to operations 166 246
Loans charged off (140) (319)
Recoveries 24 73
------ ------
Balance, end of the period $ 751 $ 701
====== ======
F-19
86
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
(CONTINUED)
(in thousands)
3. Office Buildings and Equipment
Major classifications of these assets are summarized as follows:
1992 1991
------- -------
Land $ 226 $ 226
Buildings 1,337 1,337
Equipment 1,010 660
------- -------
Total Cost 2,573 2,223
Accumulated Depreciation (1,386) (1,340)
------- -------
Land, Buildings and Equipment, net $ 1,187 $ 883
======= =======
4. Deposits
Certificates of deposit of $100 or more approximated $9,923 and
$9,926 at December 31, 1992 and 1991, respectively. Interest paid was as
follows:
1992 1991
------ ------
Interest Expense $2,616 $3,536
Accrued Interest:
Beginning of Year 522 744
End of Year (324) (523)
------ ------
Interest Paid $2,814 $3,757
====== ======
5. Profit Sharing Plan
The board of directors determines funding to the noncontributory defined
contribution profit sharing plan. Contributions were $70 and $70 for the
years ended December 31, 1992 and 1991, respectively. Plan costs are
charged to employee benefits expense. Anyone employed by the bank for
one year is eligible.
F-20
87
PEOPLES COMMERCIAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
(CONTINUED)
(in thousands)
6. Income Taxes
Income tax expense is as follows:
1992 1991
Current Income Tax Expense $ 481 $ 347
Deferred Tax Benefit 25 8
------ ------
$ 506 $ 355
====== ======
Prepaid income taxes as of December 31, 1992 were $20 and prepaid income
taxes as of December 31, 1991 were $15. Income taxes paid during 1992
and 1991 were $506 and $341, respectively. The deferred tax benefit
recorded was $132 and $147 respectively.
7. Concentration of Loans
The majority of the Bank's loans have been granted to customers in the
Bank's market area. Most loan customers are depositors of the Bank. The
maturities and types of loans are set forth in Note 2.
F-21
88
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1994 AND 1993
1994 1993
------- -------
ASSETS
Cash and Cash Equivalents $ 3,991 $ 4,105
Investment Securities 47,204 41,756
Net Loans 43,752 39,226
Premises and Equipment, Net 984 1,182
Real Estate Acquired by Foreclosure 43 97
Other Assets 1,554 1,221
------- -------
Total Assets $97,528 $87,587
======= =======
LIABILITIES
Deposits $85,876 $76,285
Other Liabilities 595 457
------- -------
Total Liabilities 86,471 76,742
------- -------
SHAREHOLDERS' EQUITY
Common Stock 665 665
Surplus 9,500 9000
Paid-In Capital 665 665
Retained Earnings 1,045 515
Net Unrealized Loss on Marketable
Equity Securities (818)
------- -------
Total Shareholders' Equity 11,057 10,845
------- -------
Total Liabilities and Shareholders'
Equity $97,528 $87,587
======= =======
F-22
89
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
1994 1993
------- -------
Interest Income:
Interest and Fees on Loans $ 2,887 $ 2,610
Interest on Investment Securities 1,883 1,986
------- -------
Total Interest Income 4,770 4,596
------- -------
Interest Expense:
Interest on Deposits 1,810 1,718
------- -------
Total Interest Expense 1,810 1,718
------- -------
Net Interest Income 2,960 2,878
Provision for Loan Losses 90 90
------- -------
Net Interest Income After Provision
for Loan Losses 2,870 2,788
------- -------
Noninterest Income:
Service Charges on Deposit Accounts 415 376
Securities Gains (Losses) (20) 14
Other 85 86
------- -------
Total Noninterest Income 480 476
------- -------
Noninterest Expense:
Salaries and Employee Benefits 964 949
Occupancy 250 225
Deposit Insurance Premium 140 131
Other 346 346
------- -------
Total Noninterest Expense 1,700 1,651
------- -------
Income Before Income Taxes 1,650 1,613
Applicable Income Taxes (474) (494)
------- -------
Net Income $ 1,176 $ 1,119
======= =======
F-23
90
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(in thousands)
Number
of Common Retained Paid-In Treasury
Shares Stock Surplus Earnings Capital Stock Total
------ ------ --------- -------- ------- -------- -------
Balance as of
December 31, 1993 133 $ 665 $ 9,500 $ (130) $ 665 $ $10,700
Net Income 1,176 1,176
---- ------- --------- -------- ------- -------- -------
Balance as of
September 30, 1994 133 $ 665 $ 9,500 $ 1,045 $ 665 $ -0- $11,875
==== ======= ========= ======== ======= ======== =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(in thousands)
Number
of Common Retained Paid-In Treasury
Shares Stock Surplus Earnings Capital Stock Total
------ ------ --------- -------- ------- -------- -------
Balance as of
December 31, 1992 133 $ 665 $ 9,000 $ (599) $ 666 $ $ 9,732
Net Income 1,119 1,119
Purchase Treasury
Stock (6) (6)
Retire 100 shares
Treasury Stock (5) (1) 6
---- ------- --------- -------- ------- -------- -------
Balance as of
September 30, 1993 133 $ 665 $ 9,000 $ 515 $ 665 $ -0- $10,845
==== ======= ========= ======== ======= ======== =======
F-24
91
PEOPLES COMMERCIAL SERVICES CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(in thousands)
1994 1993
------- --------
Cash Flows from Operating Activities:
Net Income $ 1,176 $ 1,119
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 135 108
Provision for Loan Losses 90 90
Unrealized Loss - Marketable Equity Securities (818)
(Increase)Decrease in Interest Receivable (66) 8
(Increase)Decrease in Other Assets (328) (80)
Increase(Decrease) in Accrued Interest 18 (25)
Increase(Decrease) in Other Liabilities 170 159
-------- --------
Net Cash Provided by Operating Activities 377 1,379
-------- --------
Cash Flows from Investing Activities:
Net Increase(Decrease) in Interest-Bearing Deposits 1,061 (1,940)
Net Decrease(Increase) in Federal Funds Sold (10,200) 1,500
Purchase of Investment Securities (6,032) (13,723)
Proceeds from the Maturities, Sale, or Call
of Investment Securities 8,301 10,493
Net (Increase) in Loans (3,666) (5,258)
Purchases of Equipment (27) (102)
Real Estate Acquired in Foreclosure (43) (97)
-------- --------
Net Cash Provided by (Used in) Investing
Activities (10,606) (9,127)
-------- --------
Cash Flows from Financing Activities
Net (Decrease)Increase in Non-Interest Bearing
Deposits 9,207 5,080
Purchase of Treasury Stock (6)
-------- --------
Net Cash Used in Financing Activities 9,207 5,074
-------- --------
Net Increase(Decrease) in Cash and Due
from Banks (1,022) (2,674)
Cash and Due from Banks - Beginning of Year 5,013 6,779
-------- --------
Cash and Due from Banks - September 30 $ 3,991 $ 4,105
======== ========
F-25
92
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 19TH DAY OF OCTOBER, 1994
BY AND BETWEEN
FIRST TENNESSEE NATIONAL CORPORATION
AND
PEOPLES COMMERCIAL SERVICES CORP.
93
TABLE OF CONTENTS
Page
----
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ARTICLE I.
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(A) The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(B) Conversion of Peoples Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(C) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
(D) Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
ARTICLE II.
PEOPLES ACTIONS PENDING MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
ARTICLE III.
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
ARTICLE IV.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
ARTICLE V.
CONDITIONS TO CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
ARTICLE VI.
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
ARTICLE VII.
EFFECTIVE DATE AND EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
ARTICLE VIII.
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
i
94
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 19th day of October,
1994, by and between FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), a Tennessee
corporation, and PEOPLES COMMERCIAL SERVICES CORP. ("Peoples"), a Mississippi
corporation.
RECITALS
(A) FTNC. FTNC has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Tennessee, with its
principal executive offices located in Memphis, Tennessee. As of the date
hereof, FTNC has 100,000,000 authorized shares of common stock, par value $2.50
per share ("FTNC Common Stock"), of which 31,884,333 shares are outstanding as
of July 31, 1994, and 5,000,000 authorized shares of preferred stock, no par
value, none of which are outstanding (no other class of capital stock being
authorized).
(B) PEOPLES; PEOPLES BANK. Peoples has been duly incorporated and is
an existing corporation in good standing under the laws of the State of
Mississippi, with its principal executive offices located in Senatobia,
Mississippi. As of the date hereof, Peoples has 200,000 authorized shares of
common stock, par value $10.00 per share ("Peoples Common Stock"), of which
133,000 shares are outstanding as of the date hereof (no other class of capital
stock being authorized). Peoples owns all of the issued and outstanding Common
Stock of Peoples Bank.
(C) RIGHTS, ETC. Neither FTNC nor Peoples has any 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 (including, without limitation, preemptive rights) to
subscribe for or acquire from it, any shares of its capital stock
(collectively, "Rights"), except (i) in the case of FTNC, pursuant to a
Shareholder Protection Rights Agreement, dated as of September 7, 1989, between
FTNC and First Tennessee Bank National Association, as Rights Agent (the "FTNC
Rights Agreement"), (ii) for securities issued as permitted under Section I of
Article IV, and (iii) as set forth on EXHIBIT "A" hereto (as to FTNC) and
EXHIBIT "B" hereto (as to Peoples and Peoples Bank).
(D) INTENTION OF THE PARTIES. It is the intention of the parties to
this Agreement that the Merger (herein defined) for federal income tax purposes
shall qualify as a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
(E) MATERIALITY. Unless the context otherwise requires, any
reference in this Agreement to materiality shall, as to Peoples be deemed to be
with respect to Peoples and its subsidiaries taken as a whole and as to FTNC
shall be deemed to be with respect to FTNC and its subsidiaries, taken as a
whole.
In consideration of their mutual promises and obligations hereunder,
and intending to be legally bound hereby, FTNC and Peoples adopt and make this
Agreement and prescribe the terms and conditions hereof and the manner and
basis of carrying it into effect, which shall be as follows:
A-1
95
ARTICLE I.
THE MERGER
(A) THE MERGER. On the Effective Date (as defined in Article VII),
Peoples will merge (the "Merger") with and into FTNC, with FTNC being the
surviving corporation (the "Surviving Corporation"), pursuant to the provisions
of, and with the effects provided in, the Tennessee Business Corporation Act
and the Mississippi General Corporation Law. At the Effective Time, the
charter and bylaws of FTNC (as the Surviving Corporation) shall be the charter
and bylaws of FTNC in effect immediately prior to the Effective Time. At the
Effective Time, the directors and officers of FTNC shall be the directors and
officers of the Surviving Corporation.
(B) CONVERSION OF PEOPLES COMMON STOCK. By virtue of the Merger,
automatically and without any action on the part of the holder thereof, at the
Effective Time, all of the Peoples Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held directly or
indirectly by FTNC or any subsidiary of FTNC, except in a fiduciary capacity or
in satisfaction of a debt previously contracted and other than shares held in
the treasury of Peoples, which shares shall be canceled, retired and cease to
exist by virtue of the Merger and without any payment made in respect thereof)
shall be converted into the right to receive shares of FTNC Common Stock, as
described below:
(1) Each share of Peoples Common Stock issued and outstanding
at the Effective Time shall become and be converted into the right to
receive shares of FTNC Common Stock based on an exchange ratio (the
"Exchange Ratio") determined as follows:
(i) if the FTNC Common Stock Average Price (hereafter
defined) is $42.00 per share or greater, the Exchange Ratio
will be 3.1658;
(ii) if the FTNC Common Stock Average Price is less than
$42.00 per share, the Exchange Ratio will be the product of
(y) 3.1658 multiplied by (z) the quotient of (1) $42.00
divided by (2) the FTNC Common Stock Average Price; and
(iii) if the FTNC Common Stock Average Price is less than
$38.00 per share, FTNC shall have the right to terminate this
Agreement as provided in Paragraph (D) of Article VI.
The FTNC Common Stock Average Price shall be equal to the average of
the closing prices of FTNC Common Stock as reported on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") on the ten (10)
business days immediately prior to the fifth (5th) business day preceding the
Effective Date (the "Calculation Period"). For purposes of this Section
I(B)(1), a "business day" shall be a day on which NASDAQ is generally open for
trading.
(2) Each share of FTNC Common Stock issued and outstanding at
the Effective Time [other than (x) shares, if any, held directly or
indirectly by Peoples (or any Peoples subsidiary) except in a
fiduciary capacity or in satisfaction of a debt previously contracted,
and (y) shares, if any, held as treasury stock by FTNC] shall remain
outstanding and unchanged as a result of the Merger and, together with
the shares of FTNC Common Stock issuable in the Merger, shall as of
the Effective Time constitute all of the issued and outstanding shares
of the common capital stock of FTNC.
(3) Subsequent to the date of this Agreement but prior to the
Effective Date, if the outstanding shares of FTNC Common Stock shall
be increased, decreased, changed into or exchanged for a
A-2
96
different number or class of shares by reason of any reclassification,
recapitalization, split-up, stock split or reverse stock split of
shares, or if a stock dividend thereon shall be declared with a record
date within such period, or by reason of a combination of shares in a
transaction in which FTNC is effectively acquired, or other like
changes in FTNC's capitalization shall have occurred, the Exchange
Ratio shall be adjusted accordingly. This paragraph (3) does not
apply to transactions in which FTNC or one of its subsidiaries is
effectively the acquiring entity.
(C) NO FRACTIONAL SHARES. Notwithstanding any other provision
hereof, no fractional shares of FTNC Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, FTNC shall pay to each holder of Peoples Common Stock exchanged
pursuant to this Agreement who would otherwise be entitled to a fractional
share an amount in cash determined (i) if the Exchange Ratio is 3.1658, by
multiplying such holder's fractional interest by the closing price of FTNC
Common Stock as reported on the NASDAQ for the Effective Date, or if the
Exchange Ratio is determined under Paragraph (B)(2)(ii) of Article I, (ii) by
multiplying such holder's fractional interest by the FTNC Common Stock Average
Price actually used to determine the Merger consideration (in either case
rounded up to the nearest cent).
(D) PROCEDURES. Certificates which represent shares of Peoples
Common Stock that are outstanding at the Effective Time (each, a "Certificate")
and are converted into the right to receive shares of FTNC Common Stock
pursuant to the Merger shall, after the Effective Time, be exchangeable by the
holders thereof in the manner provided in the transmittal materials described
below for new certificates representing the shares of FTNC Common Stock into
which such shares have been converted.
As promptly as practicable after the Effective Date, FTNC shall send
to each holder of record of shares of Peoples Common Stock outstanding at the
Effective Time transmittal materials for use in exchanging the Certificates for
such shares for certificates for shares of the FTNC Common Stock into which
such shares of the Peoples Common Stock have been converted pursuant to the
Merger. Upon surrender of a Certificate, together with a duly executed letter
of transmittal and any other required documents, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate for the number
of shares of FTNC Common Stock to which such holder is entitled, and such
Certificate shall forthwith be cancelled. If any such delivery is to be made
in whole or in part to a person other than the person in whose name a
surrendered Certificate is registered, it shall be a condition to such delivery
or exchange that the Certificate surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person requesting
such delivery or exchange shall have paid any transfer and other taxes required
by reason of such delivery or exchange in a name other than that of the
registered holder of the Certificate surrendered or shall have established to
the reasonable satisfaction of FTNC or its agent that such tax either has been
paid or is not payable.
No holder of Peoples Common Stock shall be entitled to exercise any
rights as a shareholder of FTNC until such holder shall have properly
surrendered its Certificate(s) (together with all required documents) as set
forth above. No dividend or other distribution payable after the Effective
Time with respect to the FTNC Common Stock shall be paid to the holder of any
unsurrendered Certificate until the holder thereof properly surrenders such
Certificate (together with all required documents), at which time such holder
shall receive all dividends and distributions, without interest thereon,
previously withheld from such holder pursuant hereto. After the Effective
Time, there shall be no transfers on the stock transfer books of Peoples of
shares of Peoples Common Stock which were issued and outstanding at the
Effective Time and converted pursuant to the provisions of the Merger into the
right to receive FTNC Common Stock. If after the Effective Time, Certificates
are presented for transfer to Peoples, they shall be cancelled and exchanged
for the shares of FTNC
A-3
97
Common Stock deliverable in respect thereof as determined in accordance with
the provisions of Article I, Paragraph (B) and in accordance with the
procedures set forth in this Paragraph.
After the Effective Time, holders of Peoples Common Stock shall cease
to be, and shall have no rights as, stockholders of Peoples, other than to
receive shares of FTNC Common Stock into which such shares have been converted
or fractional share payments pursuant to this Agreement.
Notwithstanding the foregoing, neither FTNC nor Peoples nor any other
person shall be liable to any former holder of shares of Peoples Common Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
In the event any Certificate shall have been lost, stolen or
destroyed, upon receipt of appropriate evidence as to such loss, theft or
destruction and to the ownership of such Certificate by the person claiming
such Certificate to be lost, stolen or destroyed and the receipt by FTNC of
appropriate and customary indemnification including, when appropriate, the
posting of bond, FTNC will issue in exchange for such lost, stolen or destroyed
certificate shares of FTNC Stock, and the fractional share payment, if any,
deliverable in respect thereof as determined in accordance with this Article I.
ARTICLE II.
PEOPLES ACTIONS PENDING MERGER
(A) Without the prior written consent of FTNC, Peoples will not:
(1) except for its usual and customary annual dividend not to exceed
$3.50 per share, make, declare or pay any dividend on Peoples Common
Stock, or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock (other than in a fiduciary capacity or in respect of a
debt previously contracted in good faith) or authorize the creation or
issuance of or issue or sell any additional shares of Peoples' or
Peoples Bank's capital stock, or any options, calls or commitments
relating to its or Peoples Bank's capital stock, or any securities,
obligations or agreements convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire, shares of its
or Peoples Bank's capital stock;
(2) merge or consolidate or permit any Significant Subsidiary to
merge or consolidate with any other entity or engage in any similar
transaction.
(B) Without the prior written consent of FTNC, which consent will not
be unreasonably withheld, Peoples will not and will not permit any subsidiary
to:
(1) pay any bonus to, or increase the rate of compensation of, any of
its directors, officers or employees, except in the ordinary course of
business consistent with past practice, or enter into any employment
contracts with any persons;
(2) enter into or modify or permit any subsidiary to enter into or
modify (except as may be required by applicable law and except for the
renewal of any existing plan or arrangement in the ordinary course of
business consistent with past practice) any pension, retirement, stock
option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any of its directors,
officers or other employees;
A-4
98
(3) except as contemplated by Paragraph (M) of Article IV,
substantially modify the manner in which it and its subsidiaries have
heretofore conducted their business, taken as a whole, or amend its
articles of incorporation or by-laws;
(4) except for the disposition of loans and cash equivalent assets in
the ordinary course of its banking business, sell, dispose of or
discontinue or permit any subsidiary to sell, dispose or discontinue
any of its business, assets (including investment securities) or
property,
(5) except for the acquisition of loans, investment securities and
cash equivalent assets in the ordinary course of its banking business,
acquire (other than through foreclosure or satisfaction in whole or in
part of indebtedness owed Peoples Bank) any assets or business that is
material to such party;
(6) take any other action not in the ordinary course of business of
it and its subsidiaries, taken as a whole; or
(7) directly or indirectly agree to take any of the foregoing actions.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
FTNC represents and warrants to Peoples, and Peoples represents and
warrants to FTNC, that, except as previously disclosed in a letter of FTNC or
Peoples, respectively, of even date herewith delivered to the other party or in
the Exhibits:
(A) The facts set forth in the Recitals of this Agreement with
respect to it are true and correct;
(B) The outstanding shares of capital stock of it and its Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X), if any, are duly
authorized, validly issued and outstanding, fully paid and (subject to 12
U.S.C. Section 55 in the case of a national bank subsidiary and comparable
state statutes, in the case of a state bank subsidiary) non-assessable, and
subject to no preemptive rights;
(C) Each of it and its Significant Subsidiaries (EXHIBIT "III(C)(1)"
hereto in the case of FTNC sets forth a list of its Significant Subsidiaries
and EXHIBIT "III(C)(2)" hereto in the case of Peoples sets forth a list of its
Significant Subsidiaries) has the power and authority, and is duly qualified in
all jurisdictions (except for such qualifications the absence of which either
individually or in the aggregate will not have a Material Adverse Effect (as
hereinafter defined)) where such qualification is required, to carry on its
business as it is now being conducted and to own all its material properties
and assets, and it 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 powers
and authorizations the absence of which, either individually or in the
aggregate, would not have a Material Adverse Effect;
(D) The shares of capital stock of each of its Significant
Subsidiaries are owned by it (except for director's qualifying shares) free and
clear of all liens, claims, encumbrances and restrictions on transfer and there
are no rights with respect to such capital stock;
(E) Subject in the case of Peoples to any required shareholder
approvals of this Agreement, and, subject to receipt of required regulatory
approvals, this Agreement is a valid and binding agreement of it enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer,
A-5
99
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles;
(F) The execution, delivery and performance of this Agreement by it
does not, and the consummation of the transactions contemplated hereby by it
will not, constitute (l) a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or its subsidiaries or to
which it or its subsidiaries (or any of their respective properties) is
subject, which breach, violation or default, individually or collectively, is
reasonably likely to 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 certificate or articles of incorporation or bylaws
of it or any of its Significant 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 referred to in Paragraphs (A)(3) and (A)(4) of Article V
and the approval of the shareholders of Peoples referred to in Paragraph (E) of
Article III and any consents and approvals the absence of which will not have a
Material Adverse Effect;
(G) In the case of FTNC, as of their respective dates, neither its
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, nor any
other document filed subsequent to December 31, 1993 under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), each in the form (including exhibits) filed with
the Securities and Exchange Commission (the "SEC") and, in the case of Peoples,
its audited financial statements for the fiscal year ended December 31, 1993
and its unaudited financial statements for the period ended August 31, 1994
(the "Statements") (collectively, the "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 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 flow and changes in financial
position or equivalent statements in or incorporated by reference into its
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 or reports, to normal year-end audit adjustments that are not
material in amount or effect), in each case in accordance with generally
accepted accounting principles ("GAAP") applicable to bank holding companies
consistently applied during the periods involved, except as may be noted
therein. For purposes of the representations made in the immediately preceding
two sentences, an untrue statement of fact or an omitted statement of fact
required to make statements not misleading shall be deemed material if the
untrue statement or omitted statement has a Material Adverse Effect. It has no
obligations or liabilities (whether absolute, accrued, contingent or otherwise)
which are not disclosed in the Reports, the omission of which would singly or
in the aggregate have a Material Adverse Effect. Since the date of its most
recent Report, it has not incurred any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature except liabilities or
obligations incurred in the ordinary course of business or which would not
single or in the aggregate have a Material Adverse Effect.
(H) There has been no adverse change in the financial condition of it
and its subsidiaries, taken as a whole, since December 31, 1993 which has had a
Material Adverse Effect;
(I) All material federal, state, local, and foreign tax returns
required to be filed by or on behalf of it 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
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all material respects. All taxes shown on returns filed by it have been paid
in full or adequate provision has been made for any such taxes on its balance
sheet (in accordance with GAAP). As of the date of this Agreement, there is no
audit examination, deficiency, or refund litigation with respect to any taxes
of it and it is not aware of any basis for the assertion of any claim for any
tax deficiency for which adequate provision has not been made on its balance
sheet that would 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 it have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with GAAP). It 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;
(J) (1) except as disclosed in EXHIBIT "III J(1)(1)" as to FTNC or
EXHIBIT "III J(1)(2)" as to Peoples hereto, no material litigation, proceeding
or controversy before any court or governmental agency is pending, and there is
no pending claim, action or proceeding against it or any of its subsidiaries,
which in the reasonable judgment of its President is likely to have a Material
Adverse Effect or to prevent consummation of the transactions contemplated
hereby, and, to the best of its knowledge, no such litigation, proceeding,
controversy, claim or action has been threatened or is contemplated, and to its
actual knowledge there are no facts or circumstances which could form the
reasonable basis for any claim, action or proceeding (including, but not
limited to, a claim for violation of any state or federal fair lending laws or
regulations) which is likely to have a Material Adverse Effect or prevent
consummation of the transactions contemplated hereby, and (2) neither it nor
any of its subsidiaries is subject to any cease and desist order, written
agreement or memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or is a recipient of any extraordinary supervisory letter from, or is subject
to any board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits ("Bank Regulators"), nor
has it been advised by any Bank Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking;
(K) Except as disclosed in EXHIBIT "III(K)(1)" hereto in the case of
FTNC and EXHIBIT "III(K)(2)" hereto in the case of Peoples and except for this
Agreement and arrangements made in the ordinary course of business, it and its
subsidiaries are not bound by any material contract (as defined in Item
601(b)(10)(i) and (ii) of Regulation S-K) to be performed after the date hereof
that has not been filed with or incorporated by reference in the Reports;
(L) All "employee benefit plans", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), that cover any of
its or its Significant Subsidiaries' employees, comply in all material respects
with all applicable requirements of ERISA, the Code and other applicable laws
and no event has occurred and to its knowledge no fact or circumstance exists
with respect to any employee benefit plan now or previously existing which
would result in a Material Adverse Effect; neither it nor any of its
Significant 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 it or them 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 it, them or
any entity which is considered one employer with it 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 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
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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; 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; neither it
nor any of its Significant Subsidiaries has provided, or is required to
provide, security to any Pension Plan pursuant to Section 401(a)(29) of the
Code; it and its Significant Subsidiaries have not contributed to a
"multiemployer plan" as defined in Section 3(37) of ERISA, on or after
September 26, 1980; and it and its Significant Subsidiaries do not have any
obligations for retiree health and life benefits under any benefit plan,
contract or arrangement;
(M) Each of it and its subsidiaries has good title to its properties
and assets (other than property as to which it is lessee) except for such
defects in title which would not, in the aggregate, have a Material Adverse
Effect;
(N) It knows of no reason why the regulatory approvals referred to in
Paragraphs (A)(3) and (A)(4) of Article V should not be obtained without the
imposition of any condition of the type referred to in the proviso following
such Paragraphs (A)(3) and (A)(4);
(O) Its reserve for possible loan losses as shown (i) in its Reports
for the fiscal year ended December 31, 1993 was adequate in all material
respects under GAAP applicable to banks and safe and sound banking practices
and (ii) in Peoples' unaudited interim consolidated financial report at August
31, 1994 was, in its opinion, adequate in all material respects under GAAP
applicable to banks and safe and sound banking practices;
(P) It and each of its subsidiaries have all permits, licenses,
certificates of authority, orders, and approvals of, and have made all filings,
applications, and registrations with, federal, state, local, and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently conducted and the absence of which
would have a Material Adverse Effect; all such permits, licenses, certificates
of authority, orders, and approvals are in full force and effect, and to the
best knowledge of it no suspension or cancellation of any of them is
threatened;
(Q) In the case of FTNC, the shares of capital stock to be issued
pursuant to this Agreement, when issued in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights;
(R) Neither it nor any of its subsidiaries is a party to, or is bound
by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization, nor is it or any of its
subsidiaries the subject of a proceeding asserting that it or any such
subsidiary has committed an unfair labor practice or seeking to compel it 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 it or any of its subsidiaries pending or threatened;
(S) Except services performed for Peoples by Southard Financial and
Gerrish & McCreary, P.C., neither it 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 it or any of its subsidiaries, in connection with this
Agreement or the transactions contemplated hereby;
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(T) The information to be supplied by it for inclusion in (1) the
Registration Statement on Form S-4 and/or such other form(s) as may be
appropriate to be filed under the Securities Act of 1933, as amended (the
"Securities Act"), with the SEC by FTNC for the purpose of, among other things,
registering the FTNC Common Stock to be issued to the shareholders of Peoples
in the Merger (the "Registration Statement"), or (2) the proxy statement to be
distributed in connection with Peoples' meeting of its shareholders to vote
upon this Agreement (as amended or supplemented from time to time, the "Proxy
Statement", and together with the prospectus included in the Registration
Statement, as amended or supplemented from time to time, the "Proxy
Statement/Prospectus") will not at the time such Registration Statement becomes
effective, and in the case of the Proxy Statement/Prospectus at the time it is
mailed and at the time of the meeting of stockholders contemplated under this
Agreement, 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;
(U) 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. Section 9601, et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901, et seq., the Clean Air Act, as amended, 42 U.S.C. Section 7401,
et seq., the Federal Water Pollution Control Act, as amended, 33
U.S.C. Section 1251, et seq., the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 9601, et seq., the Emergency Planning and
Community Right to Know Act, 42 U.S.C. Section 11001, et seq., the
Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq., 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 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 FTNC or Peoples or any of their
subsidiaries including properties owned or operated in a fiduciary
capacity.
(1) To the best knowledge of it and its subsidiaries, neither it nor
any of its subsidiaries has been or is in violation of or liable under
any Environmental Law, except any such violations or liabilities which
would not reasonably be expected to singly or in the aggregate have a
Material Adverse Effect;
(2) To the best knowledge of it and its subsidiaries, none of the
Loan Portfolio Properties and Other Properties Owned by t or its
subsidiaries has been or is in violation of or liable under any
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Environmental Law, except any such violations or liabilities which
singly or in the aggregate will not have a Material Adverse Effect;
and
(3) To the best knowledge of it and its subsidiaries, there are no
actions, suits, demands, notices, claims, investigations or
proceedings pending or threatened relating to the liability of the
Loan Portfolio Properties and Other Properties Owned by it 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, except such which will not
have, result in or relate to a Material Adverse Effect.
(V) Its credit approval and administration and documentation
procedures and practices are consistent with acceptable standards as
normally applied by the Office of the Comptroller of the Currency and
the Federal Deposit Insurance Corporation, and to its actual knowledge
it is in compliance with applicable state and federal laws, statutes,
regulations, rules, orders and requirements regarding bank holding
companies and banks, as applicable, except where the failure to comply
is not reasonably likely to have a Material Adverse Effect.
(W) Peoples does not and is not required to file reports pursuant to
the Securities Exchange Act.
ARTICLE IV.
COVENANTS
FTNC hereby covenants to Peoples, and Peoples hereby covenants to
FTNC, that:
(A) It shall use its best efforts in good faith to take or cause to
be taken all action necessary or desirable under this Agreement on its
part or as promptly as practicable so as to permit the consummation of
the transactions contemplated by this Agreement at the earliest
possible date and cooperate fully with the other party hereto to that
end;
(B) In the case of Peoples, it shall (1) take all steps necessary to
duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of approving this Agreement as soon as is
reasonably practicable; (2) recommend to its shareholders that they
approve this Agreement and use its best efforts to obtain such
approval; (3) distribute to its shareholders the Proxy
Statement/Prospectus in accordance with applicable federal and state
law and with its certificates of incorporation or charter, as the case
may be, and bylaws; and (4) cooperate and consult with FTNC with
respect to each of the foregoing matters;
(C) It will cooperate in the preparation and filing of the Proxy
Statement/Prospectus and Registration Statement in order to consummate
the transactions contemplated by this Agreement as soon as is
reasonably practicable;
(D) In the case of FTNC, it will advise Peoples, promptly after FTNC
receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification
of the shares of FTNC Common Stock issuable pursuant to this Agreement
for offering or sale in any jurisdiction, of the initiation or threat
of any proceeding for any such purpose or of any request by the SEC
for the amendment or supplement of the Registration Statement or for
additional information;
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(E) In the case of FTNC, it shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all
necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement;
(F) Subject to its disclosure obligations imposed by law, unless
approved by the other party hereto in advance, it will not issue any
press release or written statement for general circulation relating to
the transactions contemplated hereby. As to any disclosure obligation
imposed by law, it will deliver to the other party a copy of such
press release or written notice as soon as practicable and in any
event, prior to its issuance;
(G) It shall promptly furnish the other party with copies of written
communications received by it, or any of its respective subsidiaries,
Affiliates or Associates (as such terms are defined in Rule 12b-2
under the Securities Exchange Act as in effect on the date hereof),
from, or delivered by any of the foregoing to, any governmental body
or agency in connection with or material to the transactions
contemplated hereby;
(H) (1) Upon reasonable notice, it shall (and shall cause each of its
subsidiaries to) afford the other party hereto, and its officers,
employees, counsel, accountants and other authorized representatives
(collectively, such party's "Representatives") access, during normal
business hours, to all of its and its subsidiaries' properties, books,
contracts, tax returns, commitments and records; it shall enable the
other party's Representatives to discuss its business affairs,
condition (financial and otherwise), assets and liabilities with such
third persons, including, without limitation, its directors, officers,
employees, accountants and counsel, as the other party considers
necessary or appropriate; and it shall (and it shall cause each of its
Significant Subsidiaries to) furnish promptly to the other party
hereto (a) a copy of each report, schedule and other document filed by
it pursuant to the requirements of federal or state securities or
banking laws since December 31, 1992, and (b) all other information
concerning its business, properties and personnel as the other party
hereto may reasonably request, provided that no investigation pursuant
to this Paragraph (H) shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the
obligations to consummate this Agreement of, the other party hereto;
(2) it will, upon request, furnish the other party with all
information concerning it, its subsidiaries, directors, officers,
partners and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Proxy
Statement/Prospectus, the Registration Statement or any other
statement or application made by or on behalf of FTNC, Peoples or any
of their respective subsidiaries to any governmental body or agency in
connection with or material to the Merger and the other transactions
contemplated by this Agreement; and (3) it will not use any
information obtained pursuant to this Paragraph (H) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement and, if the transaction contemplated by this Agreement is
not consummated, it will hold all information and documents obtained
pursuant to this Paragraph (H) in confidence unless and until such
time as such information or documents otherwise become publicly
available other than by breach of this Agreement or as it is advised
by counsel that any such information or document is required by law to
be disclosed, and in the event of the termination of this Agreement,
it will deliver to the other party hereto all documents so obtained by
it and any copies thereof;
(I) Neither it nor any of its subsidiaries shall solicit or encourage
inquiries or proposals with respect to, or, subject to the fiduciary
duties of its directors, furnish any information relating to or
participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a material portion of its assets
(whether owned by it directly or owned by any of its subsidiaries), or
of a substantial equity interest in it or any business combination
with it or any of its subsidiaries other than as contemplated by
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this Agreement and it shall instruct its officers, directors, agents,
advisors, and affiliates to comply with the above; provided, however,
in the case of FTNC, this covenant does not apply to a business
combination initiated by FTNC, or in which FTNC or a company which is
its subsidiary following the transaction is as a practical matter the
surviving corporation. Peoples agrees that it shall notify FTNC
immediately if any inquiries or proposals as described in this
paragraph are received by, any information as described in this
paragraph is requested from, or any negotiations or discussions as
described in this paragraph are sought to be initiated with, Peoples
or any of its subsidiaries;
(J) It shall notify the other party hereto as promptly as practicable
of (1) any breach of any of its representations, warranties or
agreements contained herein that could have a Material Adverse Effect
and as to representations, warranties or agreements contained herein
which do not specifically refer to Material Adverse Effect, of any
material breach thereof, and (2) any change in its condition
(financial or otherwise), properties, business, results of operations
or prospects that could have a Material Adverse Effect;
(K) It shall cooperate and use its best efforts to promptly prepare
and file 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,
in the case of FTNC, submission of applications for approval of this
Agreement and the transactions contemplated hereby to the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
in accordance with the provisions of the Bank Holding Company Act of
1956, as amended (the "BHC Act"), and to such other regulatory
agencies as required by law;
(L) It shall (1) permit the other to review in advance and, to the
extent practicable, will consult with the other party on all
characterizations of the information relating to the other party and
any of its respective subsidiaries, which appear in any filing made
with, or written materials submitted to, any third party or any
governmental body or agency in connection with the transactions
contemplated by this Agreement; and (2) consult with the other with
respect to obtaining all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies or
agencies necessary or advisable to consummate the transactions
contemplated by this Agreement and will keep the other party apprised
of the status of matters relating to completion of the transactions
contemplated herein;
(M) Prior to the Closing, Peoples shall, consistent with generally
accepted accounting principles, modify and change its and each of its
subsidiaries' loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so
as to be applied consistently on a mutually satisfactory basis with
those of FTNC; provided, however, that Peoples shall not be obligated
to take any such action pursuant to this Paragraph (M) unless and
until FTNC acknowledges that all conditions to its obligation to
consummate the Merger have been satisfied;
(N) (1) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil or administrative,
including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has
been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer, employee, fiduciary or agent of
Peoples or any of its subsidiaries (the "Indemnified Parties") is, or
is threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to, this Agreement,
or any of the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their best efforts to defend against
and respond thereto. It is understood and agreed that FTNC shall
indemnify and hold harmless, as and to the fullest extent permitted by
applicable law, each such Indemnified Party against any losses,
claims,
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damages, liabilities, costs, expenses (including reasonable attorneys'
fees and expenses), judgments, fines and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened
or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), (i) FTNC
shall pay expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the
fullest extent permitted by law upon receipt of any undertaking
required by applicable law, (ii) the Indemnified Parties may retain
one firm of counsel satisfactory to them, and FTNC shall pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided,
however, that in the event that the defendants in, or targets of, any
such threatened or actual claim, action, suit, proceeding or
investigation include more than one Indemnified Party, and any
Indemnified Party shall have reasonably concluded based on the opinion
of its own counsel, that there may be one or more legal defenses
available to it or to another Indemnified Party which are in conflict
with those available to FTNC, Peoples or any other Indemnified Party,
then such Indemnified Party may employ separate counsel to represent
or defend it or any other person entitled to indemnification and
reimbursement hereunder with respect to any such claim, action, suit,
proceeding or investigation in which it or such other person may
become involved or is named as defendant and FTNC shall pay the
reasonable fees and expenses of such counsel and (iii) FTNC will use
its best efforts to assist in the vigorous defense of any such matter,
provided that FTNC shall not be liable for any settlement effected
without its prior written consent (which consent shall not be
unreasonably withheld), and provided further that FTNC shall have no
obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law and in such event FTNC shall be
reimbursed by such Indemnified Party for all expenses advanced on its
behalf by FTNC. Any Indemnified Party wishing to claim
indemnification under this Paragraph (N) of Article IV hereof upon
learning of any such claim, action, suit, proceeding or investigation,
shall notify FTNC thereof, provided that the failure to so notify
shall not affect the obligations of FTNC under this Paragraph (N) of
Article IV hereof except to the extent such failure to notify
materially prejudices FTNC. Notwithstanding the foregoing, no
indemnification shall be provided the Indemnified Parties hereunder if
the claim, action, suit, proceeding or investigation arises, in whole
or in part, out of any material misrepresentation contained in this
Agreement or material breach of covenants, representations, warranties
or agreements contained in this Agreement by Peoples or any
Indemnified Party;
(2) FTNC and Peoples agree that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties
as provided in Peoples articles of incorporation or by-laws, or
similar governing documents of any of its subsidiaries as in effect as
of the date hereof with respect to matters occurring prior to the
Effective Time shall survive the Merger and shall continue in full
force and effect, without any amendment thereto, for a period of not
less than three (3) years from the Effective Time, provided, however,
that all rights to indemnification in respect of any claim (a "Claim")
asserted or made within such period shall continue until the final
disposition of such Claim;
(3) This Paragraph (N) of Article IV is intended to benefit the
Indemnified Parties and shall be binding on all successors and assigns
of FTNC;
(4) In the event FTNC or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person,
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then, and in each such case, proper provision shall be made so that
the successors and assigns of FTNC assume the obligations set forth in
this Paragraph (N) of Article IV.
(O) Subject to FTNC's option to affirmatively elect to cause the
Merger to be treated as a purchase transaction for accounting purposes
which option may be exercised upon written notice by FTNC to Peoples
(a "Notice of Election for Purchase Accounting") and which election
may be revoked by FTNC at any time prior to consummation of the Merger
by written notice to Peoples of such revocation, Peoples and FTNC will
each use its best efforts to cause the Merger to qualify for
pooling-of-interests accounting treatment and neither Peoples nor FTNC
shall take any action which would cause the Merger not to qualify for
pooling-of-interest account treatment;
(P) In the case of Peoples, it shall use its best efforts to cause
each person who is on the date hereof an "affiliate" of Peoples (as
that term is defined in Section (B)(7) of Article V hereof) to execute
and deliver to FTNC the written undertakings in substantially the form
attached hereto as EXHIBIT "IV(P)" on the date this Agreement is
executed and shall use its best efforts to cause any other person who
subsequently becomes an "affiliate" to execute and deliver such
written undertakings not later than forty (40) days prior to the
Effective Date.
ARTICLE V.
CONDITIONS TO CONSUMMATION
(A) The respective obligations of FTNC and Peoples to effect the
Merger shall be subject to the satisfaction prior to the Effective Time of the
following conditions:
(1) This Agreement and the transactions contemplated hereby shall
have been approved by the requisite vote of the shareholders of
Peoples;
(2) Prior to the date of approval of this Agreement by its Board of
Directors, Peoples shall have received a letter from Southard
Financial to the effect that in the opinion of such firm, the terms of
the transaction are fair to the shareholders of Peoples from a
financial point of view;
(3) The procurement of approval of this Agreement and the
transactions contemplated hereby by the Federal Reserve Board and the
expiration of any statutory waiting periods;
(4) Procurement of all other regulatory consents and approvals
(including, without limitation, any required consents or approvals
from state banking authorities) which are necessary to the
consummation of the transactions contemplated by this Agreement;
provided, however, that no approval or consent in Paragraphs (A)(3)
and (A)(4) of this Article V shall be deemed to have been received if
it shall include any conditions or requirements which would reduce the
benefits of the transactions contemplated hereby to such a degree that
FTNC would not have entered into this Agreement had such conditions or
requirements been known at the date hereof;
(5) The satisfaction of all other requirements prescribed by law
which are necessary to the consummation of the transactions
contemplated by this Agreement;
(6) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger;
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(7) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any
governmental authority which prohibits, or makes illegal consummation
of the Merger or which imposes restrictions, conditions or
requirements on consummation of the Merger which would reduce the
benefits of the Merger to such a degree that FTNC or Peoples (as to
any restriction, condition or requirement which directly affects
Peoples) would not have entered into this Agreement had such
conditions or requirements been known at the date hereof;
(8) The Registration Statement shall have become effective and no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC; and
(9) Heiskell, Donelson, Bearman, Adams, Williams & Caldwell shall
have delivered its opinion dated as of the Effective Date,
substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and
that, accordingly: (i) no gain or loss will be recognized by FTNC or
Peoples as a result of the Merger, (ii) no gain or loss will be
recognized by the shareholders of Peoples who exchange their shares of
Peoples Common Stock solely for shares of FTNC Common Stock pursuant
to the Merger (except with respect to cash received in lieu of a
fractional share interest in FTNC Common Stock); (iii) the tax basis
of the shares of FTNC Common Stock received by shareholders who
exchange all of their shares of Peoples Common Stock solely for shares
of FTNC Common Stock in the Merger will be the same as the tax basis
of the shares of Peoples Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for
which cash is received); and (iv) the holding period of the shares of
FTNC Common Stock received in the Merger will include the period
during which the shares of Peoples Common Stock surrendered in
exchange therefor were held, provided such shares of Peoples Common
Stock were held as capital assets at the Effective Time. In rendering
such opinion, counsel may require and rely upon representations
contained in certificates of officers of Peoples, FTNC and others.
(B) The obligation of FTNC to effect the Merger shall be subject to
the satisfaction prior to the Effective Time of the following additional
conditions:
(1) FTNC and its directors and officers who sign the Registration
Statement shall have received from Peoples' independent certified
public accountants "cold comfort" letters, dated (i) the date of the
mailing of the Proxy Statement/Prospectus to Peoples' shareholders and
(ii) shortly prior to the Effective Date, with respect to certain
financial information regarding Peoples in the form customarily issued
by accountants at such time in transactions of this type;
(2) FTNC shall have received an opinion, dated the Effective Date, of
Peoples' counsel in the form and to the effect customarily received in
transactions of this type;
(3) Each of the representations, warranties and covenants contained
herein of Peoples, subject to the disclosure letter of Peoples
provided pursuant to Article III, shall, in all respects, be true on,
or complied with by, the Effective Date as if made on such date (or on
the date when made in the case of any representation or warranty which
specifically relates to an earlier date) except (y) for breaches which
singly or in the aggregate do not have a Material Adverse Effect, and
(z) as to representations, warranties or covenants contained herein of
Peoples which do not specifically refer to Material Adverse Effect,
for breaches which are not material, and FTNC shall have received a
certificate signed by the
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President of Peoples, dated the Effective Date, to such effect. Any
effect on Peoples as a result of action taken by Peoples pursuant to
Paragraph (M) of Article IV shall be disregarded for purposes of
determining the truth or correctness of any representation or warranty
of Peoples and for purposes of determining whether any conditions are
satisfied;
(4) FTNC shall have received all state securities laws and "Blue Sky"
permits and other authorizations necessary to consummate the
transactions contemplated hereby;
(5) Unless FTNC shall have delivered to Peoples a Notice of Election
for Purchase Accounting, which notice shall not have been revoked by
FTNC in writing, FTNC shall have received a letter dated as of the
Effective Date from its independent certified public accountants to
the effect that the Merger will qualify for pooling-of-interests
accounting treatment if closed and consummated in accordance with this
Agreement;
(6) No litigation or proceeding is pending which (i) has been brought
against FTNC or Peoples or any of their subsidiaries by any
governmental agency seeking to prevent consummation of the
transactions contemplated hereby or (ii) in the reasonable judgement
of the Chief Executive Officer of Peoples is likely to have a Material
Adverse Effect on Peoples;
(7) Each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act and for
purposes of qualifying for "pooling-of-interests" treatment as
described below) of Peoples shall have delivered to FTNC a written
agreement satisfactory to FTNC providing, among other matters, that
such person will not sell, pledge, transfer or otherwise dispose of or
take any action to reduce his risk with respect to any shares of
Peoples Common Stock held by such "affiliate" or the shares of FTNC
Common Stock to be received by such "affiliate" in the Merger (1) in
the case of shares of FTNC Common Stock only, except in compliance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder, and (2) during the periods during which any
such sale, pledge, transfer or other disposition or action would,
under generally accepted accounting principles or the rules,
regulations or interpretations of the SEC, disqualify the Merger for
pooling-of-interests accounting treatment. The parties understand
that such periods in general encompass the period commencing 30 days
prior to the Merger and ending at the time of the publication of
financial results covering at least 30 days of combined operations of
FTNC and Peoples within the meaning of Section 201-01 of the SEC's
Codification of Financial Reporting Policies.
(8) On the Effective Date Peoples' shareholders' equity (calculated
without giving effect to (i) unrecognized gains or losses on
"available for sale" securities as provided in FASB 115 and consistent
with Peoples' prior practices, (ii) Transaction Expenses (as defined
in Paragraph (F) of Article VIII), (iii) adjustments under Paragraph
(M) of Article IV), (iv) other expenses or obligations incurred in
connection with the Merger, including, but not limited to, accrual for
or payment of severance benefits, prepayment of certain employee
benefits and other transactions or expenses approved by FTNC, and (v)
breaches of the representations, warranties and covenants of Peoples
contained in this Agreement to the extent such breaches in the
aggregate do not exceed $155,000 on an after-tax basis) shall not be
less than $11,000,000.
(C) The obligation of Peoples to effect the Merger shall be subject
to the satisfaction on or prior to the Effective Time of the following
additional conditions:
(1) Peoples shall have received an opinion, dated the Effective Date,
of FTNC's counsel in the form and to the effect customarily received
in transactions of this type;
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(2) Each of the representations, warranties and covenants contained
herein of FTNC, subject to the disclosure letter of FTNC provided
pursuant to Article III shall, in all respects, be true on, or
complied with by, the Effective Date as if made on such date (or on
the date when made in the case of any representation or warranty which
specifically relates to an earlier date) except (y) for breaches which
singly or in the aggregate do not have a Material Adverse Effect, and
(z) as to representations, warranties or covenants contained herein as
to FTNC which do not specifically refer to Material Adverse Effect,
for breaches which are not material, and Peoples shall have received a
certificate signed by the President or Chief Financial Officer of
FTNC, dated the Effective Date, to such effect; and
(3) No litigation or proceeding is pending which (i) has been brought
against FTNC or Peoples or any of their subsidiaries by any
governmental agency, seeking to prevent consummation of the
transactions contemplated hereby or (ii) in the reasonable judgment of
the Chief Executive Officer of FTNC is likely to have a Material
Adverse Effect on FTNC.
ARTICLE VI.
TERMINATION
This Agreement may be terminated prior to the Effective Date, either
before or after its approval by the stockholders of Peoples:
(A) By the mutual consent of FTNC and Peoples, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board;
(B) By FTNC or Peoples, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of the
failure of the shareholders of Peoples to approve this Agreement by the
requisite vote at its meeting called to consider such approval, or a material
breach by the other party hereto of any representation, warranty or agreement
contained herein which is not cured or not curable within 60 days after written
notice of such breach is given to the party committing such breach by the other
party hereto;
(C) By FTNC or Peoples, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by one year from date of Agreement unless the failure
to so consummate by such time is due to the breach of this Agreement by the
party seeking to terminate; or
(D) By FTNC, if its Board of Directors so determines by vote of a
majority of the members of its entire Board, if the FTNC Common Stock Average
Price is less than $38 per share by written notice (a "Termination Notice") to
Peoples delivered within three (3) business days after the last day of the
Calculation Period.
(E) Subject to the provisions of Paragraph (F) of this Article VI and
Paragraph (B) of Article VIII, in the event of the termination of this
Agreement by either FTNC or Peoples, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective officers or directors, except that any such
termination shall be without prejudice to the rights of any party hereto
arising out of the willful breach by any other party of any covenant or willful
misrepresentation contained in this Agreement.
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(F) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to a Termination Event as described in this paragraph and notwithstanding
any other provision of this Agreement to the contrary, Peoples will pay to FTNC
liquidated damages in the amount of $1,000,000.
For purposes of this Paragraph (F), the following terms shall have the
indicated meaning: The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(1) Peoples shall have entered into an agreement to engage in
an Acquisition Transaction (as hereinafter defined) with any person
(other than FTNC or a subsidiary of FTNC), or the board of directors
of Peoples shall have recommended that the stockholders of Peoples
approve or accept any Acquisition Transaction (other than that
contemplated by this Agreement). The term "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction,
involving Peoples or any of its Significant Subsidiaries, (y) a
purchase, lease or other acquisition of all or any substantial part of
the assets of Peoples or any of its Significant Subsidiaries, or (z) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Peoples. The term "person" for
purposes of this Paragraph shall have the meaning assigned thereto in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations thereunder;
(2) Any person (other than FTNC, a subsidiary of FTNC or any
fiduciary acting under any employee benefit plan for FTNC or any of
its subsidiaries) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the
outstanding shares of the Peoples Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder);
(3) Any person (other than FTNC or a subsidiary of FTNC)
shall have made a proposal (in writing or orally) to Peoples or any
one or more of its shareholders owning ten percent (10%) or more
(singly or in the aggregate) of the outstanding shares of Peoples
Common Stock that results in or is a part of an Acquisition
Transaction;
(4) After a proposal is made by any person (other than FTNC
or a subsidiary of FTNC) to Peoples or its stockholders to engage in
an Acquisition Transaction, Peoples shall have breached any covenant
or obligation contained in this Agreement and such breach would
entitle FTNC to terminate the Merger Agreement (without regard to the
cure periods provided for therein) and such breach shall not have been
cured within seven (7) days; or
(5) Any person (other than FTNC or a subsidiary of FTNC),
shall have filed an application or notice with the Federal Reserve
Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval
to engage in an Acquisition Transaction.
"Subsequent Triggering Event" shall mean either of the following
events or transactions occurring after the date hereof:
(1) The acquisition by any person of beneficial ownership of
25% or more of the then outstanding Peoples Common Stock; or
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(2) The occurrence of the Initial Triggering Event described
in clause (1) of the definition of "Initial Triggering Event" of this
Paragraph (F), except that the percentage referenced in clause (z)
shall be 25%.
"Termination Event" shall mean each of the following: (i) the
Effective Date of the Merger, (ii) termination of this Agreement in accordance
with the provisions hereof if such termination occurs prior to the occurrence
of an Initial Triggering Event or (iii) the passage of 12 months after
termination of this Agreement if such termination follows the occurrence of an
Initial Triggering Event.
Peoples shall notify FTNC promptly in writing of the occurrence of any
Initial Triggering Event and of any Subsequent Triggering Event.
ARTICLE VII.
EFFECTIVE DATE AND EFFECTIVE TIME
On the last business day of the month during which the expiration of
all applicable waiting periods in connection with governmental approvals occurs
and all conditions to the consummation of this Agreement are satisfied or
waived, or, at FTNC's option, the first business day of the next succeeding
month, or on such earlier or later date as may be agreed by the parties, a
certificate of merger or articles of merger, as appropriate, shall be executed
in accordance with all appropriate legal requirements and shall be filed as
required by law, and the Merger provided for herein shall become effective upon
such filing or on such date as may be specified in such certificate of merger.
The date of such filing or such later effective date is herein called the
"Effective Date". The "Effective Time" of the Merger shall be 4:01 P.M. in the
State of Tennessee on the Effective Date (or such other time on the Effective
Date as may be agreed by the parties).
ARTICLE VIII.
OTHER MATTERS
(A) Certain Definitions. As used in this Agreement, the following
terms shall have the meanings indicated except where otherwise specifically
defined:
(1) "Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that, individually or
collectively, is reasonably likely to have a material adverse effect
upon (x) the condition, financial or otherwise, properties, business,
results of operations or prospects of such person and its
subsidiaries, taken as a whole, or (y) the ability of such person to
perform its obligations under, and to consummate the transactions
contemplated by, this Agreement; provided, however, that as to the
representations and warranties made by Peoples in Article III, Section
(U)(1), (2) and (3), a Material Adverse Effect shall have occurred if
the reasonably projected costs of remediation and/or the cost of all
fines, penalties, costs or expenses to which Peoples is or may be
subject under Environmental Laws as a result of any one or more
breaches of such representations and warranties exceed $500,000 in the
aggregate calculated on a pre-tax basis and as to all other
representations, warranties and covenants of Peoples, a Material
Adverse Effect shall have occurred if the actual or reasonably
projected costs of all losses, fines, penalties, costs or expenses
(including costs of remediation) as a result of any one or more
breaches of such representations, warranties and covenants exceed
$250,000 in the aggregate calculated on a pre-tax basis.
(2) "Person" includes an individual, corporation, partnership,
limited liability company, association, trust or unincorporated
organization.
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(B) Survival. The agreements and covenants of the parties which by
their terms apply in whole or in part after the Effective Time shall survive
the Effective Date. All other representations, warranties, agreements and
covenants shall be deemed to be conditions of this Agreement and shall not
survive the Effective Date. If this Agreement shall be terminated, the
agreements of the parties in Paragraph (H)(3) of Article IV, in Paragraphs (E)
and (F) of Article VI and Paragraphs (F) and (G) of this Article shall survive
such termination.
(C) Amendment; Modification; Waiver. Prior to the Effective Date,
any provision of this Agreement may be (i) waived by the party benefitted by
the provision or by both parties or (ii) 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), except that, after the vote by the shareholders of
Peoples, Paragraph (B) of Article I shall not be amended or revised.
(D) Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
(E) Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Tennessee.
(F) Expenses. Each party hereto will bear all expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby
including fees and expenses of its own brokers, finders, financial consultants,
accountants and counsel ("Transaction Expenses"), except printing expenses
which shall be shared equally; provided, however, if FTNC exercises its
termination right as provided in Paragraph (D) of Article VI, it will reimburse
Peoples for Peoples' actual Transaction Expenses up to, but not in excess of,
$100,000. Peoples agrees that its Transaction Expenses will not exceed
$100,000.
(G) Disclosure. 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 as
permitted under Paragraph (F) of Article IV unless it is advised by counsel
that any such information is required by law to be disclosed.
(H) Notices. All notices, requests, acknowledgements 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, telegram or telex
(confirmed in writing) 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.
IF TO
PEOPLES, TO: PEOPLES COMMERCIAL SERVICES CORP.
207 E. Main Street
P.O. Box 276
Senatobia, Mississippi 38668
ATTN: Leland Gough
Telecopy No.: 601/562-0094
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With Copies to: Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
P. O. Box 242120
Memphis, Tennessee 38124-2120
ATTN: Jeffrey C. Gerrish
Telecopy No.: 901/684-2339
IF TO FTNC, TO: FIRST TENNESSEE NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Elbert L. Thomas, Jr.
Telecopy No.: 901/523-4614
With Copies to: HEISKELL, DONELSON, BEARMAN
ADAMS, WILLIAMS & CALDWELL
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
ATTN: Charles T. Tuggle, Jr.
Telecopy No.: 901/577-2303
FIRST TENNESSEE NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Harry A. Johnson, III
Telecopy No.: 901/523-4248
(I) Continuing Existence. First Tennessee currently intends to allow
Peoples Bank to operate as a separate subsidiary retaining its name, bank
charter and current management and Board of Directors.
(J) No Third Party Beneficiaries. All terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as expressly
provided for herein, nothing in this Agreement is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
(K) Entire Agreement. This Agreement 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.
(L) Assignment. This Agreement may not be assigned by any party
hereto without the written consent of the other parties.
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(M) Directors' Shares. To the extent that directors' qualifying
shares shall exist with respect to Peoples Bank, Peoples Bank shall take such
action with respect to such shares as FTNC shall reasonably request.
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 TENNESSEE NATIONAL CORPORATION
By: /s/ Elbert L. Thomas, Jr.
--------------------------------------
Title: Senior Vice President
-----------------------------------
FTNC
PEOPLES COMMERCIAL SERVICES CORP.
By: /s/ Leland Gough
--------------------------------------
Title: President
-----------------------------------
PEOPLES
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Appendix B
SOUTHARD
FINANCIAL
FAIRNESS OPINION
MERGER BY AND BETWEEN
FIRST TENNESSEE
NATIONAL CORPORATION
AND
PEOPLES COMMERCIAL
SERVICES CORPORATION
As of October 12, 1994
Report Dated
October 12, 1994
117
October 12, 1994
Board of Directors
Peoples Commercial Services Corporation
Senatobia, Mississippi
RE: FAIRNESS OPINION RELATIVE TO PENDING AGREEMENT OF PEOPLES COMMERCIAL
SERVICES CORPORATION, SENATOBIA, MISSISSIPPI, TO MERGE WITH AND INTO
FIRST TENNESSEE NATIONAL CORPORATION, MEMPHIS, TENNESSEE
Gentlemen:
The Board of Directors of Peoples Commercial Services Corporation ("Peoples")
retained Southard Financial, in its capacity as a financial valuation and
consulting firm, to render its opinion of the fairness, from a financial
viewpoint, of the acquisition of Peoples by First Tennessee National
Corporation ("FTNC"). Southard Financial and its principals have no past,
present, or future contemplated financial, equity, or other interest in either
Peoples or FTNC.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
[ ] A review of the financial performance and position of Peoples and the
value of its common stock;
[ ] A review of the financial performance and position of FTNC and the
value of its common stock;
[ ] A review of recent Bank merger transactions;
[ ] A review of the current and historical market prices of bank holding
companies in Mississippi, Tennessee, and surrounding states;
[ ] A review of the investment characteristics of the common stock of
Peoples and FTNC;
[ ] A review of the Agreement and Plan of Merger by and between First
Tennessee National Corporation and Peoples Commercial Services
Corporation, dated October 1994;
[ ] An evaluation of the impact of the merger on the expected return to
the current shareholders of Peoples; and,
[ ] An evaluation of other factors as were considered necessary to render
this opinion.
It is Southard Financial's understanding that the merger and resulting exchange
of the stock of First Tennessee National Corporation for the outstanding common
stock of Peoples Commercial Services Corporation constitutes a non-taxable
exchange for federal income tax purposes.
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Board of Directors
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Page 2
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Southard Financial reviewed the documents
specifically outlined in Exhibit 1 pertaining to Peoples Commercial Services
Corporation and in Exhibit 2 pertaining to First Tennessee National
Corporation.
REVIEW OF PEOPLES COMMERCIAL SERVICES CORPORATION
Southard Financial visited with the management of Peoples in Senatobia,
Mississippi. Discussions included questions regarding the current and
historical financial position and performance of Peoples and its wholly-owned
subsidiary, Peoples Bank, its outlook for the future, and other pertinent
factors.
REVIEW OF FIRST TENNESSEE NATIONAL CORPORATION
Southard Financial visited with the management of FTNC in Memphis, Tennessee.
Discussions included questions regarding the current and historical financial
position and performance of FTNC and its primary operating subsidiary, First
Tennessee Bank National Association, its outlook for the future, and other
pertinent factors.
MERGER DOCUMENTATION
Southard Financial reviewed the Agreement and Plan of Merger By and Between
First Tennessee National Corporation and Peoples Commercial Services
Corporation, dated October 1994. Appropriate aspects of this agreement were
discussed with management and with legal counsel for Peoples. (See Exhibit 3,
Terms of the Agreement and Plan of Merger.)
LIMITING CONDITIONS
Southard Financial did not independently verify the information reviewed, but
relied on such information as being complete and accurate in all material
respects. Southard Financial did not make any independent evaluation of the
assets of FTNC or Peoples, but reviewed data supplied by the management of both
institutions. Southard Financial did not, nor was it asked to, solicit third
party offers for the purchase of all or part of Peoples.
MAJOR CONSIDERATIONS
Numerous factors were considered in the overall review of the proposed merger.
The review process included considerations regarding Peoples, FTNC, and the
proposed merger. The major considerations are as follows:
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Board of Directors
Peoples Commercial Services Corporation
Page 3
PEOPLES COMMERCIAL SERVICES CORPORATION
o Historical earnings;
o Historical dividend payments;
o Outlook for future performance, earnings, and dividends;
o Economic conditions and outlook in Peoples's market;
o The competitive environment in Peoples's market;
o Comparisons with peer banks;
o Potential risks in the loan and securities portfolios;
o Recent minority stock transactions in Peoples's common stock; and,
o Other such factors as were deemed appropriate in rendering this
opinion.
FIRST TENNESSEE NATIONAL CORPORATION
o Historical earnings;
o Historical dividend payments;
o Outlook for future performance, earnings, and dividends;
o Economic conditions and outlook in FTNC's market;
o The competitive environment in FTNC's market;
o Comparisons with peer banks;
o Potential risks in the loan and securities portfolios;
o Recent minority stock transactions in FTNC's common stock; and,
o Other such factors as were deemed appropriate in rendering this
opinion.
COMMON FACTORS
o Historical and current bank merger pricing;
o Current market prices for minority blocks of common stocks of regional
bank holding companies in Mississippi, Tennessee, and surrounding
states;
THE PROPOSED MERGER
o The merger agreement and its terms;
o The specific pricing of the merger;
o Adequacy of the consideration paid to the shareholders of Peoples;
o The assumption that the tax opinion regarding the tax-free nature of
the exchange will be upheld;
o The amount of debt and goodwill on the balance sheet of FTNC and the
impact of the merger of Peoples on FTNC's capital and liquidity
positions;
o The historical dividend payments of FTNC and the likely impact on the
dividend income of the current shareholders of Peoples (equivalency of
cash dividends);
o Pro-forma combined income statements for FTNC post merger and the
expected returns to Peoples shareholders (equivalency of earnings
yield);
o The market for minority blocks of FTNC common stock during the past
three years; and,
o Other such factors as deemed appropriate.
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OVERVIEW OF FAIRNESS ANALYSIS
In connection with rendering its opinion, Southard Financial performed a
variety of financial analyses, which are summarized below. Southard Financial
believes that its analyses must be considered as a whole and that considering
only selected factors could create an incomplete view of the analyses and the
process underlying the opinion. The preparation of a fairness opinion is a
complex process involving subjective judgments and is not susceptible to
partial analyses or summary description. In its analyses, Southard Financial
made numerous assumptions, many of which are beyond the control of Peoples and
FTNC. Any estimates contained in the analyses prepared by Southard Financial
are not necessarily indicative of future results or values, which may vary
significantly from such estimates. Estimates of value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold. None of the analyses performed by
Southard Financial was assigned a greater significance than any other. (More
details on the analyses prepared by Southard Financial are contained in
Exhibits 4-8.)
DIVIDEND YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of Peoples,
Southard Financial reviewed the dividend paying histories of Peoples and FTNC.
Based upon this review, it is reasonable to expect that the shareholders of
Peoples, in total, will receive dividends at or above the level currently paid
by Peoples, after the merger is completed (defined as post merger combined
dividends per share times the exchange ratio). This is predicated on the
assumption that FTNC will continue per share dividends at current levels (see
Exhibit 4).
EARNINGS YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of Peoples,
Southard Financial determined that, based upon the proposed exchange ratio, the
shareholders of Peoples would have seen an increase in their share of earnings
(defined as post merger combined earnings per share times the exchange ratio),
had the merger been consummated by June 30, 1994. The analysis also suggests
expected higher earnings yields for Peoples shareholders in subsequent years if
the merger is consummated (see Exhibit 4).
BOOK VALUE ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of Peoples,
Southard Financial determined that the shareholders of Peoples would have seen
a slight decrease in the book value of their investment had the merger been
consummated prior to June 30, 1994.
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ANALYSIS OF ALTERNATIVES
In evaluating the fairness of the proposed merger on the shareholders of
Peoples, Southard Financial considered recent public market merger pricing
information (see Exhibit 5).
ANALYSIS OF MARKET TRANSACTIONS
Based upon the merger terms, Peoples shareholders will receive up to 186.1% of
June 30, 1994 book value per share, and up to 13.89x reported 1993 and
estimated 1994 earnings. The actual price/book value and price/earnings
multiples depend on the price of FTNC stock at the time the transaction is
consummated. Based upon the review conducted by Southard Financial, the
pricing for Peoples in the merger is within the range of multiples seen in
recent bank acquisitions (see Exhibit 5).
FUNDAMENTAL ANALYSIS
Southard Financial reviewed the financial characteristics of Peoples and FTNC
with respect to profitability, capital ratios, liquidity, asset quality, and
other factors. Southard Financial compared Peoples and FTNC to a universe of
publicly traded banks and bank holding companies and to peer groups prepared by
the Federal Financial Institutions Examination Council (FFIEC). Southard
Financial found that the post-merger combined entity will have capital ratios
and profitability ratios near those of the public peer group and the FFIEC peer
group (predominantly non-publicly traded banks). (See Exhibits 6-7.)
LIQUIDITY
Unlike Peoples stock, FTNC shares are registered with the SEC, and are actively
traded on the NASDAQ market. Further, except in the case of officers,
directors, and principal shareholders ("Affiliates") of Peoples, FTNC shares
received will be freely tradeable with no restrictions.
SUMMARY OF ANALYSES
The summary set forth does not purport to be a complete description of the
analyses performed by Southard Financial. The analyses performed by Southard
Financial are not necessarily indicative of actual values, which may differ
significantly from those suggested by such analyses. Southard Financial did
not appraise any individual assets or liabilities of Peoples or FTNC.
Throughout the due diligence process, all information provided by Peoples,
FTNC, and third party sources, was relied upon by Southard Financial without
independent verification.
122
Board of Directors
Peoples Commercial Services Corporation
Page 6
FAIRNESS OPINION
Based upon the analyses of the foregoing and such matters as were considered
relevant, it is the opinion of Southard Financial that the terms of the offer
for the acquisition of Peoples Commercial Services Corporation by First
Tennessee National Corporation are fair, from a financial viewpoint, to the
shareholders of Peoples Commercial Services Corporation.
Thank you for this opportunity to be of service to the shareholders of Peoples
Commercial Services Corporation.
Sincerely yours,
SOUTHARD FINANCIAL
David A. Harris
------------------------
David A. Harris, CFA, ASA
Douglas K. Southard
----------------------------------
Douglas K. Southard, DBA, CFA, ASA
Attachments:
Exhibit 1: Peoples Commercial Services Corporation, Document Review List
Exhibit 2: First Tennessee National Corporation, Document Review List
Exhibit 3: Terms of the Agreement and Plan of Merger
Exhibit 4: Expected Impact of the Merger on the Shareholders of Peoples
Commercial Services Corporation
Exhibit 5: Comparison of The Merger Pricing to Public Market Transactions
Exhibit 6: Overview of Peoples Commercial Services Corporation
Exhibit 7: Overview of First Tennessee National Corporation
Exhibit 8: Qualifications of Southard Financial
123
EXHIBIT 1
PEOPLES COMMERCIAL SERVICES CORPORATION
DOCUMENT REVIEW LIST
1. Consolidated Reports of Condition and Income ("Call Report") of
Peoples Bank for the periods ended December 31, 1993, March 31, 1994,
and June 30, 1994.
2. Uniform Bank Performance Report ("UBPR") of Peoples Bank for the
periods ended December 31, 1993 and June 30, 1994.
3. Parent Company Only Financial Statements for Small Bank Holding
Companies (FR Y-9 SP) of Peoples Commercial Services Corporation for
the periods ended June 30, 1992-94 and December 31, 1992-93.
4. Annual Report of Bank Holding Companies (FR Y-6) of Peoples Commercial
Services Corporation for the periods ended December 31, 1992-93.
5. Audited Financial Statements (unqualified opinions) of Peoples Bank
for the periods ended December 31, 1990-93.
6. 1994 Budget of Peoples Bank.
7. List of shareholders of Peoples Commercial Services Corporation as of
June 9, 1994.
8. Economic, demographic, and other pertinent information provided by the
Senatobia, Tate County, Mississippi, Chamber of Commerce.
9. Additional pertinent information deemed necessary to render this
opinion.
124
EXHIBIT 2
FIRST TENNESSEE NATIONAL CORPORATION
DOCUMENT REVIEW LIST
1. Annual Reports (including auditor's reports) for the years ended
December 31, 1990-93.
2. Securities and Exchange Commission Annual Report (Form 10-K) for the
year ended December 31, 1993.
3. Securities and Exchange Commission Quarterly Report (Form 10-Q) for
the quarters ended March 31, 1993, June 30, 1993, September 30, 1993,
March 31, 1994, and June 30, 1994.
4. Supplemental Quarterly Report for the year ended December 31, 1993.
5. Research reports by The Robinson-Humphrey Company, Inc.; CS First
Boston; First Manhattan Co.; Morgan Keegan & Company, Inc.; Keefe,
Bruyette & Woods, Inc.; J.C. Bradford & Co.; Goldman Sachs; Fitch
Investors Service, Inc.; and Stifel, Nicolaus & Company, Inc.
6. Budget for 1994.
7. Asset Quality Activity report covering the 1989-93 period, and detail
of all classified assets, non-accrual loans, and other real estate
owned in excess of $1.0 million as of August 31, 1994.
8. Minutes of all regular and special meetings of the Shareholders and
Board of Directors during 1993 and the first half of 1994.
9. Additional pertinent information deemed necessary to render this
opinion.
125
EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF MERGER
The Agreement and Plan of Merger, dated October 1994, by and between First
Tennessee National Corporation and Peoples Commercial Services Corporation (the
"Agreement") contains several provisions. The following are key provisions of
the Agreement:
In exchange for the 133,000 shares of Peoples common stock outstanding,
Peoples shareholders will receive newly issued shares of FTNC common stock.
The parties intend for the merger to qualify as a "reorganization" under the
Internal Revenue Code. Thus, the exchange of Peoples stock for FTNC stock is
expected to qualify as a tax-free exchange for Federal income tax purposes.
The exchange of cash for fractional shares may have tax consequences.
The exchange ratio will be fixed at 3.1658 shares of FTNC stock for each
share of Peoples stock. The exchange ratio is based upon: a total purchase
price of $20,000,000, divided by FTNC's stock price of $47.50 per share (as
of the market close on August 30, 1994), divided by 133,000 shares of
Peoples stock outstanding.
If the average price of FTNC stock (as defined in the Agreement) is less
than $42.00 per share, Peoples has the option to terminate the Agreement.
However, FTNC may require Peoples to consummate the Agreement by
re-calculating the exchange ratio based upon the new average price.
According to legal counsel for Peoples, representatives of FTNC recently
indicated that, if the average price of FTNC stock is between $42.00 and
$38.00 per share and Peoples does not exercise its option to terminate the
agreement, FTNC would likely recalculate the exchange ratio based upon a
purchase price of $17.68 million, rather than $20.00 million.
No fractional shares will be issued by FTNC. Peoples shareholders who would
otherwise have been entitled to fractional shares will be paid in cash based
upon the average price of FTNC stock.
The Agreement may be terminated by mutual consent of the Board of Directors
of each institution or by either party's Board of Directors if the merger is
not approved by its shareholders.
The exchange ratio will be adjusted to reflect any reclassification,
recapitalization, split-up, combination or exchange of shares, or stock
dividend which might occur at FTNC subsequent to the date of the Agreement
but prior to the consummation of the merger.
Based upon the terms of the Agreement, Peoples shareholders would receive
3.1658 shares of FTNC stock (fractional shares paid in cash) for each share of
Peoples stock held. If FTNC stock were to fall below $42.00 per share, and
both parties exercised their respective options as outlined above, Peoples
shareholders would receive 3.5812 shares (based on $41.99 per share) of FTNC
stock for each Peoples share held. If the exchange ratio was recalculated
based on a price of $17.68 million, Peoples shareholders would receive
something in excess of 3.1658 shares of FTNC stock, depending on the average
price of FTNC stock.
126
EXHIBIT 4
EXPECTED IMPACT OF THE MERGER
ON THE SHAREHOLDERS OF PEOPLES COMMERCIAL SERVICES CORPORATION
The following is a summary of the various analyses undertaken in conjunction
with this fairness opinion. This summary is not intended to represent all
analyses performed by Southard Financial, but is presented here for the
convenience of Peoples Commercial Services Corporation and its shareholders.
Assuming the fixed exchange ratio to be used in the merger, Peoples
shareholders would receive 3.1658 shares of FTNC stock.
EARNINGS Peoples earned $10.83 per share in 1993. FTNC earned $4.26
per share in 1993. Had the merger been consummated prior to
January 1, 1993, each former Peoples share would have earned
$13.49 in 1993 (FTNC 1993 earnings of $4.26 per share times
3.1658 shares). This represents an increase of 24.5% over
what Peoples earned in 1993.
Based upon the average of the analysts surveyed, FTNC is
expected to earn $4.62 per share in 1994. On an ongoing
basis, Southard Financial estimates that Peoples should earn
$11.25 per share in 1994. Given these estimates, and assuming
that the merger was consummated prior to January 1, 1994,
Peoples shareholders would see an increase of about 30% over
what Peoples would be expected to earn in 1994, absent the
merger.
DIVIDENDS Each share of Peoples stock received $3.50 per share in
dividends in 1993. Had the merger been consummated prior to
January 1, 1993, each former share of Peoples stock would have
received dividends of $4.75 in 1993 (FTNC 1993 dividends of
$1.50 per share times 3.1658 shares). This represents an
increase of 35.7% over the dividends paid to Peoples
shareholders in 1993. Based upon estimated 1994 dividends of
$3.50 per share for Peoples and $1.68 per share for FTNC, the
increase would be 52.0%.
BOOK VALUE Reported book value of Peoples at June 30, 1994 was $80.81 per
share. Reported book value of FTNC at June 30, 1994 was
$22.77 per share. Had the merger been consummated prior to
June 30, 1994, each former Peoples share would have book value
of $72.09 (FTNC June 30, 1994 book value of $22.77 per share
times 3.1658 shares). This represents 89.2% of Peoples book
value at year-end. The reason for the reduction in book value
is that FTNC stock is trading at a price/book value ratio in
excess of 186% (the multiple for Peoples stock implied by the
Agreement).
LIQUIDITY Unlike Peoples stock, FTNC shares are registered with the SEC,
and are actively traded on the NASDAQ market. Average daily
trading volume was about 73,000 shares from January 1 to March
25, 1994. Further, except in the case of Affiliates of
Peoples, FTNC shares received will be freely tradeable with no
restrictions.
Based upon the analyses discussed above, and other analyses performed by
Southard Financial, the impact of the merger on the shareholders of Peoples
Commercial Services Corporation is expected to be favorable. (Also see Exhibit
4a.)
127
EXHIBIT 4a
IMPACT ON PRICING MULTIPLES
AS FTNC MARKET PRICE CHANGES
CALCULATION OF EXCHANGE RATIO AGREEMENT IF REPRICED
- ----------------------------- ------------ -------------------------
Stated Price for Peoples $20,000,000 $20,000,000 $17,680,015
FTNC Stock Price 8/30/94 $47.50 $41.99 $40.00
----------- ----------- -----------
FTNC Shares Acquired 421,053 476,304 442,000
Peoples Shares Outstanding 133,000 133,000 133,000
----------- ----------- -----------
FTNC Shares Per Peoples Share 3.1658 3.5812 3.3233(1)
=========== =========== ===========
PRICING MULTIPLES POTENTIAL PRICE OF FTNC STOCK
- ------------------------------ -------------------------------------------
FTNC Stock Price at Closing $ 47.50 $ 44.00 $ 42.00 $ 41.99 $ 40.00
FTNC Shares Per Peoples Share 3.1658 3.1658 3.1658 3.5812 3.3233(1)
------- ------- ------- ------- -------
Market Value Per Peoples Share $150.38 $139.30 $132.96 $150.37 $132.93
Book Value Per Peoples Share 80.81 80.81 80.81 80.81 80.81
------- ------- ------- ------- -------
Price/Book Value Ratio 186.1% 172.4% 164.5% 186.1% 164.5%
======= ======= ======= ======= =======
Market Value Per Peoples Share $150.38 $139.30 $132.96 $150.37 $132.93
Earnings Per Peoples Share 10.83 10.83 10.83 10.83 10.83
------- ------- ------- ------- -------
Price/Earnings Ratio 13.89x 12.86x 12.28x 13.89x 12.27x
======= ======= ======= ======= =======
EXCHANGE RATIO IMPACT
----------------------------
IMPACT ON PEOPLES SHAREHOLDERS FTNC PEOPLES 3.1658 3.5812 3.3233(1)
- ------------------------------ ------- ------- -------- -------- ----------
Market Price - 12/31/93 $ 38.50 na na na na
Book Value Per Share - 12/31/93 $ 21.67 $80.46 -14.7% -3.5% -10.5%
Earnings Per Share - 1993 $ 4.26 $10.83 24.5% 40.9% 30.7%
Dividends Per Share - 1993 $ 1.50 $ 3.50 35.7% 53.5% 42.4%
Price/Book Value - 12/31/93 177.7% na na na na
Price/Earnings - 12/31/93 9.04 na na na na
Dividend Yield - 12/31/93 3.90% na na na na
Market Price - 6/30/94 $ 43.75 na na na na
Book Value Per Share - 6/30/94 $ 22.77 $80.81 -10.8% 0.9% -6.4%
Earnings Per Share - Est 1994 $4.62 $11.25 30.0% 47.1% 36.5%
Dividends Per Share - Est 1994 $1.68 $ 3.50 52.0% 71.9% 59.5%
Price/Book Value - 6/30/94 192.1% na na na na
Price/Earnings - Est 1994 9.47 na na na na
Dividend Yield - Est 1994 3.84% na na na na
(1) Assuming FTNC price drops to $40.00 and exchange ratio is set at $17.68
million
128
EXHIBIT 5
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
Southard Financial compared the pricing terms of the Agreement to the pricing
of recent acquisitions of banks and bank holding companies across the United
States, and to the minority interest prices of publicly traded banks and bank
holding companies in the Southeast. Pricing data for recent acquisitions of
banks and bank holding companies is summarized as follows:
Price/ Price/ Price/ Equity/
Transactions(1) Earnings Book Val Assets ROAA Assets ROAE
---------------------------------- -------- -------- -------- -------- -------- --------
Nationwide - 1993 (186) 17.60x 177% 14.51% 0.84% 8.29% 10.13%
AL, AR, LA, MS, TN - 1993 (30) 12.79x 180% 15.12% 1.20% 8.79% 13.59%
Mississippi - 1993 (2) 12.77x 196% 16.92% 1.41% 8.68% 16.24%
Nationwide - 1st Half 1994 (129) 17.30x 178% 15.65% 1.02% 9.13% 11.17%
AL, AR, LA, MS, TN - 1st Half '94 (19) 13.60x 206% 17.40% 1.36% 8.50% 16.00%
Mississippi - 1st Half 1994 (2) 11.05x 168% 13.65% 1.44% 8.30% 17.35%
(1) Based upon deals announced for which P/E and/or P/B ratios were available
The Agreement for the merger of Peoples into FTNC represents 13.89x 1993
earnings, 13.37x estimated 1994 earnings, and 186.1% of June 30, 1994 book
value. For potential average prices of FTNC stock, the multiples are: $40.00
per share, 172.4% of book value and 12.86x earnings; $42.00 per share, 164.5%
of book value and 12.28x earnings. Given Peoples' high capital position, these
multiples are well within the range of recent market multiples. The market
multiples are slightly lower for higher capitalized banks like Peoples. (See
Exhibit 5a for pricing multiples based upon capital ratios of 8%-10%.)
In determining the attractiveness of owning FTNC stock, it is important to
examine FTNC's recent pricing in comparison with recent pricing multiples for
publicly traded banks and bank holding companies. This pricing data is
presented below as of June 30, 1994.
Price/ Price/ Current Current
Publicly Traded Banks(1) Earnings Book Val ROAE Yield
-------------------------- -------- -------- ------ -------
All Banks (203) 11.95x 152% 13.1% 2.59%
AL, AR, LA, MS, TN Banks (20) 10.75x 156% 14.7% 2.99%
Alabama Banks (3) 10.87x 146% 13.5% 3.20%
Arkansas Banks (4) 11.47x 171% 14.9% 2.43%
Louisiana Banks (2) 11.15x 145% 13.0% 3.85%
Mississippi Banks (6) 10.08x 151% 15.2% 3.11%
Tennessee Banks (5) 10.76x 162% 15.3% 2.83%
FTNC - December 31, 1993 9.04x 178% 19.7% 3.90%
FTNC - June 30, 1994 9.47x 192% 20.3% 3.84%
(1) Subject to certain screens performed by Southard Financial
Based upon an analysis of the data provided above, FTNC's price/earnings
multiple is slightly below that of other publicly traded banks in its region,
while the price/book value ratio, return on average equity, and current
dividend yield are all above the range.
129
EXHIBIT 5a
PRICE/BOOK VALUE FOR
REQUIRED LEVELS OF EQUITY
ACTUAL BANK EQUITY
======================================
Bank Total Assets 6/30/94 $92,613,000
Bank Book Value 6/30/94 $10,679,000
-----------
Bank Equity/Assets 6/30/94 11.53%
===========
REQUIRED EQUITY LEVEL
---------------------------------------
BANK EQUITY AT REQUIRED LEVEL 8.00% 9.00% 10.00%
============================= ----------- ----------- -----------
Bank Book Value 6/30/94 $10,679,000 $10,679,000 $10,679,000
Excess Equity at Required Level 3,555,000 2,575,000 1,575,000
----------- ---------- ----------
Bank Equity at Required Equity/Assets $ 7,124,000 $ 8,104,000 $ 9,104,000
Bank Assets at Required Equity/Assets 89,058,000 90,038,000 91,038,000
----------- ----------- -----------
Bank Equity/Assets at Required Level 8.00% 9.00% 10.00%
=========== =========== ===========
HOLDING COMPANY EQUITY AT REQUIRED LEVEL
========================================
Bank Equity at Required Equity/Assets $7,124,000 $8,104,000 $9,104,000
Other Holding Company Assets 6/30/94 69,000 69,000 69,000
---------- ---------- ----------
Peoples Equity at Required Level $7,193,000 $8,173,000 $9,173,000
========== ========== ==========
PRICE/BOOK RATIO AT REQUIRED EQUITY
===================================
Stated Purchase Price $20,000,000 $20,000,000 $20,000,000
Peoples Excess Equity at Required Level 3,555,000 2,575,000 1,575,000
----------- ----------- -----------
Purchase Price for Required Equity $16,445,000 $17,425,000 $18,425,000
Peoples Equity at Required Level 7,193,000 8,173,000 9,173,000
----------- ----------- -----------
Price/Book Value for Required Equity 228.63% 213.20% 200.86%
=========== =========== ===========
At Purchase Price of $17.68 Million 196.37% 184.82% 175.57%
=========== =========== ===========
130
EXHIBIT 6
OVERVIEW OF PEOPLES COMMERCIAL SERVICES CORPORATION
Peoples Commercial Services Corporation is a one-bank holding company located
in Senatobia, Tate County, Mississippi. Peoples' wholly-owned subsidiary,
Peoples Bank, had assets of $92.6 million at June 30, 1994, and equity of 11.5%
of assets. The Bank's asset growth was in the range of 4%-5% over the 1989-94
period, and the Bank has always been well capitalized. Peoples Bank earned
$748 thousand in the first half of 1994 (1.64% of average assets), $1.42
million in 1993 (1.65%), and $1.36 million in 1992 (1.71%). Peoples paid
common stock dividends of $3.50 per share at year-end 1993 and is expected to
pay the same dividends at year-end 1994. According to management, Peoples has
never reduced shareholder dividends. More details on Peoples are documented in
Southard Financial's file.
131
EXHIBIT 7
OVERVIEW OF FIRST TENNESSEE NATIONAL CORPORATION
First Tennessee National Corporation is one of the nation's 65 largest banking
companies with assets of $10.2 billion. FTNC's principal subsidiary, First
Tennessee National Bank National Association (FTBNA), provides general banking
products and services through 225 locations across Tennessee; mortgage banking
services through 102 offices in 20 states; consumer lending through ten offices
in five states; and ATM access at over 100,000 locations. FTNC also offers
related financial services including bond broker/agency services, merchant
credit card processing, nationwide check clearing, integrated check processing,
trust services, brokerage, venture capital, and credit life insurance.
Recent acquisitions were as follows: (1) FTNC acquired HFC, a Tennessee savings
and loan holding company, on December 14, 1992; (2) FTBNA acquired Maryland
National Mortgage Corporation, a mortgage banking operation in Baltimore,
Maryland, on October 1, 1993; (3) FTNC acquired New South Bancorp, a
Mississippi bank holding company, on December 31, 1993; (4) FTNC acquired SNMC
Management Corporation, a mortgage banking operation in Dallas, Texas, on
January 4, 1994; (5) FTNC acquired Highland Capital Management Corp. on March
1, 1994; (6) FTNC acquired Cleveland Bank and Trust, a Tennessee bank, on March
16, 1994; and, (7) FTNC acquired Planters Bank, in Tunica, Mississippi, in
September 1994. Further, FTNC approved the acquisition of Emerald Mortgage
Company, a mortgage banking company in Seattle, Washington, in June 1994; and
approved the acquisition of Carl I. Brown and Company, a mortgage banking
operation in Kansas City, in August 1994. FTNC also recently announced the
planned acquisition of Community Bancshares of Germantown, Tennessee.
FTNC earned $4.26 per share in 1993, up 33.5% from $3.19 per share in 1992.
The consensus earnings estimate for 1994 is $4.62, or 8.5% above 1993 earnings.
Earnings per share increased in each year since 1989. Dividends of $1.50 per
share in 1993 were 19.0% above 1992 dividends of $1.26 per share. Per share
dividends increased each year since 1988, and dividends have been paid in
consecutive quarters for 98 years. Dividends are estimated to be $1.78 per
share for all of 1994.
FTNC had Tier I capital to risk-adjusted assets of 9.74% in the first half of
1994, well above the regulatory minimum of 6.00%; and total capital to
risk-adjusted assets of 12.19% versus the minimum of 10.00%. The quality of
the loan portfolio improved in recent years, as net charge-offs decreased from
a high of $59.9 million in 1991 to $28.4 million in 1993, and just $8.4 million
in the first half of 1994. Also, FTNC's efforts reduced non-performing assets
to total loans from 2.35% at year-end 1990 to 0.79% at June 30, 1994.
In all, FTNC is in good financial condition. The recent addition of mortgage
banking operations is expected to add diversification and synergies to FTNC's
ongoing activities. Management is interested in acquiring other mortgage
banking operations, as well as other banks with good market share and/or
earnings potential. More details on FTNC are contained in Southard Financial's
file.
132
EXHIBIT 8
QUALIFICATIONS OF SOUTHARD FINANCIAL
133
AN OVERVIEW OF SOUTHARD FINANCIAL
BACKGROUND [ ] Founded in 1987.
[ ] Principals have combined business valuation experience of
over twenty years.
[ ] Serves clients throughout the United States, with
concentration in the Southeast.
[ ] Broad industry experience.
[ ] Services provided for public and closely-held companies.
[ ] Provides valuation services for over 100 ESOPs, making
Southard Financial one of the largest ESOP appraisers in
the United States.
PROFESSIONAL
CREDENTIALS [ ] Southard Financial's principals, Douglas K. Southard and
David A. Harris, are senior members of the American
Society of Appraisers (ASA).
[ ] Both principals of Southard Financial are Chartered
Financial Analysts (CFA).
[ ] Both principals are current or former officers of the West
Tennessee Chapter of the ASA.
EDUCATIONAL
CREDENTIALS [ ] Douglas Southard holds Doctor of Business Administration
and Master of Business Administration degrees from
Indiana University, with concentrations in finance,
economics, and quantitative analysis.
[ ] David Harris holds the Master of Business Administration
degree from Memphis State University, with
concentrations in finance and business investments.
BUSINESS
ETHICS [ ] Southard Financial and its principals adhere to the ethical
standards of the Institute of Chartered Financial Analysts
and the American Society of Appraisers.
[ ] All reports conform to the Uniform Standards of
Professional Appraisal Practice (USPAP).
[ ] Southard Financial is committed to providing unbiased
opinions to be used for decision making.
[ ] Fees for valuation services are not contingent upon the
conclusion of value or the completion of a transaction.
134
BIOSKETCH
DOUGLAS K. SOUTHARD, DBA, CFA, ASA
EDUCATIONAL AND PROFESSIONAL CREDENTIALS
Doctor of Business Administration, 1981, Indiana University
Master of Business Administration, 1976, Indiana University
Bachelor of Arts, 1975, Rhodes College (formerly Southwestern at
Memphis)
Chartered Financial Analyst, 1987, Institute of Chartered Financial
Analysts (now part of the Association for Investment
Management and Research)
Senior Member, 1987, American Society of Appraisers, Business Valuation
PROFESSIONAL BACKGROUND
Founder and Principal, Southard Financial, Memphis TN
Partner, Mercer Capital Management, Inc., Memphis TN (1984-87)
Consulting Associate, Mercer Capital Management, Inc., Memphis TN
(1983-84)
Principal, Douglas K. Southard, Financial Consultant, Memphis TN
(1982-83)
ACADEMIC POSITIONS HELD
Assistant Professor of Finance, Rhodes College, Memphis TN
Assistant Professor of Finance, Virginia Polytechnic Institute & State
Univ., Blacksburg VA
Lecture in Finance, Indiana University, Bloomington IN
RELATED EXPERIENCE
Frequent Speaker, professional organizations, business valuation topics
Expert Witness, business valuation, local, state and federal courts
Board of Directors, Management Computing Solutions, Inc., Memphis TN
Board of Directors, Columbian Rope Company, Auburn NY
Board of Directors, Explorer Systems, Inc., Memphis, TN
Advisory Board, MicroAge, Memphis TN
Former Officer, West Tennessee Chapter, American Society of Appraisers
PUBLICATIONS
"Using the Capital Asset Pricing Model to Determine Capitalization
Rates: Adjusting for Differences in Financial Structure, "with
Severin C. Carlson, Business Valuation Review, June 1991
"Business Valuation Can Serve in Lifetime Planning, " with Z.C.
Mercer, Memphis Business Journal, April 1-5, 1985
"Valuation Process Holds Keys to Executive Wealth," with Z.C. Mercer,
Memphis Business Journal, March 25-29, 1985
"What IRA's Are Worth," with Z.C. Mercer, The Southern Banker, June
1984
135
BIOSKETCH
DAVID A. HARRIS, CFA, ASA
EDUCATIONAL AND PROFESSIONAL CREDENTIALS
Master of Business Administration, 1982, Memphis State University
Bachelor of Arts, 1979, Colorado State University
Senior Member, 1990, American Society of Appraisers, Business Valuation
Chartered Financial Analyst, 1989, Institute of Chartered Financial
Analysts (now part of the Association for Investment
Management and Research)
PROFESSIONAL BACKGROUND
Principal, Southard Financial, Memphis TN
Associate, Mercer Capital Management, Inc., Memphis TN (1985-90)
Financial Analyst, Methodist Hospitals of Memphis, Inc. (1983-85)
Cost Analyst, Schering-Plough, Inc., Memphis TN (1982-83)
PROFESSIONAL/COMMUNITY SERVICE
President, West Tennessee Chapter, American Society of Appraisers
(1994-95)
Vice President, West Tennessee Chapter, American Society of Appraisers
(1993-94)
President, West Tennessee Chapter, American Society of Appraisers
(1990-91)
Board of Directors, Solomon Schechter Day School of Memphis, Inc.
(1993-94)
Vice President, Sea Isle Park Neighborhood Association, Memphis TN
(1992-95)
Board of Directors, Sea Isle Park Neighborhood Association, Memphis
TN (1990-95)
Business Liaison, Junior Achievement of Memphis TN (1984-85)
RELATED EXPERIENCE
Expert Witness, business valuation
Co-A, "The Perils of Excess," with Z. C. Mercer, ABA Banking Journal,
October 1987
136
SOUTHARD
FINANCIAL
SERVICES FOR COMMUNITY BANKS
Valuation Services
[ ] Minority Stock Appraisals
- ESOPs
- Dissenting Shareholders
- Insider Transactions
- Gift & Estate Taxes
- Charitable Gifts
- Private Placements/Offerings
- Other Purposes
[ ] Control Valuations
- Pricing Merger/Acquisition Candidates
- Negotiating Pricing/Terms
- Fairness Opinions for Buyers and Selle
- Evaluation of Offers Received
Consulting Services
[ ] Economic Analysis
- Branch Feasibility Studies
- Holding Company Formations
- Expert Witness Testimony
[ ] Financial Analysis
- Long-range Financial Plans
- Evaluation of Financing Alternatives
665 OAKLEAF OFFICE LANE
MEMPHIS, TENNESSEE 38117
(901) 761-7500
FAX (901) 761-6045
137
January 24, 1995
Board of Directors
Peoples Commercial Services Corporation
Senatobia, Mississippi
RE: SUPPLEMENT TO FAIRNESS OPINION RELATIVE TO PENDING AGREEMENT OF PEOPLES
COMMERCIAL SERVICES CORPORATION, SENATOBIA, MISSISSIPPI, TO MERGE WITH AND
INTO FIRST TENNESSEE NATIONAL CORPORATION, MEMPHIS, TENNESSEE
Gentlemen:
Southard Financial rendered its independent opinion, dated October 12, 1994, of
the fairness, from a financial viewpoint, of the acquisition of Peoples
Commercial Services Corporation ("Peoples") by First Tennessee National
Corporation ("FTNC"). This letter is a supplement to that opinion, which is
incorporated herein, by reference, in its entirety.
On October 19, 1994, subsequent to the issuance of our original opinion,
Peoples and FTNC executed the Agreement and Plan of Merger (the "Agreement")
upon terms which differed from those contemplated previously. The key elements
of the revised terms are as follows:
(1) If the FTNC Common Stock Average Price (as defined in the Agreement
is $42.00 per share or greater, then each Peoples share outstanding
will be equivalent to 3.1658 shares of FTNC stock.
(2) If the Average Price is less than $42.00 per share, then the
exchange ratio of 3.1658 will be multiplied by the ratio of $42.00
divided by the Average Price to determine the adjusted exchange ratio.
(3) If the Average Price is less than $38.00 per share, FTNC has the
right to terminate the Agreement.
Based upon all of the information reviewed and analyzed for the issuance of
the original opinion, as well as a review of the Agreement dated October 19,
1994, it is the opinion of Southard Financial that the terms of the offer for
the acquisition of Peoples Commercial Services Corporation by First Tennessee
National Corporation are fair, from a financial viewpoint, to the shareholders
of Peoples Commercial Services Corporation.
138
Board of Directors
Peoples Commercial Services Corporation
Page 2
Thank you for this opportunity to be of service to the shareholders of Peoples
Commercial Services Corporation.
Sincerely yours,
SOUTHARD FINANCIAL
David A. Harris
David A. Harris, CFA, ASA
Douglas K. Southard
Douglas K. Southard, DBA, CFA, ASA
139
APPENDIX C
Sections 79-4-13.01 et seq. of the
Mississippi Code 1972 Annotated, as amended
ARTICLE 13
DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 79-13.01. DEFINITIONS.
In this article:
(1) "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.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 79-4-13.02 and who
exercises that right when and in the manner required by
Sections 79-4-13.20 through 79-4-13.28.
(3) "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 unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
(5) "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.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the
record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 79-4-13.02. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain
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payment of the fair value of his 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 (i) if shareholder approval is
required for the merger by Section 79-4-11.03 or the
articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the
corporation is a subsidiary that is merged with its
parent under Section 79-4-11.04;
(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 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 articles of incorporation that
materially and adversely affects rights in respect of
a dissenter's shares because it:
(i) Alters or abolishes a preferential right of
the shares;
(ii) 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;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or
other securities;
(iv) 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
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share, if the
fraction share so created is to be acquired
for cash under Section 79-4-6.04; or
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(5) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation,
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) Nothing in subsection (a)(4) shall entitle a shareholder of a
corporation to dissent and obtain payment for his shares as a
result of an amendment of the articles of incorporation
exclusively for the purpose of either (i) making such
corporation subject to application of the Mississippi Control
Share Act, or (ii) making such act inapplicable to a control
share acquisition of such corporation.
(c) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate
action creating his entitlement unless the action is unlawful
or fraudulent with respect to the shareholder or the
corporation.
Section 79-4-13.03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if he dissents
with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and
address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he
dissents and his other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(1) He 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) He does so with respect to all shares of which he is
the beneficial shareholder or over which he has power
to direct the vote.
SUBARTICLE B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 79-4-13.20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is submitted to a vote at a shareholders'
meeting, the meeting notice must state that
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shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Section
79-4-13.02 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 Section
79-4-13.22.
Section 79-4-13.21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights
(1) must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares
if the proposed action is effectuated, and (2) must not vote
his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirement of
subsection (a) is not entitled to payment for his shares under
this article.
Section 79-4-13.22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to
all shareholders who satisfied the requirements of Section
79-4-13.21.
(b) The dissenters' notice must be sent no later than ten (10)
days after the corporate action was taken, 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 uncertified 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 terms of the proposed corporate
action and requires that the person asserting
dissenters' rights certify whether or not he acquired
beneficial ownership of the shares before that date.
(4) Set a date by which the corporation must receive
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the payment demand, which date may not be fewer than
thirty (30) nor more than sixty (60) days after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
Section 79-4-13.23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in Section
79-4-13.22 must demand payment, certify whether he acquired
beneficial ownership of the shares before the date required to
be set forth in the dissenter's notice pursuant to Section
79-4-13.22(b)(3), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his shares
under subsection (a) retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his shares
under this article.
Section 79-4-13.24. 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 taken or the
restrictions released under Section 79-4-13.26.
(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 taking of the proposed corporate action.
Section 79-4-13.25. PAYMENT.
(a) Except as provided in Section 79-4-13.27, as soon as the
proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall pay each dissenter who
complied with Section 79-4-13.23 the amount the corporation
estimates to be the fair value of his shares, plus accrued
interest.
(b) The payment must be accompanies 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
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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 dissenters' right to demand
payment under Section 79-4-13.28; and
(5) A copy of this article.
Section 79-4-13.26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within
sixty (60) days 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 takes the proposed
action, it must send a new dissenters' notice under Section
79-4-13.22 and repeat the payment demand procedure.
Section 79-4-13.27. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by
Section 79-4-13.25 from a dissenter unless he 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 terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking 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 his demand. The
corporation shall send with its offer a statement of its
estimate of 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 Section 79-4-13.28.
Section 79-4-13.28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of
interest due, and demand payment of his estimate (less any
payment under Section 79-4-13.25), or reject the corporation's
offer under Section 79-4-13.27 and demand payment
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of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under
Section 79-4-13.25 or offered under Section
79-4-13.27 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section
79-4-13.25 within sixty (60) days after the date set
for demand payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or
release the transfer restrictions imposed on
uncertificated shares within sixty (60) days after
the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in
writing under subsection (a) within thirty (30) days after the
corporation made or offered payment for his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
Section 79-4-13.30. COURT ACTION.
(a) If a demand for payment under Section 79-4-13.28 remains
unsettled, the corporation shall commence a proceeding within
sixty (60) days 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 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the chancery
court of the county where a 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
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commenced under subsection (b) is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive
evidence and recommend decision 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 his shares, plus interest, exceeds the
amount paid by the corporation, or (2) for the fair value,
plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under Section
79-4-13.27.
Section 79-4-13.31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section
79-4-13.30 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 Section 79-4-13.28.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds
equitable:
(1) Against the corporation and in favor of any of all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Section
79-4-13.20 through 79-4-13.28; or
(2) Against 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 article.
(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 be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Tennessee Code Annotated Sections 48-18-501 through 48-18-509
authorize a corporation to provide for the indemnification of officers,
directors, employees and agents in terms sufficiently broad to permit
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended. FTNC has adopted the provisions of the Tennessee statute pursuant
to Article XXVIII of its Bylaws. Also, FTNC has a "Directors' and Officers'
Liability Insurance Policy" which provides coverage sufficiently broad to
permit indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended.
Tennessee Code Annotated, Section 48-12-102, permits the inclusion in
the charter of a Tennessee corporation of a provision, with certain exceptions,
eliminating the personal monetary liability of directors to the corporation or
its shareholders for breach of the duty of care. FTNC has adopted the
provisions of the statute in Article 13 of its charter.
The shareholders of FTNC have approved an amendment to Article XXVIII
of the Bylaws pursuant to which FTNC is required to indemnify each director and
any officers designated by the FTNC Board, and advance expenses, to the maximum
extent not prohibited by law. In accordance with the foregoing, the FTNC Board
is authorized to enter into individual indemnity agreements with the directors
and such officers. Such indemnity agreements have been approved for all of the
directors and certain officers.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Number Description
------ -----------
2 Agreement and Plan of Merger (included as Appendix "A" to the Proxy Statement-Prospectus)
3(i) Restated Charter of FTNC, as amended, attached as Exhibit 3(i) to FTNC's registration statement on Form S-4 (No.
33-53331) filed April 28, 1994, and incorporated hereinby reference.
3(ii) Bylaws of FTNC, as amended, attached as Exhibit 3(ii) to FTNC's Auarterly Report on Form 10-Q for the quarter ended
September 30, 1994, and incorporated herein by reference.
4(a) Form of Common Stock Certificate, incorporated herein by reference to exhibit 4(a) to FTNC's registration statement
on Form S-4 (No. 33-51223) filed November 30, 1993.
4(b) Shareholder Protection Rights Agreement, dated as of September 7, 1989, between FTNC and FTB as Rights Agent,
incorporated by reference to FTNC's Registration Statement on Form 8-A, filed September 8, 1989
4(c) Indenture, dated as of June 1, 1987, between FTNC and Security Pacific National Trust Company (New York), Trustee
incorporated by reference to FTNC's Annual Report on Form 10-K for the fiscal year ended December 31, 1991
4(d) FTNC and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 13 in FTNC's
1993 Annual Report to Shareholders. None of such debt exceeds 10% of the total assets of FTNC and its consolidated
subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required
to be included as exhibits. FTNC agrees to furnish copies of such instruments to the SEC upon request.
II-1
148
5 Opinion Regarding Legality
8 Opinion Regarding Tax Matters
23(a) Consent of Arthur Andersen & LLP.
23(b) Consent of Williams & Pitts.
23(c) Consent of Baylor and Backus.
23(d) Consent of Ernst & Young LLP.
23(e) Consent of Southard Financial.
23(f) Consents of Baker, Donelson, Bearman & Caldwell included in Exhibit 8.
23(g) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney.
99(a) Opinion of Southard Financial (included as Appendix "B" to the Proxy Statement-Prospectus).
99(b) Form of Proxy for Special Meeting of Shareholders of Peoples.
(b) Financial Statement Schedules--Not applicable
(c) Not Applicable
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales of the
securities are being made, a post-effective amendment to this Registration
Statement:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect any facts or events arising after the effective
date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
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149
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(c) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(e) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Proxy
Statement-Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee, on January 30, 1995.
FIRST TENNESSEE NATIONAL CORPORATION
By: Susan Schmidt Bies
---------------------------------------------------
Susan Schmidt Bies, Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Ralph Horn* Chief Executive Officer (principal January 30, 1995
- ---------------------------------- executive officer) and a Director
Ralph Horn
Susan Schmidt Bies* Executive Vice President and January 30, 1995
- ---------------------------------- Chief Financial Officer (principal
Susan Schmidt Bies financial officer)
James F. Keen* Senior Vice President and January 30, 1995
- ---------------------------------- Controller (principal
James F. Keen accounting officer)
Jack A. Belz* Director January 30, 1995
- ----------------------------------
Jack A. Belz
Robert C. Blattberg* Director January 30, 1995
- ----------------------------------
Robert C. Blattberg
Director January , 1995
- ---------------------------------- ---
J. R. Hyde, III
R. Brad Martin* Director January 30, 1995
- ----------------------------------
R. Brad Martin
Joseph Orgill* Director January 30, 1995
- ----------------------------------
Joseph Orgill, III
Richard E. Ray* Director January 30, 1995
- ---------------------------------
Richard E. Ray
Vicki G. Roman* Director January 30, 1995
- ----------------------------------
Vicki G. Roman
Michael D. Rose* Director January 30, 1995
- ----------------------------------
Michael D. Rose
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151
William B. Sansom* Director January 30, 1995
- ----------------------------------
William B. Sansom
Gordon P. Street, Jr.* Director January 30, 1995
- ----------------------------------
Gordon P. Street
Ronald Terry* Director January 30, 1995
- ----------------------------------
Ronald Terry
*By: Clyde A. Billings, Jr. January 30, 1995
----------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
[The Power of Attorney is included herein as Exhibit 24.]
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Exhibit Index
Exhibit Number Description
- -------------- -----------
2 Agreement and Plan of Merger (included as Appendix "A" to the Proxy Statement-Prospectus).
3(i) Restated Charter of FTNC, as amended, attached as Exhibit 3(i) to FTNC's registration statement on Form S-4 (No. 33-53331)
filed April 28, 1994, and incorporated herein by reference.
3(ii) Bylaws of FTNC, as amended, attached as Exhibit 3(ii) to FTNC's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, and incorporated herein by reference.
4(a) Form of Common Stock Certificate, incorporated herein by reference to exhibit 4(a) to FTNC's registration statement on Form
S-4 (No. 33-51223) filed November 30, 1993.
4(b) Shareholder Protection Rights Agreement, dated as of September 7, 1989, between FTNC and FTB as Rights Agent, incorporated
by reference to FTNC's Registration Statement on Form 8-A, filed September 8, 1989.
4(c) Indenture, dated as of June 1, 1987, between FTNC and Security Pacific National Trust Company (New York), Trustee,
incorporated by reference to FTNC's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
4(d) FTNC and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 13 in FTNC's 1993
Annual Report to Shareholders. None of such debt exceeds 10% of the total assets of FTNC and its consolidated
subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be
included as exhibits. FTNC agrees to furnish copies of such instruments to the SEC upon request.
5 Opinion Regarding Legality.
8 Opinion Regarding Tax Matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Williams & Pitts.
23(c) Consent of Baylor and Backus.
23(d) Consent of Ernst & Young LLP.
23(e) Consent of Southard Financial.
23(f) Consents of Baker, Donelson, Bearman & Caldwell included in Exhibit 8.
23(g) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney.
99(a) Opinion of Southard Financial (included as Appendix "B" to the Proxy Statement-Prospectus).
99(b) Form of Proxy for Special Meeting of Shareholders of Peoples.