1
As filed with the Securities and Exchange Commission on August 22, 1995
Registration No. 33-58439
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
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:
LINDA M. CROUCH JOHN S. SELIG
Baker, Donelson, Bearman & Caldwell Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
2000 First Tennessee Building 320 West Capitol Avenue, Suite 1000
165 Madison Avenue Little Rock, Arkansas 72201
Memphis, TN 38103 (501) 688-8804
(901) 577-2262
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: [ ]
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.
2
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
Outside Front Cover Page of Prospectus Facing page of Registration Statement; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information Summary; The Special Meeting; The Merger
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
Acquired The Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to Be Underwriters Not Applicable
8. Interests of Named Experts and Counsel
Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
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
Reference Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants Not Applicable
13. Incorporation of Certain Information by
Reference Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants Not Applicable
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
Companies Not Applicable
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies Summary; Information Concerning FIC; Index to FIC 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
i
3
August 29, 1995
Dear Financial Investment Corporation Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Financial Investment Corporation ("FIC") to be held at the annex of The
First National Bank of Springdale, 100 W. Emma Avenue, Springdale, Arkansas
72764 on September 28, 1995 at 2:00 p.m., local time.
The purpose of the meeting is to consider and vote on the terms of an
Agreement and Plan of Merger, as amended (the "Agreement"), that provides for
the merger of FIC with and into First Tennessee National Corporation ("FTNC"),
with FTNC being the surviving corporation (the "Merger"), as a result of which
First National Bank will become a wholly-owned subsidiary of FTNC.
The Agreement generally provides for a tax-free exchange in which FIC
shareholders will receive shares of FTNC Common Stock in exchange for shares of
FIC Common Stock.
The proposed Merger has been unanimously approved by the Boards of
Directors of both FTNC and FIC.
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 the holders of 2/3 of the outstanding FIC common
stock 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 FIC AND ITS SHAREHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER.
Sincerely,
GENE THOMPSON
Chief Executive Officer
4
FINANCIAL INVESTMENT CORPORATION
================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 28, 1995
================================================================================
Notice is hereby given that a Special Meeting of Shareholders of
Financial Investment Corporation ("FIC") has been called by the Board of
Directors and will be held at the annex of The First National Bank of
Springdale, 100 W. Emma Avenue, Springdale, Arkansas on September 28, 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 February 21, 1995 and as amended as of June 30, 1995
(the "Agreement"), by and between First Tennessee National Corporation ("FTNC")
and FIC. The Agreement provides for the merger of FIC with and into FTNC, with
FTNC being the surviving corporation, as a result of which The First National
Bank of Springdale 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 FIC are entitled to assert dissenters' rights upon
compliance with the applicable provisions of Arkansas Business Corporation Act
Section 4-26-1007, 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 August 29,
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,
JERRY REINERT
Secretary
Springdale, Arkansas
Dated: August 29, 1995
THE BOARD OF DIRECTORS OF FIC UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF FIC COMMON STOCK VOTE TO APPROVE THE AGREEMENT.
5
PROXY STATEMENT
FINANCIAL INVESTMENT CORPORATION
SPECIAL MEETING TO BE HELD ON SEPTEMBER 28, 1995
PROSPECTUS
FIRST TENNESSEE NATIONAL CORPORATION
2,058,824 SHARES OF COMMON STOCK
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $0.25 per share (the "FIC Common Stock"), of Financial
Investment Corporation ("FIC"), an Arkansas 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 FIC Board of Directors (the
"FIC Board") for use at the special meeting of FIC shareholders to be held at
2:00 p.m., local time, on September 28, 1995, at the annex of The First
National Bank of Springdale, 100 W. Emma Avenue, Springdale, Arkansas, and at
any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the shareholders of record of FIC Common Stock
as of the close of business on August 29, 1995 will consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of February 21,
1995 and as amended as of June 30, 1995 (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 FIC, pursuant to which, among other things, FIC will merge with and into
FTNC, with FTNC surviving the merger (the "Merger"), and as a result of which
The First National Bank of Springdale ("First National Bank") will become a
wholly-owned subsidiary of FTNC. Upon consummation of the Merger, each
outstanding share of FIC 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 FIC, 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 2,058,824 shares of FTNC Common Stock to be issued to
shareholders of FIC 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 FIC 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 August 23, 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 FIC has been supplied by FIC. This Proxy Statement-Prospectus and
the accompanying proxy card are first being mailed to shareholders of FIC on or
about August 30, 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.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS AUGUST 29, 1995
6
TABLE OF CONTENTS
-----------------
Page
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Opinion of Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Conduct of Business Pending Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 26
Shareholders' Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Resale of FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
The Nasdaq Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CERTAIN REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Holding Company Structure and Support of Subsidiary Banks . . . . . . . . . . . . . . . . . 31
Cross-Guarantee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Interstate Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Brokered Deposits and Pass-Through Insurance . . . . . . . . . . . . . . . . . . . . . . . . 34
FDIC Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Depositor Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
INFORMATION CONCERNING FIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Selected Statistical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . 38
Ownership of FIC Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . 41
- 2 -
7
Page
----
DESCRIPTION OF FTNC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Shareholder Protection Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Subordinated Capital Notes due 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Shareholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Required Vote to Authorize Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . 46
Amendment of Articles of Incorporation or Charter and Bylaws . . . . . . . . . . . . . . . . 46
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Authorized Corporation Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Conflict Of Interest Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Vacancies On Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Control Share Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Greenmail Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Rights of Holders of Capital Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
INDEX TO PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
INDEX TO FIC FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
APPENDICES:
Appendix "A" - Agreement and Plan of Merger
Appendix "B" - Opinion of Southard Financial
Appendix "C" - Arkansas Business Corporation Act, Section 4-26-1007
- 3 -
8
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, 1994 and its Forms 10-K/A filed April 25 and June 28, 1995, amending its
Annual Report on Form 10-K; (c) FTNC's Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 1995; (d) FTNC's proxy statement dated
March 15, 1995, exclusive of the Board Compensation Committee Report and the
Total Shareholder Return Performance Graph on pages 13-18 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 Plan 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 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
- 4 -
9
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
SEPTEMBER 21, 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 FIC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
- 5 -
10
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding FTNC, FIC 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 June 30, 1995, FTNC had consolidated
total assets of approximately $11.6 billion, consolidated total deposits of
approximately $8.1 billion and equity capital of approximately $826.8 million.
At December 31, 1994, FTNC ranked 60th 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 December 31, 1994, FTB was the largest commercial
bank headquartered in Tennessee both in terms of total assets and deposits, and
nationally ranked 59th in terms of total assets. At June 30, 1995, FTB had
total assets of approximately $11.0 billion, total deposits of approximately
$7.6 billion and equity capital of approximately $740.5 million. FTB conducts
a broad range of retail and commercial banking and fiduciary services and had
214 banking locations at December 31, 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.
FIC. FIC is an Arkansas corporation and bank holding company chartered
in 1983 as the one-bank holding company for The First National Bank of
Springdale ("First National Bank"). First National Bank, a national banking
association was organized in 1907 and has its principal offices in Springdale
with three branches located in Washington County, Arkansas. At June 30,
1995, FIC had consolidated total assets of approximately $343 million,
consolidated total deposits of approximately $286 million, and equity capital
of approximately $47 million.
The executive offices of FIC are located at 100 W. Emma Avenue,
Springdale, Arkansas 72764 and the telephone number is (501) 750-5500.
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."
- 6 -
11
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held on September 28, 1995 at 2:00 p.m.,
local time, at the annex of First National Bank, 100 W. Emma Avenue, Springdale,
Arkansas. The purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Agreement.
VOTE REQUIRED; RECORD DATE
Only FIC shareholders of record at the close of business on August
29, 1995, (the "FIC Record Date") will be entitled to vote at the Special
Meeting. The affirmative vote of the holders of two-thirds (2/3) 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 FIC
Record Date, there were 1,786,368 shares of FIC Common Stock entitled to be
voted.
The directors and executive officers of FIC and their affiliates
beneficially owned, as of the FIC Record Date, 591,736 shares, or approximately
33.13%, of the outstanding shares of FIC Common Stock. FIC has been advised
that such directors and executive officers intend to vote their shares for
approval of the Agreement.
As of the FIC Record Date, FTNC and its subsidiaries owned no shares
of FIC Common Stock, and the directors and executive officers of FTNC
beneficially owned no shares of FIC Common Stock.
TERMS OF THE MERGER
On the Effective Date (as defined below) of the Merger, FIC will merge
with and into FTNC with FTNC being the surviving entity. As a result of the
merger, First National Bank will become a wholly-owned subsidiary of FTNC.
Upon consummation of the Merger, each outstanding share of FIC 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 FIC, 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 FIC 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 a
conversion ratio (the "Conversion Number") determined as follows:
(1) if the FTNC Common Stock Average Price (hereafter defined) is
$34.00 or greater, the Conversion Number will be equal to the quotient
of (y) the quotient of (1) $70,000,000 divided by (2) the FTNC Common
Stock Average Price, divided by (z) 1,786,368 (the issued and
outstanding shares of FIC), subject to FIC's right to terminate if the
FTNC Common Stock Average Price is greater than $49.00; and
(2) if the FTNC Common Stock Average Price is less than $34.00, the
Conversion Number will be equal to 1.1525192; subject to FIC's right
to terminate if the FTNC Common Stock Average Price is less than
$34.00.
The FTNC Common Stock Average Price will be equal to the average of
the closing prices per share of the FTNC Common Stock as reported on
The Nasdaq Stock Market's National Market System during the
Calculation Period. The Calculation Period will consist of the twenty
(20) business days
- 7 -
12
immediately prior to the business day preceding the Effective Date
(not including the Effective Date).
If the Effective Date had been August 23, 1995, the FTNC Common Stock
Average Price would have been $____ and 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 the FTNC Common Stock
Average Price. The holders of FIC 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 FIC,
subject to the satisfaction or waiver of all conditions and expiration of all
applicable waiting periods, the Effective Date will occur on September 30,
1995.
REASONS FOR THE MERGER; RECOMMENDATION OF FIC BOARD OF DIRECTORS
The FIC Board believes the Merger is fair to and in the best interest
of FIC and its shareholders and recommends that FIC shareholders vote FOR
approval of the Agreement. The FIC Board believes that the Merger will provide
significant value to all FIC shareholders and also enable them to participate
in opportunities for growth that the FIC 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 FIC 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 FIC Board to the effect that, as of February 21, 1995,
the terms of the Merger are fair to the holders of FIC Common Stock from a
financial point of view. A copy of the opinion of Southard dated as of
February 21, 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 FIC 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
aspects of the Merger, FIC's shareholders' equity, subject to certain
adjustments, is not less than $46,750,000 increased by an amount equal to any
negative provision to the reserve for possible loan losses on the Effective
Date, implementation, to the extent consistent with generally accepted
accounting principles ("GAAP"), of certain adjustments under certain conditions
to FIC 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
Arkansas State Bank Commissioner (the "Arkansas Commissioner"). Such approvals
and consents have been received. See "The Merger -- Conditions to Consummation
of the Merger,"
- 8 -
13
"-- 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 FIC, by either of them individually
under certain specified circumstances, including, if the Merger has not become
effective by October 1, 1995, or by FIC if FTNC's Common Stock Average Price is
greater than $49.00 or less than $34.00 per share. In certain situations if
the Merger is not consummated and FIC engages in a specified transaction with
another party within 12 months following termination of the Agreement, FIC must
pay to FTNC liquidated damages in the amount of $3,500,000. See "The Merger --
Waiver and Amendment; Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of FIC management and the FIC Board have certain
interests in the Merger that are in addition to their interests as shareholders
of FIC 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 FIC 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 FIC 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 Arkansas Business Corporation Act, Acts 1965, No. 576
("ABCA") holders of FIC Common Stock who deliver to FIC the required written
objection to the Merger at or 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 ABCA will have the right to be paid the fair value of their
shares as determined under the provisions of the ABCA. SUCH DISSENTERS' RIGHTS
WILL BE LOST, HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF THE ABCA 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 FIC
or FTNC as a result of the Merger and FIC shareholders will not recognize gain
or loss upon the receipt of FTNC Common Stock in exchange for FIC 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 FIC 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."
- 9 -
14
ACCOUNTING TREATMENT
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 the first quarter of 1993 through
August 23, 1995.
1995 1994 1993
----------- ----------------------------------- -------------------------------------
3rd 2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- ------ ------ ------ ------ ------ ------ ------ ------
46 3/8 43 47 1/2 47 3/4 45 1/4 39 3/4 40 1/2 43 1/2 47 43 1/4
41 1/12 39 1/4 41 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 FIC Common Stock,
and trading in such shares is extremely sporadic and confined to Springdale and
Washington County, Arkansas. Management of First National Bank occasionally
becomes aware of the price at which FIC Common Stock is transferred or traded.
Since January 1, 1993 through the date of this Proxy Statement-Prospectus,
management is aware of only two sales aggregating 465 shares. The price per
share in 1993 prior to a stock split was $30.00 per share. The price per share
in 1994 adjusted for the stock split was $16.75.
The following table sets forth the closing price per share of FTNC
Common Stock and the equivalent per share price for FIC Common Stock giving
effect to the Merger as of February 17, 1995, the last business day preceding
public announcement of the execution of the Agreement; and as of August 23,
1995 the last practicable date prior to the mailing of this Proxy Statement-
Prospectus. The equivalent price per share of FIC Common Stock at each
specified date represents the closing price of a share of FTNC Common Stock on
such date multiplied by 0.93577 and ________, respectively, assuming that to be
the Conversion Number provided for in the Agreement. The most recent sale
price known to management of FIC in a transaction on or before August 23, 1995,
for a sale of FIC Common Stock was $16.75 per share in 1994.
FTNC Equivalent Price
Common Stock Per FIC Share
------------ -------------
February 17, 1995 $41.875 $39.185
August 23, 1995
FIC 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 Conversion
Number.
- 10 -
15
EQUIVALENT AND PRO FORMA SHARE DATA
The following table presents selected comparative unaudited per share
data for FTNC Common Stock and FIC Common Stock on a historical basis and for
FTNC Common Stock on a pro forma combined basis and FIC 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 FIC, 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 FIC Financial
Information."
- 11 -
16
FIRST TENNESSEE NATIONAL CORPORATION
EQUIVALENT AND PRO FORMA SHARE DATA (UNAUDITED)
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
Income Per Common Share: (1)
FTNC $ 2.21 $ 4.30
FIC 0.91 2.63
FTNC pro forma 2.19 4.32
FIC pro forma equivalent 1.79 3.53
Fully Diluted Income Per Common Share: (1)
FTNC $ 2.17 $ 4.23
FIC 0.91 2.63
FTNC pro forma 2.16 4.25
FIC pro forma equivalent 1.76 3.47
Dividends Declared Per Common Share: (2)
FTNC $ 0.94 $ 1.73
FIC 0.06 .12
FTNC pro forma 0.94 1.73
FIC pro forma equivalent 0.77 1.41
Book Value Per Common Share (end of period): (3)
FTNC $24.39 $22.74
FIC 26.76 24.03
FTNC pro forma 24.89 22.74
FIC pro forma equivalent 20.32 18.56
(1) Pro forma income per share is calculated using combined net income for FTNC
and FIC 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 at June 30, 1995, have been calculated
by using FTNC's average shares adjusted for the shares to be issued in this
transaction that have already been repurchased by FTNC in contemplation of
the acquisition. The average pro forma common shares of the combined
entity at December 31, 1994, are FTNC's historical average shares because
the FTNC shares to be exchanged for the shares of FIC are still to be
repurchased at December 31, 1994. FIC pro forma equivalent income per
share amounts are computed by multiplying the FTNC pro forma amount by the
Exchange Ratio of .81637.
(2) FTNC pro forma dividends per share represent historical dividends paid by
FTNC. FIC pro forma equivalent dividends per share represent the FTNC pro
forma amount multiplied by the Exchange Ratio of .81637.
(3) FTNC pro forma book value per common share is based upon the historical
total common equity of the combined entity divided by, at June 30, 1995, the
FTNC common shares outstanding adjusted for the shares to be issued in this
transaction that have already been repurchased by FTNC in contemplation of
the acquisition, and at December 31, 1994, the FTNC common shares
outstanding. FIC pro forma equivalent book value per common share is
computed by multiplying the FTNC pro forma amount by the Exchange Ratio of
.81637.
- 12 -
17
SELECTED FINANCIAL DATA AND RATIOS
The following tables present for FTNC and FIC, 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
FIC 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 FIC Financial
Information."
- 13 -
18
FIRST TENNESSEE NATIONAL CORPORATION
SELECTED FINANCIAL DATA AND RATIOS (UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
Total Interest Income and Other Income:
FTNC $ 623,086 $ 1,159,797
FIC 12,893 23,870
Purchase Accounting Adjustments (418) (651)
FTNC pro forma 635,561 1,183,016
Net Income Applicable to Common Stock:
FTNC $ 75,360 $ 147,068
FIC 1,629 4,695
Purchase Accounting Adjustments (1,763) (3,780)
FTNC pro forma 75,226 147,983
Net Income per Common Share:
FTNC $ 2.21 $ 4.30
FIC 0.91 2.63
FTNC pro forma (1) 2.19 4.32
Dividends Declared per Common Share:
FTNC $ 0.94 $ 1.73
FIC 0.06 .12
FTNC pro forma (2) 0.94 1.73
Total Assets (end of period):
FTNC $11,614,010 $10,932,949
FIC 343,049 345,193
Purchase Accounting Adjustments 24,741 7,069
FTNC pro forma 11,981,800 11,285,211
Long-Term Debt and Capital Leases:
FTNC $ 203,323 $ 114,833
FIC 47 48
FTNC pro forma 203,370 114,881
Performance Ratios:
Return on Average Assets
FTNC 1.39 % 1.39 %
FIC 0.95 1.38
FTNC pro forma 1.35 1.35
Return on Average Shareholders' Equity
FTNC 19.07 % 19.36 %
FIC 7.24 10.78
FTNC pro forma 18.29 19.48
Shareholders' Equity to Total Assets
(end of period)
FTNC 7.12 % 7.09 %
FIC 13.94 12.44
FTNC pro forma 7.19 6.87
(1) Pro forma income per share is calculated using combined net income for FTNC
and FIC 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 at June 30, 1995, have been
calculated by using FTNC's average shares adjusted for the shares to be
issued in this transaction that have already been repurchased by FTNC in
contemplation of the acquisition. The average pro forma common shares of
the combined entity at December 31, 1994, are FTNC's historical average
shares because the FTNC shares to be exchanged for the shares of FIC are
still to be repurchased at December 31, 1994. FIC pro forma equivalent
income per share amounts are computed by multiplying the FTNC pro forma
amount by the Exchange Ratio of .81637.
(2) FTNC pro forma dividends per share represent historical dividends paid by
FTNC.
- 14 -
19
THE SPECIAL MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of FIC
Common Stock is accompanied by a proxy card furnished in connection with the
FIC 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 September 28, 1995, at the annex of First
National Bank, 100 W. Emma Avenue, Springdale, Arkansas. Only holders of
record of FIC Common Stock at the close of business on August 29, 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 FIC COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO FIC IN THE ENCLOSED,
POSTAGE PAID ENVELOPE.
Any holder of FIC 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 either the same date but delivered at a
later time or a later date to FIC, at the main office, 100 W. Emma Avenue,
Springdale, Arkansas 72764, Attention: Secretary, provided such notice or proxy
is actually received by FIC before the vote of shareholders. The shares of FIC
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 FIC proxy card enclosed herewith will have discretionary
authority to vote on such matters in accordance with their best judgment. The
FIC 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 FIC Common Stock will
be borne by FIC. Such solicitation will be made by mail but also may be made
by telephone or in person by the directors, officers and employees of FIC (who
will receive no additional compensation for doing so). In addition, FIC will
make arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals.
FIC SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of FIC Common Stock entitled to vote at the Special Meeting
is required in order to approve the Agreement. As of the FIC Record Date,
there were 1,786,368 shares of FIC Common Stock outstanding and entitled to
vote at the Special Meeting, with each share being entitled to one vote.
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.
- 15 -
20
As of the FIC Record Date, the directors and executive officers of FIC
and their affiliates beneficially owned a total of 591,736 shares or
approximately 33.13% of the outstanding shares of FIC Common Stock. FIC has
been advised that such directors and executive officers intend to vote their
shares in favor of approval of the Agreement.
As of the FIC Record Date, FTNC and its subsidiaries owned no shares
of FIC Common Stock, and the directors and executive officers of FTNC
beneficially owned no shares of FIC Common Stock.
RECOMMENDATION
FOR THE REASONS DESCRIBED BELOW, THE FIC BOARD HAS UNANIMOUSLY
APPROVED THE AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTEREST OF FIC AND
ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF FIC VOTE FOR APPROVAL OF
THE AGREEMENT. IN MAKING ITS RECOMMENDATION TO SHAREHOLDERS, THE FIC BOARD
CONSIDERED, AMONG OTHER THINGS, THE OPINION OF SOUTHARD THAT THE TERMS OF THE
AGREEMENT ARE FAIR TO THE HOLDERS OF FIC 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." FIC shareholders are urged to read carefully
the Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background. During the past several years, FIC had been contacted on
a number of occasions by other banking organizations to see if FIC was
interested in merging or in selling its principal asset, First National Bank,
and each time those banking organizations were told that FIC had no such
interest. However, in the fall of 1994, a bank holding company requested a
meeting to discuss a merger. The proposal from this bank holding company was
ultimately withdrawn and was lower than the offer of FTNC. While discussion
with the other bank holding company did not result in any acceptable proposal
being presented to FIC, management of FIC had become aware that larger banking
organizations might be able to provide a broader range of banking services than
FIC could and of the concern of shareholders of FIC that FIC stock had no ready
market and FIC had historically paid lower dividends than larger, publicly-held
bank holding companies paid. For these reasons, the FIC Board determined that
it would be in the best interest of FIC and its shareholders for a special
committee of the FIC Board to be appointed to consider the possibility of
merging with another bank holding company.
In November 1994, Elbert L. Thomas, Jr., Senor Vice President and,
effective February 6, 1995, Chief Financial Officer of FTNC contacted Gene
Thompson, President of FIC, to explore the possibility of a merger between FTNC
and FIC. On December 16, 1994, a special committee composed of Chairman Louis
Lichlyter, President Gene Thompson, Gene George and Bob Shaw was appointed to
ascertain the interest of FTNC in merging with FIC. The FIC Board gave the
special committee certain guidelines including the requirement that any
transaction must be a tax-free exchange of stock, there would be no change in
the name of First National Bank, local control of First National Bank would be
retained to the extent possible and benefits of the employees of FIC should be
protected. The special committee recommended to the FIC Board on January 4,
1995, that FTNC seemed to meet the guidelines that were established by the FIC
Board. The FIC Board asked FTNC to have a representative attend its meeting on
January 10, 1995 to make a formal proposal and to answer questions. Mr. Thomas
of FTNC attended the January 10 meeting to present the formal proposal and made
a presentation to the FIC Board. Following the meeting, a confidentiality
agreement was executed between FIC and FTNC so that negotiations could continue
and an exchange of information could occur.
- 16 -
21
The FTNC proposal contained certain basic terms of a merger of FIC
with FTNC and the special committee was instructed to pursue negotiations for a
definitive agreement with FTNC and to proceed to engage in a more extensive
review of FTNC and FTB, its lead bank. On February 9 and 10, 1995,
representatives of FIC met with representatives of FTNC and FTB to conduct this
review. The results of that review were reported to the special committee.
At a meeting on February 14, 1995, the FIC Board, on recommendation of
the special committee determined to retain a financial advisor, Southard, to
review the terms of the proposed transaction with FTNC and to render its
opinion whether the proposed transaction was fair to the holders of FIC Common
Stock from a financial point of view. The FIC Board also instructed the special
committee to continue negotiations with FTNC. On February 21, 1995, the FIC
Board met for the purpose of considering and acting on the proposed Agreement
between FTNC and FIC. At this meeting, the FIC Board received the written
opinion of Southard setting forth its opinion that the terms of the Agreement
were fair to the holders of FIC Common Stock from a financial point of view.
Based upon the opinion of Southard, the recommendations of the special
committee that the Agreement be approved and other factors herein described,
the FIC Board unanimously approved the Agreement. The report of Southard is
described below in the section entitled "Opinion of Financial Advisor."
At a special meeting held on February 21, 1995, 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, FIC and its
shareholders, the FIC Board consulted with its advisers, as well as with FIC
management, and considered a number of factors, including, without limitation,
the following:
a. The FIC Board's familiarity with and review of both FIC's and
FTNC's business, operations, earnings and financial condition;
b. FTNC's wide range of banking products and services and its
dividend payment history;
c. The FIC Board's belief that the terms of the Agreement are
attractive in that the Agreement allows FIC shareholders to become shareholders
in FTNC, an institution which is the largest bank holding company headquartered
in Tennessee, whose stock is traded over the Nasdaq Stock Market's National
Market, and the recent earnings performance of FTNC;
d. The FIC 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 FIC's 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 Arkansas and contiguous states and the effect of such
combinations on competitive conditions in FIC's market area; and
g. The expectation that the Merger will generally be a tax-free
transaction to FIC and its shareholders. See "Certain Federal Income Tax
Consequences".
The FIC Board did not assign any specific or relative weight to the
foregoing factors in their considerations.
- 17 -
22
OPINION OF FINANCIAL ADVISER
FIC retained Southard to render its opinion as to the fairness, from a
financial point of view, to the holders of FIC Common Stock of the
consideration to be paid in the Merger. In connection with this engagement,
Southard evaluated the financial terms of the Merger, but was not asked to, and
did not, recommend the specific ratio of exchange between FTNC Common Stock and
FIC Common Stock and did not assist in the Merger negotiations. The ratio of
exchange was determined by the FTNC and FIC Boards after arm's length
negotiations. FIC 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 FIC Board with a fairness opinion letter and
supporting documentation and presented its conclusions at a Special Meeting of
the FIC Board on February 21, 1995. The full text of the opinion letter of
Southard, dated February 21, 1995, 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. 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 FIC, 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 FIC.
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. In its analyses, Southard made numerous assumptions, many of which
are beyond the control of FIC 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 FIC, Southard reviewed the dividend paying
histories of FIC and FTNC. Based upon this review, it is reasonable to expect
that the shareholders of FIC, in total, will receive dividends above the level
currently paid by FIC after the Merger is completed (defined as post-Merger
combined dividends per share times the Conversion Number). Based upon 1994
dividend payments for FTNC and FIC and an exchange ratio of 0.9796413 shares of
FTNC Common Stock for each share of FIC Common Stock, the shareholders of FIC
would see a 14-fold increase in dividends.
Earnings Yield Analysis. In evaluating the impact of the proposed
Merger on the shareholders of FIC, Southard determined that, based upon the
Conversion Number of 0.9796413 shares of FTNC Common Stock for each share of
FIC Common Stock, the shareholders of FIC would have seen an increase of 70% in
their share of earnings based upon reported 1994 earnings of FTNC and FIC.
Based upon the average of independent third party estimates of FTNC's 1995
earnings and FIC's 1995 budgeted earnings (preliminary,
- 18 -
23
unapproved), FIC's shareholders would see an increase of about 180% over what
FIC would be expected to earn in 1995, absent the Merger.
Book Value Analysis. In evaluating the impact on the proposed Merger
on the shareholders of FIC, Southard determined that the shareholders of FIC
would have seen dilution in the book value of their investment had the Merger
been consummated prior to December 31, 1994. Reported book value of FIC at
December 31, 1994 was $24.03 per share. Reported book value of FTNC at
December 31, 1994 was $23.51 per share. Had the Merger been consummated prior
to December 31, 1994, each former FIC share would have book value of $23.03
(FTNC December 31, 1994 book value of $23.51 per share times 0.9796413 shares).
This represents 96% of FIC book value at year-end.
Analysis of Market Transactions. Based upon the Merger terms and a
total price of $70 million, FIC shareholders would receive 163% of December 31,
1994 book value per share, and 14.9 times reported 1994 earnings. Based upon
the review conducted by Southard, the pricing for FIC in the Merger is within
the range of multiples seen in recent bank acquisitions.
Fundamental Analysis. Southard reviewed the financial characteristics
of FIC and FTNC with respect to profitability, capital ratios, liquidity, asset
quality, and other factors. Southard compared FIC 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 FIC 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 FIC ("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 FIC or FTNC. Neither Southard nor its principal owns an interest in the
securities of FIC or FTNC.
TERMS OF THE MERGER
At the Effective Date, FIC will merge with and into FTNC, with FTNC
being the surviving entity. As a result of the Merger, First National Bank
will become a wholly-owned subsidiary of FTNC. Upon consummation of the Merger,
each share of FIC 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 FIC, 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 FIC 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
Conversion Number determined as follows:
(1) if the FTNC Common Stock Average Price is $34.00 or greater, the
Conversion Number will be equal to the quotient of (y) the quotient of
(1) $70,000,000 divided by (2) the FTNC Common Stock Average Price,
divided by (z) 1,786,368 (the issued and outstanding shares of FIC),
subject to FIC's right to terminate if the FTNC Common Stock Average
Price is greater than $49.00; and
- 19 -
24
(2) if the FTNC Common Stock Average Price is less than $34.00, the
Conversion Number will be equal to 1.1525192; subject to FIC's right
to terminate if the FTNC Common Stock Average Price is less than
$34.00.
The FTNC Common Stock Average Price will be equal to the average of
the closing prices per share of the FTNC Common Stock as reported on
the Nasdaq Stock Market's National Market System during the
Calculation Period. The Calculation Period shall consist of the
twenty (20) business days immediately prior to the business day
preceding the Effective Date (not including the Effective Date).
If the Effective Date had been August 23, 1995, the FTNC Common Stock
Average Price would have been $____ and the Conversion Number would have been
_____.
Any shares of FIC Common Stock held directly or indirectly by FIC
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 FIC shareholder would otherwise receive
multiplied by the FTNC Common Stock Average Price used to calculate the
Conversion Number. 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 Conversion Number 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
FIC, subject to the satisfaction or waiver of all conditions and expiration of
all applicable waiting periods, the Effective Date will occur on September 30,
1995.
SURRENDER OF CERTIFICATES
As promptly as practicable after the Effective Date, FTNC's exchange
agent, Norwest Bank Minnesota, N.A. (the "Exchange Agent"), will mail to each
former holder of record of FIC Common Stock a form of letter of transmittal,
together with instructions for the exchange of such holder's certificates
representing shares of FIC Common Stock for certificates representing shares of
FTNC Common Stock.
HOLDERS OF FIC 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
FIC 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
FIC 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 FIC certificate until the holder properly surrenders such
- 20 -
25
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 FIC stock
transfer books of shares of FIC 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 FIC 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 FIC nor any other person will be liable to any former
holder of FIC Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If a certificate for FIC 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 FIC 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 compliance with applicable federal banking and bank holding
company laws and regulations.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of FTNC and FIC to effect the Merger are
subject to the satisfaction of the following conditions prior to the Effective
Date: (a) approval of the Agreement and the transactions contemplated thereby
by the affirmative vote of the holders of a two-thirds majority of the
outstanding shares of FIC Common Stock entitled to vote thereon; (b) receipt of
all regulatory consents and approvals necessary to consummate the transactions
contemplated by the Agreement including the Federal Reserve Board and the
Arkansas 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); (c) the
satisfaction of all other requirements prescribed by law necessary to the
consummation of the transactions contemplated by the Agreement; (d) neither
FTNC nor FIC 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; (e) 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 FIC (as to any condition which directly affects FIC)
would not have entered into the Agreement had such conditions been known at the
date thereof; (f) 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
- 21 -
26
has been initiated or threatened by the SEC; and (g) receipt by each party from
counsel to FTNC of a legal opinion to the effect that the Merger qualifies as a
tax-free reorganization under the provisions of the 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 FIC's independent certified public accountants certain
customary letters with respect to certain financial information of FIC; (b)
FTNC will have received a customary legal opinion, dated the date of closing,
from counsel to FIC; (c) each of the representations, warranties and covenants
of FIC set forth in the Agreement will, in all material (generally, as to FIC,
$600,000 on a pre-tax basis as to environmental matters and $400,000 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
Chief Executive Officer of FIC to such effect; provided, however, that any
effect on FIC as a result of any action taken by FIC 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 FIC 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) no litigation
or proceeding will be pending against either FTNC or FIC 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 FIC
is likely to have a material adverse effect (defined in subparagraph (c) above)
on FIC; (g) on the Effective Date, FIC's shareholders equity, with certain
adjustments described in Section 5.2(f) of the Agreement, will not be less than
$46,750,000 increased by an amount equal to any negative provision to the
reserve for possible loan losses; (h) the payment of a dividend by First
National Bank to FIC prior to Closing; and (i) the completion of environmental
surveys of certain properties of FIC and such surveys to not indicate the
existence of or reasonable possibility of a breach of certain representations
related to environmental issues.
The obligations of FIC to effect the Merger are further subject to the
satisfaction (or waiver by FIC) of the following conditions: (a) FIC 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 FIC will have received a certificate signed by
the Chief Executive Officer or Chief Financial Officer of FTNC to such effect;
and (c) no litigation or proceeding will be pending against either FTNC or FIC
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 1, 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 FIC, 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. Such approval has been received.
- 22 -
27
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 fifteenth 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.
The Merger is also subject to approval by the Arkansas Commissioner.
Such approval has been received.
CONDUCT OF BUSINESS PENDING MERGER
The Agreement contains certain restrictions on the conduct of FIC's
business pending consummation of the Merger. In particular, the Agreement
provides that, without the prior written consent of FTNC, FIC may not, among
other things, (a) (y) make, declare or pay any dividend on the FIC Common Stock
except that (i) if the Merger is not consummated by the date that will allow
exchanging shareholders of FIC to receive the FTNC dividend payable on July 1,
1995, FIC may pay up to $107,182 in dividends for the period ending June 30,
1995 and (ii) if the Merger is not consummated by the date that will allow
exchanging shareholders of FIC to receive the FTNC dividend payable on October
1, 1995, FIC will have the right to pay prior to the Effective Date a dividend
up to the lesser of (1) $750,000 or (2) the product of (A) 80% of FIC's net
income for the period of July 1, 1995 through September 22, 1995, multiplied by
(B) 1.0952; provided, that all Approved Costs (as defined in the First
Amendment to the Agreement dated as of June 30, 1995) incurred by FIC or FTB on
behalf of FIC, whether paid or accrued related to the conversion, transition
and implementation of systems, processes, or procedures of First National Bank
to those of FTNC shall be excluded on an after tax basis for the purposes of
the calculation required by subsection (a), or (z) (except as provided in the
immediately preceding clause) declare 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 FIC's capital stock, or
any options, calls or commitments relating to its 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 capital
stock or the capital stock of any subsidiary; 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, FIC 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 or enter into any
employment contracts with any person; (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 FIC's directors,
officers or other employees; (c) except as may be
- 23 -
28
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 transactions 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) except in the ordinary course of its banking business, enter into
off-balance sheet transactions; (g) take any other action not in ordinary
course of business; (h) make any negative provision to the reserve for possible
loan losses of First National Bank unless required by the Comptroller of the
Currency; or (i) directly or indirectly agree to take any of the foregoing
actions. Also, immediately prior to the effective time of the Merger, FIC will
cause First National Bank to declare and pay a dividend to FIC at such time and
in such amount as FTNC may request, subject to receipt of appropriate
regulatory approval.
The Agreement also contains various customary covenants and
agreements, including agreement to cooperate, use best efforts and obtain
appropriate consents. Also, FIC will, after FTNC certifies that all conditions
to its obligation to consummate the Merger have been satisfied, the Merger will
be consummated and the date of the consummation of the Merger, consistent with
GAAP and following notice to the Comptroller of the Currency, 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.
NO SOLICITATION
FIC has agreed that neither it nor any of its subsidiaries will
solicit or encourage inquiries or proposals with respect to, or 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 the Agreement. FIC 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 between
the parties and, as to FIC, approved by the FIC Board (to the extent allowed by
law), provided that after the vote of the shareholders of FIC, Section 1.2 of
the Agreement, which concerns conversion of the FIC Common Stock and the
Conversion Number, may not be amended or revised.
The Agreement terminates automatically in the event the FIC
shareholders do not approve the Merger. In addition, the Agreement may be
terminated at any time prior to the Effective Date, either before or after its
approval by the shareholders of FIC, as follows: (a) by the mutual consent of
FTNC and FIC; (b) 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; (c) by either FTNC or FIC in the
event that the Merger has not been consummated by October 1, 1995, unless the
failure to consummate the Merger is due to the breach of the Agreement by the
party seeking to terminate the Agreement; (d) by FIC, if the FTNC Common Stock
Average Price is less than $34.00 per share or greater than $49.00 per share by
written notice to FTNC delivered not later than the close of business on the
day preceding the Effective Date; and (e) by FIC, if FTNC enters into a letter
of intent or definitive purchase and sale agreement to be acquired
- 24 -
29
by a third party or a third party announces the intent to acquire 25% or more
of the outstanding equity securities of FTNC.
Except as set forth below, in the event of the termination of the
Agreement by either FTNC or FIC, as provided above, the Agreement will become
void, and there will be no liability on the part of either FTNC or FIC 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), FIC is required to pay
to FTNC liquidated damages in the amount of $3,500,000.
For purposes hereof the following terms have the indicated meanings:
"Initial Triggering Event" shall mean any of the following events or
transactions occurring after February 21, 1995:
(1) FIC 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 FIC Board shall have recommended that the
shareholders of FIC 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 FIC
or First National Bank, (y) a purchase, lease or other acquisition of all or
any substantial part of the assets of FIC or First National Bank, or (z) a
purchase or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) for value of securities representing 10% or more of the
voting power of FIC;
(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 or any natural person who or not-for-profit charitable
organization which acquires ownership or beneficial ownership by or through a
transfer made without consideration or value) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more of the
outstanding shares of the FIC Common Stock;
(3) Any person (other than FTNC or a subsidiary of FTNC) shall have
made a proposal (in writing or orally) to FIC or any one or more of its
shareholders owning ten percent (10%) or more (singly or in the aggregate) of
the outstanding shares of FIC 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 FIC or its shareholders to engage in an Acquisition
Transaction, FIC 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 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 February 21, 1995:
(1) Other than by or through a transfer made without consideration or
value to a natural person or not-for-profit charitable organization, the
acquisition by any person of beneficial ownership of 25% or more of the then
outstanding FIC Common Stock; or
- 25 -
30
(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 FIC's management and the FIC Board have an interest
in the Merger that is in addition to their interests as shareholders of FIC
generally. The FIC Board was aware of this interest and considered it, among
other matters, in approving the Agreement and the transactions contemplated
thereby. 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 FIC 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 FIC's Articles
of Incorporation or bylaws for a period of not less than three years following
the Effective Date, except for claims for which the applicable statute of
limitations is five years as to which the indemnification provisions will
survive for five years following the Effective Date.
SHAREHOLDERS' DISSENTERS' RIGHTS
Any shareholder of FIC entitled to vote on the Agreement has the right
to receive payment of the fair value of his shares of FIC Common Stock upon
compliance with Section 4-26-1007 of the ABCA. A shareholder may not dissent
as to less than all of the shares that he beneficially owns. Any FIC
shareholder intending to enforce this right must not vote in favor of the
Agreement and must file a written objection to the plan of merger at or prior
to the vote at the Special Meeting and within 10 days after the Special
Meeting, the shareholder must make written demand for payment of the fair value
of his shares as of the day prior to the date of the Special Meeting. The
demand must state the number of shares of FIC Common Stock owned by the
dissenting shareholder. Any FIC shareholder who fails to make demand within
the 10-day period is bound by the terms of the Merger.
Within 10 days after the Effective Date, FTNC must give notice to each
dissenting FIC shareholder who has made the appropriate demand for the fair
value of his shares. If within 30 days after the Effective Date, the value of
such shares is agreed upon between the dissenting shareholder and FTNC, payment
will be made within 90 days after the Effective Date, upon surrender of the
certificates representing those shares.
If within the 30-day period the dissenting shareholder and FTNC do not
agree on the fair value of the shares, then the dissenting shareholder, within
60 days after the expiration of the 30-day period may file a petition in the
Pulaski County Circuit Court asking for a finding and determination of the fair
value of the shares. He shall be entitled to judgment against FTNC for the
amount of the fair value as of the day prior to the Special Meeting, together
with interest thereon to the date of the judgment. The judgment is payable
only upon and simultaneously with the surrender to FTNC of the certificates
representing the shares. Upon payment of the judgment, the dissenting
shareholder ceases to have any interest in the shares or in FTNC.
- 26 -
31
Unless the dissenting shareholder files the petition within the time
described here, the shareholder is bound by the terms of the Merger.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTION
4-26-1007 OF THE ABCA IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTION,
WHICH IS 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 FIC Common Stock pursuant to the exercise of employee
stock options or rights or otherwise as compensation. FIC 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.
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 FIC as a result of the Merger, (b) no gain or loss will be
recognized by the FIC shareholders upon the receipt of FTNC Common Stock in
exchange for FIC 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 FIC shareholders in connection with the Merger will be the
same as the basis in the FIC Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for which cash
is received); and (d) the holding period of the FTNC Common Stock to be
received by the FIC shareholders in connection with the Merger will include the
holding period of the FIC Common Stock surrendered in exchange therefor,
provided that the FIC 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 FIC 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. An FIC
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 FIC 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 FIC 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 FIC 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 FIC Shareholders Who Dissent. A shareholder of FIC
who perfects his dissenter's rights under the laws of the State of Arkansas and
who receives a payment in cash of the value of his shares of FIC 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 FIC 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 FIC will depend on his individual circumstances. Each FIC
shareholder who contemplates exercising his dissenter's
- 27 -
32
rights should consult his own tax advisor as to the possibility that any
payment to him will be treated as dividend income.
ACCOUNTING TREATMENT
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 FIC prior to the
Effective Date.
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 FIC 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 FIC will divide equally the filing fees and expenses incurred in
connection with the filing of the Registration Statement and the costs of
printing and mailing this Proxy Statement-Prospectus. In addition, FIC has
agreed that its Transaction Expenses will not exceed $100,000.
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 FIC for purposes of Rule
145 under the Securities Act as of the date of the Special Meeting. Affiliates
may not sell their shares of FIC 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 FIC generally include individuals or entities that control, are controlled
by or are under common control with FIC and may include certain officers and
directors of FIC as well as principal shareholders of FIC.
FIC has agreed in the Agreement to use its best efforts to cause each
director, executive officer and other person who is an affiliate of FIC 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, 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.
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
FIC pursuant to the Agreement will be included for quotation on the Nasdaq
Stock Market.
- 28 -
33
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, including the filing of an application
with and approval of the Tennessee Commissioner of Financial Institutions. The
Tennessee Bank Structure Act of 1974, has been amended. 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 and Peoples Bank, which are Mississippi state-chartered banks,
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 their respective 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.
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
- 29 -
34
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 June 30, 1995, under dividend restrictions imposed under applicable
federal and state laws, the Subsidiary Banks, without obtaining regulatory
approvals, could legally declare aggregate dividends of approximately $229.9
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 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
- 30 -
35
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 Capital 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 June 30, 1995, FTNC's
consolidated Tier 1 Capital and Total Capital ratios were 9.19% and 11.42%,
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"), is 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 June 30, 1995 was 6.84%. 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 June 30, 1995. 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."
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.
- 31 -
36
Under Federal Reserve Board policy, FTNC is expected to act as a
source of financial strength to, and commit resources 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.
CROSS-GUARANTEE LIABILITY
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, order or written agreement to meet and
maintain specific capital levels. An insured depository institution is defined
to be adequately capitalized if it meets all of its minimum capitals
requirements as described above. In addition, a insured depository institution
will be considered undercapitalized if 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.
- 32 -
37
FDICIA generally prohibits an FDIC-insured 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 for the plan to be accepted by the
applicable federal regulatory authority. 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 generally within 90 days of the date
on which they became critically undercapitalized.
FTNC believes that at June 30, 1995 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.
INTERSTATE ACT
Subject to certain limitations, the federal Reigle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Interstate Act"), which was
enacted on September 29, 1994, will permit on an interstate basis (i) bank
holding company acquisitions, after September 29, 1995, of banks which satisfy
a minimum age requirement, if any, imposed by state law, which cannot exceed
five years; (ii) bank mergers after May 31, 1997, unless the home state of
either bank has enacted legislation to "opt out" of this provision of the
federal Interstate Act; (iii) bank branching de novo if the host state has
enacted legislation to "opt in" to this provision of the federal Interstate
Act; and (iv) certain bank agency activities after September 29, 1995. The
federal Interstate Act imposes a 30% intrastate deposit cap on interstate
acquisitions, except for the initial acquisition in the state, unless a
different intrastate cap has been adopted by the applicable state, and a 10%
national deposit cap.
Effective September 29, 1995, the Tennessee Reciprocal Banking Act is
repealed, and the Tennessee Bank Structure Act is amended to, among other
things, prohibit (subject to certain exceptions) a bank holding company from
acquiring a bank for which the home state is Tennessee (a "Tennessee Bank") if,
upon consummation, the company would directly or indirectly control 30% or more
of the total deposits in insured depository institutions in Tennessee. Subject
to certain exceptions, the Tennessee Bank Structure Act prohibits a bank
holding company from acquiring a bank in Tennessee which has been in operation
for less than five years. Tennessee law permits a Tennessee Bank to establish
branches in any county in Tennessee. Management cannot predict the extent to
which the business of FTNC and its subsidiaries may be affected by recent
federal and Tennessee legislation relating to interstate and intrastate
acquisitions and branching activities.
- 33 -
38
BROKERED DEPOSITS AND PASS-THROUGH INSURANCE
The FDIC has adopted regulations under FDICIA governing the receipt of
brokered deposits and pass-through insurance. Under the regulations, a bank
cannot accept or 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 June 30, 1995, 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 raise insurance premiums in
certain circumstances. The law specifies a designated reserve ratio target of
1.25% of estimated insured deposits and requires the FDIC to set assessments at
a level to maintain the target or, if the reserve ratio is less than the
target, to set assessment rates at a level sufficient to increase the reserve
ratio to the target within one year or as otherwise specified by the FDIC under
the law. Recently the FDIC adopted a resolution to lower premiums. Such change
is anticipated to be effective retroactively to the date the reserve ratio
target was met. FTNC management believes this change will be beneficial to
its deposit customers.
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 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.
- 34 -
39
INFORMATION CONCERNING FIC
DESCRIPTION OF BUSINESS
General. FIC was organized as an Arkansas corporation in 1983 for
the purpose of becoming the one bank holding company for First National Bank
and is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended. FIC's primary activity is its ownership of all the shares
of First National Bank. First National Bank was chartered as a national
banking association in 1907. First National Bank is a community oriented
institution, which presently operates a general banking business in Springdale,
Arkansas, 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. First
National 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 First National Bank. First National Bank's installment loan department
makes direct loans to individuals for personal, automobile, real estate, home
improvement, business and collateral needs.
The management of FIC believes that the services presently provided by
First National Bank are responsive to the convenience and needs of the
community served by First National 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 FIC.
Competitive Conditions. FIC does business in northern Washington
County and southern Benton County, Arkansas. Eleven other commercial banks
compete directly with First National Bank in this business area. First
National 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, First National 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 First National Bank
and many of which have financial resources greater than those of FIC.
First National Bank currently employs 153 persons.
Supervision and Regulation. FIC is subject to applicable provisions
of Arkansas law and the regulations and supervision of the Federal Reserve
Board under the BHCA. First National Bank is subject to applicable provisions
of 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 Office of the Comptroller of the Currency.
Property. FIC's principal asset is its ownership of the shares of its
wholly-owned subsidiary, First National Bank. All properties of First National
Bank are owned by First National Bank. First National Bank operates from its
main office facility at 100 W. Emma Avenue, in Springdale and from branch
locations at Highway 412 W. at Crestwood, 5208 S. Thompson and 2012 E.
Robinson.
Directors and Executive Officers. The members of the Board of
Directors of FIC 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
- 35 -
40
occupation is carried on (which organization is not an affiliate of FIC unless
indicated), his directorships, if any, in publicly held companies, and the year
he was first elected to his position with FIC and First National Bank are as
follows:
James D. Cypert, 60, is an attorney. He became a director of First
National Bank in 1977 and a director of FIC upon its formation in 1983.
Gary George, 44, is Chief Executive Officer of George's, Inc. He
became a director of First National Bank in 1978 and a director of FIC upon its
formation in 1983.
Gene George, 72, is Chairman of the Board of George's, Inc. He became
a director of First National Bank in 1969 and a director of FIC upon its
formation in 1983.
Dewey Johnson, 60, is President of Johnson Communications. He became
a director of First National Bank and FIC in 1986.
Louis Lichlyter, 84, is a retired retailer. He serves as Chairman of
the Board of FIC and First National Bank and became a director of First National
Bank in 1946 and a director of FIC upon its formation in 1983.
Vaughn Neil, 63, serves as Executive Vice President of First National
Bank and as Vice President of FIC. He became a director of First National Bank
in 1977 and a director of FIC upon its formation in 1983.
John R. Power, 68, is a physician. He became a director of First
National Bank in 1974 and a director of FIC upon its formation in 1983.
Jerry L. Reinert, 50, serves as President and Chief Operating Officer
of First National Bank and Secretary and Treasurer of FIC and has been employed
by First National Bank since 1976 and became a director of First National Bank
and FIC in 1984. Prior to April 1995, Mr. Reinert was Executive Vice President
of First National Bank.
Max Sample, 74, is a retired banker. He became a director of First
National Bank in 1952 and a director of FIC upon its formation in 1983.
Bob Shaw, 55, is a retired trucking company executive. He became a
director of First National Bank in 1978 and a director of FIC upon its
formation in 1983.
Willis Shaw, 76, is a retired trucking company executive. He became a
director of First National Bank in 1968 and a director of FIC upon its
formation in 1983.
Gene Thompson, 65, serves as Vice Chairman and Chief Executive Officer
of First National Bank and President, Chief Executive Officer and Vice Chairman
of FIC. Prior to April 1995, Mr. Thompson was President of First National
Bank. He became a director of First National Bank in 1962 and a director of
FIC upon its formation in 1983.
Wm. C. (Bill) Walker, 64, is retired. He formerly owned an
independent insurance agency. He became a director of First National Bank and
FIC in 1990.
The executive officers of FIC consist of Messrs. Thompson, Lichlyter,
Neil and Reinert and the following individuals:
Michael Beard, 40, serves as Senior Vice President of First National
Bank and has been employed by First National Bank since 1985.
- 36 -
41
Jack Erisman, 47, serves as Executive Vice President and Senior
Lending Officer of First National Bank and has been employed by First National
Bank since 1974. Prior to August 1995, Mr. Erisman served as Senior Vice
President of First National Bank.
Edwin Cantrell, III, 63, serves as Senior Vice President of First
National Bank and has been employed by First National Bank since 1984.
The Messrs. Gene George and Gary George are father and son. The
Messrs. Willis Shaw and Bob Shaw are father and son. No other family
relationships exist among the individuals listed above.
SELECTED STATISTICAL DATA
Loan Portfolio. The following sets forth the composition of FIC's
loan portfolio at June 30, 1995 and 1994, and December 31, 1994 and 1993 (in
thousands):
June 30, December 31,
--------------------- ---------------------
1995 1994 1994 1993
-------- -------- -------- --------
Real estate . . . . . . . . . . . . . . . $111,327 $ 97,086 $ 98,901 $ 96,558
Commercial . . . . . . . . . . . . . . . 34,370 31,106 21,268 35,721
Consumer . . . . . . . . . . . . . . . . 16,657 20,014 19,590 20,671
Other . . . . . . . . . . . . . . . . . . 288 202 286 196
-------- -------- -------- --------
Total loans . . . . . . . . . . . . . . 162,642 148,408 140,045 153,146
-------- -------- -------- --------
Unearned interest . . . . . . . . . . . . 270 268 261 288
Allowance for loan losses . . . . . . . . 1,630 2,139 1,689 2,343
-------- -------- -------- --------
Loans, net . . . . . . . . . . . . . . . $160,742 $146,001 $138,095 $150,515
======== ======== ======== ========
Nonaccrual, Past Due and Restructured Loans. The following table sets
forth information with respect to nonperforming loans of FIC on the dates
indicated (in thousands):
June 30, December 31,
----------------- --------------
1995 1994 1994 1993
------ -------- ---- ------
Accruing loans contractually past due 90 days or more as to interest or
principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 514 $ 232 $ 97 $ 131
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 1,254 842 1,070
Restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 61 0 796
------ ------ ---- ------
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . $1,022 $1,547 $939 $1,997
====== ====== ==== ======
Analysis of Allowance for Loan Losses. The following table sets forth
an analysis of the allowance for loan losses as of June 30, 1995 and 1994, and
December 31, 1994 and 1993 (dollars in thousands):
June 30, December 31,
---------------- ----------------
1995 1994 1994 1993
------ ------ ------ ------
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,689 $2,343 $2,343 $1,935
Amounts charged off:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 244 245 176
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 102 109 144
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 78 143 93
Total charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 424 497 413
Recoveries:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 157 197 107
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 34 80 197
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 29 66 267
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 220 343 571
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 204 154 (158)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 (500) 250
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,630 2,139 1,689 2,343
Ratio of net charge-offs during the period to average loans outstanding during period
ended June 30, 1995 and 1994 of $151,344 and $150,177, respectively, and December 31,
1994 and 1993 of $145,773 and $142,305, respectively . . . . . . . . . . . . . . . . . .04% .14% .11% (.11)%
- 37 -
42
Allocation for Allowance for Loan Losses. The following table sets
forth the allocation of the allowance for loosses as of June 30, 1995 and 1994,
and December 31, 1994 and 1993 (in thousands):
June 30, December 31,
-------------- --------------
1995 1994 1994 1993
------ ------ ------ ------
Real estate . . . . . . . . . $1,017 $1,037 $ 481 $ 450
Commercial . . . . . . . . . 386 775 834 1,466
Consumer . . . . . . . . . . 227 327 374 427
Other . . . . . . . . . . . . 0 0 0 0
------ ------ ------ ------
Total . . . . . . . . . . . $1,630 $2,139 $1,689 $2,343
====== ====== ====== ======
Percentage Distribution of Allowance for Loan Losses and Categories of
Loans as Percent of Gross Loans. The following table sets forth the percentage
distribution of allowance for loan losses and categories of loans as a percent
of gross loans at June 30, 1995 and 1994, and December 31, 1994 and 1993:
June 30, December 31,
------------------------------------- -------------------------------------
1995 1994 1994 1993
---------------- ----------------- ---------------- -----------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ----- --------- -----
Real estate . . . . . . . . . . 62.39% 68.45% 48.48% 65.42% 28.48% 70.62% 19.21% 63.05%
Commercial . . . . . . . . . . 23.68% 21.13% 36.23% 20.96% 49.38% 15.19% 62.57% 23.32%
Consumer . . . . . . . . . . . 13.93% 10.24% 15.29% 13.49% 22.14% 13.99% 18.22% 13.50%
Other . . . . . . . . . . . . . 0.00% 0.18% 0.00% 0.14% 0% .20% 0% .13%
------ ------ ------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ======
Average Deposit Distribution and Average Interest Rates. The
following table sets forth the average deposit distribution and average
interest rates as of June 30, 1995 and 1994, and December 31, 1994 and 1993
(dollars in thousands):
June 30, 1995 June 30, 1994
------------------------------- -------------------------------
Average Interest Average Average Interest Average
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- -------
Noninterest bearing accounts . . . . $ 42,567 $ 0 0.00% $ 41,674 $ 0 0.00%
NOW accounts . . . . . . . . . . . . 52,818 814 3.08% 52,965 667 2.52%
Money Market accounts . . . . . . . . 15,155 357 4.71% 15,208 212 2.79%
Savings . . . . . . . . . . . . . . . 31,915 541 3.39% 31,511 427 2.71%
Certificates of deposit:
$100,000 and greater . . . . . . . 58,794 1,663 5.66% 61,727 1,147 3.72%
Less than $100,000 . . . . . . . . 91,147 2,569 5.43% 78,487 1,463 3.73%
-------- ------ ---- -------- ------- ----
Total . . . . . . . . . . . . . . $292,396 $5,849 4.00% $281,572 $ 3,916 2.78%
======== ====== ======== =======
December 31, 1994 December 31, 1993
------------------------------- -------------------------------
Average Interest Average Average Interest Average
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- -------
Noninterest bearing accounts . . . . $ 43,225 $ 0 0% $ 40,931 $ 0 0%
NOW accounts . . . . . . . . . . . . 52,558 1,350 2.57% 49,543 1,255 2.53%
Money Market accounts . . . . . . . . 14,719 454 3.09% 14,092 393 2.79%
Savings . . . . . . . . . . . . . . . 32,447 903 2.78% 29,274 799 2.73%
Certificates of deposit:
$100,000 and greater . . . . . . . 65,166 2,777 4.26% 50,330 1,797 3.57%
Less than $100,000 . . . . . . . . 82,231 3,377 4.11% 76,776 2,881 3.75%
-------- ------ --------
Total . . . . . . . . . . . . . . $290,346 $8,861 3.05% $260,946 $ 7,125 2.73%
======== ====== ======== =======
Maturity Distribution of Certificates of Deposit of $100,000 and Over.
The following table sets forth the maturity distribution of certificates of
deposit of $100,000 and over at June 30, 1995, and December 31, 1994 (in
thousands):
June 30, 1995 December 31, 1994
--------------------------------------------- ---------------------------------------------
Certificates IRA Accounts Total Certificates IRA Accounts Total
------------ ------------ ----- ------------ ------------ -----
Less than three months . . . . $21,313 $121 $21,434 $27,507 $117 $27,625
Three to twelve months . . . . 23,819 115 23,934 26,412 104 26,516
More than twelve months . . . . 5,621 549 6,170 9,555 549 10,104
------- ---- ------- ------- ---- -------
Total . . . . . . . . . . . . $50,753 $785 $51,538 $63,474 $770 $63,695
======= ==== ======= ======= ==== =======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion provides certain information concerning FIC's
financial condition and results of operations. For a more complete
understanding of the following discussion, reference should be made to the
financial statements of FIC and related notes thereto presented elsewhere in
this Proxy Statement-Prospectus.
- 38 -
43
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30,
1994
Total assets of FIC grew to $343,049,284 at June 30, 1995, increasing
$4,276,177 or 1.25% over total assets at June 30, 1994. The largest increase
was in loans with total loans increasing to $162,641,537 or an increase of
$14,232,650. To fund this loan growth, investments were allowed to mature;
therefore, investments decreased by $12,649,985 from $157,957,277 as of June
30, 1994 to $145,307,292. As of June 30, 1995, investment securities
classified as "available for sale" had an estimated market value of
approximately $742,982 more than their book value. Approximately 76.5% of the
investment portfolio is classified as "available for sale."
Total deposits at June 30, 1995, were $2,274,577 less than total
deposits at June 30, 1994. The decline was due to customers seeking
alternative investments and the competition for deposits within the Northwest
Arkansas financial market.
Net interest income for the six months ended June 30, 1995, was
$5,392,896 or $377,210 less than the net interest income for the six months
ended June 30, 1994. Rates have increased during this 12-month period due to
competition for deposits. The increase in loan rates did not keep pace with
the increase in deposit rates.
Net income for the six months ended June 30, 1995 was $1,628,994. This
income, plus the change in the market value of the investment portfolio, helped
increase stockholders' equity by $5,721,785 during the 12 months ended June 30,
1995. Total stockholders' equity was $47,810,137 at June 30, 1995.
Results of Operations 1994 Compared to 1993.
Net income for the year ended December 31, 1994 was $4,695,484 or
approximately $565,670 less than net income of $5,261,154 for the year ended
December 31, 1993. The decrease in net income was primarily due to decreases
in net interest income and an increase in operating expenses.
Return on average assets for the year ended December 31, 1994 was
1.38% compared to 1.72% for the year ended December 31, 1993. Return on
average equity was 10.78% and 13.59% in 1994 and 1993, respectively. FIC paid
dividends of $.12 per share in both 1994 and 1993. Dollar amount of dividends
doubled ($107,182 in 1993 and $214,364 in 1994) due to a two for one stock
split which occurred in early 1994.
FIC's provision 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 in 1994 for loan losses was a
negative $500,000 compared to a provision of $250,000 in 1993. Net loans
charged-off in 1994 were $154,000 versus net recoveries of $158,000 in 1993.
The provision in 1994 was a negative due to a request by the Office of the
Comptroller of the Currency to reduce the reserve as the reserve was, in the
Comptroller's opinion, too large.
Net interest income is the major component of the income of FIC. Net
interest income for the year ended December 31, 1994 was $11,710,752, a
decrease of approximately $265,700 compared to the amount reported for the year
ended December 31, 1993. The decrease in net interest income was primarily
attributed to an increase in interest expense due to rate increases over the
year. Loan fee income was not significant in either 1994 or 1993.
Noninterest income was $3,090,606 in 1994, a decrease of approximately
$1,048,500 compared to 1993. The primary difference was in securities gains
with only $29,136 in gains reported in 1994 compared to $1,224,853 gains in
1993. Other components of noninterest income are trust income, service charges
on deposits and other service fees and commissions. Each of these areas
increased in 1994 over amounts reported in 1993.
Total noninterest expenses for 1994 were $9,144,747 or approximately
7.1% more than the $8,538,163 reported in 1993. Salaries and employee benefits
increased a combined $445,058 or 10.37%, as full time equivalent employee
numbers increased from 140 to 151 by the end of 1994. Occupancy and equipment
expenses remained almost exactly the same for both years even though FIC opened
a new branch in June 1994. This can be attributed to a decrease in
depreciation on older equipment. Other noninterest expenses increased by
approximately $171,000 compared to 1993. The majority of this increase is
related to advertising expenses, accounting and auditing fees and an increase
in fees paid to the FDIC due to deposit growth.
Financial Condition 1994 Compared to 1993.
Total assets at FIC continued to grow in 1994, increasing $17,800,822
or 5.43% over December 31, 1993. Investment securities increased $36,380,000
or 26.7% for the largest portion of the asset increase. At December 31, 1994,
investment securities classified as "available for sale" had an estimated
market value of approximately $4,549,967 less than their book value.
Management does not foresee any significant change in its investment strategy
as a consequence of the Statement of Financial Accounting Standards No. 115
which was adopted on January 1, 1994. Approximately 78% of the investment
portfolio is classified as "available for sales."
Total loans decreased by $13,100,632 to $140,045,169 at December 31,
1994. This decrease is attributed to discontinuing the purchase of commercial
paper as an alternative to other investments. FIC held $16,365,502 in
commercial paper on December 31, 1993 and $0 on December 31, 1994. Net loans
at
- 39 -
44
December 31, 1994 totaled $138,976,284. Net loans at Dember 31, 1993, which
contained the $16,365,502 in commercial paper, was $152,298,130. Reducing the
net loans at December 31, 1993 by the amount of commercial paper resulted in a
net gain of 2.24% in actual loans made to the public at December 31, 1994. The
allowance for loan losses at December 31, 1994 was $1,688,767, a decrease of
$654,021 from December 31, 1993. A summary of the changes in the allowance for
1994 and 1993 is included in the "Selected Statistical Data" above. The
adequacy of the allowance for loan losses is determined on an ongoing basis
using historical loan loss experience of FIC, portfolio growth and asset
quality trends, and economic conditions within the trade area. Additional
allocations are made to the allowance for specifically identified potential
losses in the portfolio. The allowance was 1.21% of loans outstanding on
December 31, 1994 and 1.53% at December 31, 1993.
It is the policy of FIC to place loans greater than 90 days past due
on the nonaccrual status, unless certain criteria are met. At December 31,
1994, nonaccrual loans were $842,000 compared to $1,070,000 at December 31,
1993.
At December 31, 1994, approximately 70% of the loan portfolio was in
real estate loans. However, this exposure is spread over commercial real
estate, first mortgage residential loans and other types of real estate loans.
During 1994, FIC expended approximately $1,000,000 to purchase
property and construct a new branch at 2012 E. Robinson (Highway 412 East) in
Springdale. Management estimates an additional branch will be built in 1995
with the cost of the property and equipment to be approximately $1,200,000.
Total deposits grew 7.23% to $295,318,383 as of December 31, 1994,
compared to $275,415,712 at the end of 1993. The largest increase was in
certificates of deposit with an increase of 13% to $152,141,785.
Other liabilities actually decreased by 34.8% to $6,942,863. This
category consists mainly of repurchase agreements with commercial customers of
$3,553,922 and accrued interest payable of $1,057,721.
Total stockholders equity at December 31, 1994 was $42,931,478 (net of
unrealized losses on investment securities), an increase of $1,614,641 since
December 31, 1993. Net earnings for 1994 totaled $4,695,484. In addition, FIC
paid $214,364 in dividends in 1994. The equity to assets ratio was 13.59% on
December 31, 1994 compared to 12.96% on December 31, 1993.
At December 31, 1994, FIC had no loans to foreign nations or entities
and had no concentration of 10% or more of total loans to any single industry.
Results of Operations 1993 Compared to 1992.
Net income for 1993 was $5,261,154, an increase of 3.49% over 1992
income of $5,083,572. Net income per share was $2.94 in 1993 compared to $2.85
in 1992. The 1993 increase in net income was due to a decrease in the
provision for loan losses from $700,000 in 1992 to $250,000 in 1993. This was
partially offset by increases in operating expenses.
Return on average assets was 1.72% for both years 1993 and 1992.
Return on average equity was 13.59% for 1993 and 14.96% for 1992. Dividends
per share was $.12 in 1993 and $.09 in 1992.
Net interest income, a major component of the income for FIC was
practically identical for both years at $11,976,496 for 1993 and $11,982,635 in
1992. As mentioned above, the provision for loan losses decreased to $250,000
in 1993, down from $700,000 in 1992.
- 40 -
45
Noninterest income increased approximately $133,000 to $4,139,152 for
1993 versus 1992. Noninterest expense increased by 4.98% to $8,538,163 due
primarily to increases in salaries and employee benefits.
Financial Condition 1993 Compared to 1992.
Total assets increased by $23,931,548, or 7.88%. Investment
securities increased approximately $2.7 million over 1992. Loans increased
$21,218,000 in 1993 and the allowance for loan losses increased $400,000 or
1.53% of outstanding loans. The loan portfolio continues to have a large
portion in real estate loans with 63% at December 31, 1993.
Total deposits at December 31, 1993 were $275,415,712, a 5% increase
over total deposits at December 31, 1992 of $262,311,776. The growth was
steady over the entire year, however, a significant portion of the growth
occurred in certificates of deposits over $100,000. This category increased by
approximately $10.2 million, or 21.6% over year end 1992.
Total stockholders' equity increased $5,153,972 or 14.25% from
December 31, 1992 to December 31, 1993. This increase consisted of net
earnings retained of $5,261,154, less dividends paid of $107,182. The equity
to assets ratio as of December 31, 1993 and December 31, 1992 was 12.96% and
12.02%, respectively.
OWNERSHIP OF FIC COMMON STOCK AND DIVIDENDS
Ownership of Principal Shareholders. As of August 29, 1995, there
were 1,786,368 shares of FIC Common Stock, its only class of voting securities,
outstanding and approximately 103 shareholders of record of such shares. The
following table provides information concerning the number of shares of FIC
Common Stock beneficially owned, directly or indirectly, by more than 5%
shareholders of FIC Common Stock as of August 29, 1995, and the number of
shares of FTNC Common Stock to be owned by such persons on the Effective Date
of the Merger. FIC 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 FIC to be the beneficial owner
of more than 5% of the outstanding shares of FIC Common Stock. The number and
percentage of shares of FTNC Common Stock beneficially owned on the Effective
Date of the Merger in the tables in this section are based upon a Conversion
Number of 0.93577 FTNC Common Stock for each share of FIC Common Stock and
assuming 33,674,552 shares of FTNC Common Stock 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.
w Number of FTNC Percent of Total
Percent of Common Shares to FTNC Common
Number of FIC Total FIC be Beneficially Shares to be
Common Shares Shares Owned on Outstanding on
Beneficial Owner Owned Outstanding Effective Date Effective Date
---------------- ----- ----------- -------------- --------------
Harvey & Bernice Jones
Charitable Trust 702,740 39.34% 657,603 1.95%
Gene George 198,620 11.12% 185,862 *
Gary George 116,600 6.53% 109,110 *
Bob Shaw 127,394 7.13% 119,211 *
- ---------------------
* Less than 1%.
- 41 -
46
Ownership by Directors and Executive Officers of FIC. The following
information pertains to shares of FIC 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 August 29, 1995, and to
the number of shares of FTNC Common Stock to be owned by such persons on the
Effective Date of the Merger. Unless otherwise noted, the named persons have
sole voting and investment power with respect to the shares indicated.
Number of FTNC Percent of Total
Percent of Common Shares to FTNC Common
Number of Total FIC be Beneficially Shares to be
FIC Common Shares Owned on Outstanding on
Beneficial Owner Shares Owned Outstanding Effective Date Effective Date
---------------- ------------ ----------- -------------- --------------
James. D. Cypert 4,100 * 3,836 *
Gary Charles George 116,600 6.53% 109,110 *
Ellis Eugene George 198,620 11.12% 185,862 *
Dewey Johnson 1,000 * 935 *
Louis Lichlyter 39,000 2.18% 36,495 *
Vaughn Neil 6,656 * 6,228 *
John R. Power 8,850 * 8,281 *
Max Sample 14,860 * 13,905 *
Bobby G. Shaw 127,394 7.13% 119,211 *
Willis Shaw 39,130 2.19% 36,616 *
Gene Thompson 23,640 1.32% 22,121 *
Wm. C. (Bill) Walker 6,800 * 6,363 *
Jerry L. Reinert 2,360 * 2,208 *
Michael Beard 1,600 * 1,497 *
Jack Erisman 1,126 * 1,053 *
Edwin Cantrell, III 0 * 0 *
All Directors and Executive
Officers as a Group (16
individuals including those
named above) 591,736 33.13% 553,728 1.64%
- ----------------------
* Less than 1%.
Dividends. The shareholders of FIC Common Stock are entitled to such
dividends as may be declared from time to time by the FIC Board. Cash dividends
generally are declared semi-annually. For the six months ended June 30, 1995
and for each of the semi-annual periods in 1994 and 1993, FIC declared dividends
of $.06 per share. The Agreement restricts the ability of FIC to declare and
pay dividends. See "The Merger -- Conduct of Business Pending Merger." FIC's
ability to pay dividends also is dependent upon the earnings and financial
conditions of First National Bank. Dividend payments by First National Bank are
subject to certain regulatory restrictions. As of June 30, 1995, approximately
$10.8 million was available for distribution by First National Bank to FIC, its
sole shareholder, as dividends without prior regulatory approval.
- 42 -
47
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 July 31, 1995, there were 33,674,552 shares of
FTNC Common Stock and no shares of Preferred Stock outstanding. As of that
date, approximately 5.0 million shares of FTNC Common Stock were reserved for
issuance under various employee stock plans and FTNC's dividend reinvestment
plan, and 336,745 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 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 FTNC 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.
- 43 -
48
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.
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 is a Tennessee corporation subject to the provisions of the TBCA.
FIC is an Arkansas corporation subject to the provisions of the ABCA.
Shareholders of FIC, whose rights are governed by FIC's Articles of
Incorporation and Bylaws and by the ABCA, 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
- 44 -
49
following is a summary of the material differences in the rights of
shareholders of FTNC and FIC 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 FIC. Certain topics discussed below are also subject to
federal law and the regulations promulgated thereunder. See "Certain
Regulatory Considerations."
SPECIAL MEETINGS OF SHAREHOLDERS
The FIC Bylaws authorize the FIC Board or any three or more
shareholders owning in the aggregate not less than 25% of the outstanding
shares of FIC 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 proposed meeting.
REMOVAL OF DIRECTORS
The ABCA provides that directors may be removed, with or without
cause, by a vote of the holders of the majority of the shares entitled to vote
for the election of directors. If less than the entire board is to be removed,
no one of the directors may be removed if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors.
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 ABCA shareholders have a right to cumulate their votes for
directors.
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.
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 FIC's Articles of Incorporation nor its Bylaws contain
provisions concerning shareholder proposals or director nominations.
ACTION BY WRITTEN CONSENT
Both the ABCA and 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.
- 45 -
50
REQUIRED VOTE TO AUTHORIZE CERTAIN ACTIONS
The ABCA provides that the approval of the FIC Board and the holders
of two-thirds of the outstanding shares of FIC 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 FIC's assets.
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 ABCA provides that the Articles of Incorporation may be amended by
the affirmative vote of the holders of two-thirds of the shares votes entitled
to vote on the amendment. The Bylaws of FIC 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.
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
Pursuant to the ABCA, a corporation may provide for indemnification
for its directors and officers. Accordingly, FIC's Articles of Incorporation
provides that its directors, officers and employees may be indemnified for
reasonable expenses incurred in connection with such positions with FIC, if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of FIC, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Any indemnification is subject to a determination by the FIC Board
that such indemnification is appropriate.
The TBCA provides in certain situations for mandatory and permissive
indemnification of directors and officers. 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. The TBCA 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. 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
- 46 -
51
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
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 proposed 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 FIC).
The ABCA contains no similar provisions with respect to business
combinations.
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act ("TACPA") is the
vehicle through which the Business Combination Act and the TCSAA (as defined
hereinafter) 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.
- 47 -
52
The 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 FIC).
The ABCA contains no similar provisions with respect to authorized
corporation protection.
CONFLICT OF INTEREST TRANSACTIONS
The FIC Articles of Incorporation permit transactions involving FIC
and an interested director of FIC if the transaction is approved either (i) by
a vote of the majoirty of a quorum of the FIC Board or Executive Committee, if
any, without counting in such majority or quorum, the interested director, or
(ii) by holders of record of a majority of all the outstanding shares of stock
of FIC entitled to vote.
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 TBCA 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 ABCA and the TBCA contain provisions granting shareholders
the right to inspect certain records of each corporation. Under the ABCA, a
shareholder of record for at least six months, upon written demand stating the
purpose thereof, shall have the right to examine at any reasonable time for any
proper purpose, FIC's books and records of account, minutes, and records of
shareholders and to make extracts therefrom. In addition, upon the written
request of any shareholder of a corporation, the corporation shall mail to the
shareholder its most recent financial statements showing in reasonable detail
its assets and liabilities and the results of its operations.
Under the TBCA, 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 FIC 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 (or, by the
affirmative vote of a majority in interest of the shareholders).
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.
- 48 -
53
CONTROL SHARE ACQUISITIONS
The Tennessee Control Share Acquisition Act ("TCSAA") strips 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.
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 Authorized
Corporation Protection 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.
The ABCA contains no similar provisions with respect to control share
acquisitions.
TENDER OFFERS
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.
The ABCA contains a similar provision with respect to tender offers;
however, such provisions are not being enforced in Arkansas.
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 or subsidiary to purchase,
either directly or indirectly, any of 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 makes an offer of at least equal value per share to
all holders of shares of such class.
The ABCA contains no similar provisions with respect to such purchases
of shares by a corporation.
DISSENTERS' RIGHTS
The ABCA 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 dissenter's shares. Under TBCA, however,
- 49 -
54
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 may 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 Capital Stock -- Shareholder Rights Plan." The FIC Board has not
adopted a shareholder rights plan.
LEGAL MATTERS
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 28,000 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, 1994 have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
dated January 17, 1995, 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 FIC as of December 31, 1994, and for the
year ended December 31, 1994, included in this Proxy Statement-Prospectus have
been audited by Frost & Company, as set forth in their report dated January 13,
1995, 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 Frost & Company 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.
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.
- 50 -
55
INDEX TO PRO FORMA FINANCIAL INFORMATION Page
------
FTNC Pro Forma Combined Condensed Statement of Condition as of
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 2
FTNC Pro Forma Combined Condensed Statements of Income for the Six Months
Ended June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 3
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 4
INDEX TO FIC FINANCIAL INFORMATION
As of and for the Years Ended December 31, 1994, 1993 and 1992
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 . . . . . F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
As of and for the Six Months Ended June 30, 1995 and 1994 (Unaudited)
Consolidated Balance Sheets as of June 30, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statements of Income for the Three Months
Ended June 30, 1995 and 1994 and the Six Months Ended June 30, 1995 and 1994 . . . . . . . . . F-23
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
- 51 -
56
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of condition as
of June 30, 1995 combine the historical consolidated statements of condition of
FTNC and FIC as if the Merger had been in effect on June 30, 1995, after giving
effect, as approved by the FTNC Board of Directors, to the repurchase of all
FTNC Common Stock necessary to complete the acquisition of FIC and purchase
accounting adjustments, as identified on the statements. The unaudited pro
forma combined statements of income present the combined results of operations
of FTNC and FIC for the year ended December 31, 1994, and for the six months
ended June 30, 1995, as if the Merger had been effective from the beginning of
the periods presented, after giving effect to the repurchase of FTNC Common
Stock and purchase accounting adjustments.
The unaudited pro forma combined financial statements and accompanying 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.
Pro forma results presented 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.
PF-1
57
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED
STATEMENT OF CONDITION
AS OF JUNE 30, 1995
Financial
Investment Adjust-
(Thousands) FTNC Corporation ment (2) Pro Forma
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 840,444 $ 25,501 $ (2,500) $ 863,445
Investments in bank time deposits 1,744 500 2,244
Trading account securities inventory 227,458 227,458
Assets available for sale 1,930,595 110,189 2,040,784
Investment securities held to maturity 985,010 35,118 2,520 1,022,648
Net loans 6,771,297 160,742 6,932,039
Premises and equipment, net 165,621 5,945 171,566
Real estate acquired by foreclosure 13,732 13,732
Mortgage servicing rights 94,437 94,437
Goodwill 71,724 14,711 86,435
Other identifiable intangible assets 29,407 10,010 39,417
Other assets 482,541 5,054 487,595
--------------------------------------------------------
Total assets $11,614,010 $343,049 $ 24,741 $11,981,800
========================================================
LIABILITIES
Deposits $ 8,113,333 $286,003 $ $ 8,399,336
Federal funds purchased and securities
sold under agreements to repurchase 1,558,908 3,594 1,562,502
Other borrowings 377,137 3,000 32,500 412,637
Term borrowings 202,320 202,320
Other liabilities 535,562 2,642 5,051 543,255
--------------------------------------------------------
Total liabilities 10,787,260 295,239 37,551 11,120,050
SHAREHOLDERS' EQUITY
Common stock 84,751 477 1,336 86,564
Treasury stock -- (1,101) 1,101
Surplus 82,467 12,758 20,429 115,654
Retained earnings 660,738 35,186 (35,186) 660,738
Net unrealized loss on marketable
equity securities 1,140 490 (490) 1,140
Deferred compensation on restricted stock
incentive plan (2,346) (2,346)
--------------------------------------------------------
Total shareholders' equity 826,750 47,810 (12,810) 861,750
--------------------------------------------------------
Total liabilities and shareholders' equity $11,614,010 $343,049 $ 24,741 $11,981,800
========================================================
(1) Represents the issuance of approximately 1,458,000 shares of FTNC common
stock to acquire Financial Investment Corporation (FIC) based on a price
of $48.00 per share, and the repurchase of approximately 733,000
additional shares that have not already been repurchased by FTNC in
contemplation of the acquisition. Also reflected are the mark to market
adjustments for purchase accounting based on the June 30, 1995, statement
of condition of FIC, and an accrual for one-time expenses of approximately
$1.5 million after-tax.
PF-2
58
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 1995
Financial
Investment Adjust-
(Thousands) FTNC Corporation ment (2) Proforma
- ------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $311,840 $ 6,284 $ $318,124
Interest on investment securities 69,077 4,923 74,000
Interest on trading securities inventory 6,974 6,974
Interest on other earning assets 6,245 188 (418) 6,015
---------------------------------------------
Total interest income 394,136 11,395 (418) 405,113
---------------------------------------------
Interest expense:
Interest on deposits 148,755 5,854 154,609
Interest on other borrowings 49,163 148 1,495 50,806
Interest on term borrowings 8,547 8,547
---------------------------------------------
Total interest expense 206,465 6,002 1,495 213,962
---------------------------------------------
Net interest income 187,671 5,393 (1,913) 191,151
Provision for loan losses 7,364 0 7,364
---------------------------------------------
Net interest income after provision
for loan losses 180,307 5,393 (1,913) 183,787
---------------------------------------------
Noninterest income:
Mortgage banking 89,665 89,665
Bond division 41,021 41,021
Deposit transactions and cash management 35,412 741 36,153
Bank card 17,407 17,407
Trust service 18,535 293 18,828
Securities gains (losses) 487 172 659
Other 26,423 292 26,715
---------------------------------------------
Total noninterest income 228,950 1,498 0 230,448
---------------------------------------------
Noninterest expense:
Employee compensation, incentives, and benefits 160,961 2,557 163,518
Operations services 18,108 18,108
Occupancy 17,789 178 17,967
Communications and courier 14,490 14,490
Equipment rentals, depreciation, and
maintenance 15,613 393 16,006
Deposit insurance premium 8,751 8,751
Legal and professional fees 7,590 7,590
Amortization of mortgage servicing rights 5,769 5,769
Amortization of intangible assets 3,737 795 4,532
Other 40,610 1,787 42,397
---------------------------------------------
Total noninterest expense 293,418 4,915 795 299,128
---------------------------------------------
Income before income taxes 115,839 1,976 (2,708) 115,107
Applicable income taxes 40,479 347 (945) 39,881
---------------------------------------------
Net income $ 75,360 $ 1,629 $ (1,763) $ 75,226
=============================================
Net income per common share $ 2.21 $ 0.91 $ 2.19
---------------------------------------------
Weighted Average Shares Outstanding (1) 34,175 1,786 34,351
---------------------------------------------
(1) Pro forma weighted average shares outstanding have been calculated using
FTNC's weighted average shares adjusted for the shares to be issued in
this transaction that have already been repurchased by FTNC as of June
30, 1995, in contemplation of the acquisition.
(2) Interest on other earning assets is reduced to reflect the loss of
earnings due to the use of funds for the repurchase of FTNC shares.
Amortization of intangibles is increased to reflect the amortization of
the premium paid on purchased deposits and goodwill. Interest expense is
increased to reflect the interest which will be paid on commercial paper
and other borrowings issued to fund the acquisition.
PF-3
59
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1994
Financial
Investment Adjust-
(Thousands) FTNC Corporation ment (2) Proforma
- -------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $546,385 $ 11,370 $ $557,755
Interest on investment securities 134,034 8,954 142,988
Interest on trading securities inventory 12,810 12,810
Interest on other earning assets 7,829 456 (651) 7,634
----------------------------------------------
Total interest income 701,058 20,780 (651) 721,187
----------------------------------------------
Interest expense:
Interest on deposits 219,810 8,857 228,667
Interest on other borrowings 77,720 212 2,705 80,637
Interest on term borrowings 9,067 9,067
----------------------------------------------
Total interest expense 306,597 9,069 2,705 318,371
----------------------------------------------
Net interest income 394,461 11,711 (3,356) 402,816
Provision for loan losses 17,182 (500) 16,682
----------------------------------------------
Net interest income after provision
for loan losses 377,279 12,211 (3,356) 386,134
----------------------------------------------
Noninterest income:
Mortgage banking 187,341 187,341
Bond division 77,478 77,478
Deposit transactions and cash management 64,169 1,516 65,685
Bank card 31,401 31,401
Trust service 28,933 563 29,496
Securities gains (losses) 19,953 29 19,982
Other 49,464 982 50,446
----------------------------------------------
Total noninterest income 458,739 3,090 0 461,829
----------------------------------------------
Noninterest expense:
Employee compensation, incentives, and benefits 349,769 4,738 354,507
Operations services 33,679 33,679
Occupancy 34,102 352 34,454
Communications and courier 30,653 30,653
Equipment rentals, depreciation, and
maintenance 29,202 712 29,914
Deposit insurance premium 16,923 16,923
Legal and professional fees 13,748 13,748
Amortization of mortgage servicing rights 14,936 14,936
Amortization of intangible assets 6,406 1,984 8,390
Other 98,838 3,343 102,181
----------------------------------------------
Total noninterest expense 628,256 9,145 1,984 639,385
----------------------------------------------
Income before income taxes 207,762 6,156 (5,340) 208,578
Applicable income taxes 60,694 1,461 (1,560) 60,595
----------------------------------------------
Net income $147,068 $ 4,695 $ (3,780) $147,983
==============================================
Net income per common share $ 4.30 $ 2.63 $ $ 4.32
----------------------------------------------
Weighted Average Shares Outstanding (1) 34,221 1,786 34,221
----------------------------------------------
(1) Pro forma weighted average shares outstanding have been calculated using
FTNC's weighted average shares. There is no adjustment for Financial
Investment Corporation since FTNC intends to repurchase the shares to be
issued in this transaction.
(2) Interest on other earning assets is reduced to reflect the loss of
earnings due to the use of funds for the repurchase of FTNC shares.
Amortization of intangibles is increased to reflect the amortization of
the premium paid on purchased deposits and goodwill. Interest expense is
increased to reflect the interest which will be paid on commercial paper
and other borrowings issued to fund the acquisition.
PF-4
60
Independent Auditor's Report
Board of Directors
Financial Investment Corporation
Springdale, Arkansas
We have audited the accompanying consolidated balance sheets of
Financial Investment Corporation as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash
flows for the three years then ended. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Financial Investment Corporation, as of December 31, 1994 and
1993, and the consolidated results of its operations and its cash flows for
the three years then ended, in conformity with generally accepted accounting
principles.
As described in Note 1(c) to the financial statements, Financial
Investment Corporation changed its method of accounting for investment
securities effective January 1, 1994.
FROST & COMPANY
Certified Public Accountants
Little Rock, Arkansas
January 13, 1995
F-1
61
FINANCIAL INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
Assets 1994 1993
------ ---- ----
Cash and due from banks $ 17,204,946 $ 12,538,311
------------- -------------
Interest-bearing deposits in banks 500,000 500,000
------------- -------------
Investment securities
United States treasury securities 88,627,187 76,789,134
Securities of United States government 18,834,934 10,552,873
agencies
Obligations of states and political 38,541,344 32,203,366
subdivisions
Other securities 26,578,837 16,656,160
------------- -------------
Total investment securities 172,582,302 136,201,533
------------- -------------
Federal funds sold 3,885,000 17,925,000
------------- -------------
Loans
Commercial loans 132,694,125 145,359,111
Installment loans 7,351,044 7,786,690
------------- -------------
140,045,169 153,145,801
Reserve for loan losses 1,688,767) (2,342,788)
Unearned discounts (261,347) (287,627)
------------- -------------
Net loans 138,095,055 150,515,386
------------- -------------
Bank premises and equipment, net of accumulated
depreciation 6,239,436 5,707,278
------------- -------------
Accrued interest on loans and securities 3,585,273 2,597,036
------------- -------------
Refundable income taxes 98,685 -
------------- -------------
Deferred income tax benefit 1,435,181 -
------------- -------------
Other assets 1,566,846 1,407,358
------------- -------------
Total assets $ 345,192,724 $ 327,391,902
============= =============
F-2
62
Liabilities and stockholders' equity 1994 1993
------------------------------------ ---- ----
Deposits
Demand deposits $ 45,324,940 $ 43,614,260
NOW accounts 65,038,616 67,598,187
Savings 32,813,042 29,574,533
Time deposits 152,141,785 134,628,732
------------- -------------
Total deposits 295,318,383 275,415,712
------------- -------------
Other borrowed money
Treasury, tax and loan 1,661,551 3,900,000
Repurchase agreements 3,553,922 5,073,896
Other indebtedness 47,876 348,925
------------- -------------
Total other borrowed money 5,263,349 9,322,821
------------- -------------
Accrued interest payable 1,057,721 634,759
------------- -------------
Income taxes payable - 18,681
------------- -------------
Deferred income taxes - 140,000
------------- -------------
Other liabilities 621,793 543,092
------------- -------------
Commitments and contingencies (notes 8 and 10)
Stockholders' equity
Common stock, par value, $.25 per share:
2,000,000 shares authorized, 1,909,000
shares issued and outstanding 477,250 477,250
Capital surplus 12,757,715 12,757,715
Retained earnings 33,664,076 29,182,956
Unrealized appreciation (depreciation) on
investment securities (2,866,479) -
------------- -------------
44,032,562 42,417,921
Treasury stock, 122,632 shares, at cost (1,101,084) (1,101,084)
------------- -------------
Total stockholders' equity 42,931,478 41,316,837
------------- -------------
Total liabilities and stockholders' equity $ 345,192,724 $ 327,391,902
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
63
FINANCIAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
Interest income
Interest and fees on loans $11,369,921 $11,070,700 $11,213,068
Interest on Federal funds 455,973 293,495 353,258
Interest on trading securities 3,570 - 23,489
Interest and dividends on
investment securities:
United States treasury 4,501,354 3,256,644 3,899,188
securities
Securities of United States 1,065,287 1,579,410 2,445,926
government agencies
Obligations of states and 1,881,884 1,668,672 1,436,482
political subdivisions
Other securities 1,502,079 1,360,575 1,525,050
----------- ----------- -----------
Total interest income 20,780,068 19,229,496 20,896,461
----------- ----------- -----------
Interest expense
NOW accounts 1,803,141 1,648,624 859,046
Savings deposits 903,154 798,752 1,894,954
Time deposits - under $100,000 3,377,043 2,881,386 3,844,088
- over $100,000 2,773,696 1,790,220 2,189,354
Other interest 212,282 134,018 126,384
Total interest expense 9,069,316 7,253,000 8,913,826
Net interest income 11,710,752 11,976,496 11,982,635
Provision for loan losses 500,000 (250,000) (700,000)
Net interest income after provision for 12,210,752 11,726,496 11,282,635
loan losses
Other operating income
Trust division income 562,661 554,303 546,772
Service charges on deposit accounts 1,516,300 1,477,507 1,463,839
Other service charges and fees 950,424 854,123 625,465
Lease income 7,879 16,182 207,272
Securities gains 29,136 1,224,853 1,083,483
Other income 24,206 12,184 79,416
Total operating income 3,090,606 4,139,152 4,006,247
Other operating expenses
Salaries and wages 3,841,259 3,488,884 3,261,603
Pension and other employee benefits 896,848 804,165 601,234
Occupancy expense 351,986 408,965 339,041
Depreciation of bank premises and
equipment 712,371 665,166 797,655
Other 3,342,283 3,170,983 3,133,621
------------- ------------- ------------
Total other operating expenses 9,144,747 8,538,163 8,133,154
------------- ------------- ------------
Income before income taxes 6,156,611 7,327,485 7,155,728
Income taxes 1,461,127 2,066,331 2,072,156
------------- ------------- ------------
Net income $ 4,695,484 $ 5,261,154 $5,083,572
=========== =========== ==========
F-4
64
FINANCIAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Unrealized
Appreciation
(Depreciation) on
Common Capital Retained Investment Treasury
Stock Surplus Earnings Securities Stock Total
----- ------- -------- ---------- ------- -----
Balance - January 1, $477,250 12,757,715 19,025,799 - (1,101,084) 31,159,680
Dividends Paid - - (80,387) - - (80,387)
Net income - - 5,083,572 - - 5,083,572
-------- ----------- ----------- ----------- ----------- -----------
Balance - December $477,250 $12,757,715 $24,028,984 - $(1,101,084) $36,162,865
Dividends paid - - (107,182) - - (107,182)
Net income - - 5,261,154 - - 5,261,154
-------- ----------- ----------- ----------- ----------- -----------
Balance - December 477,250 12,757,715 29,182,956 - (1,101,084) 41,316,837
Effect of change in
accounting method
for investment securities - - - $ 1,108,839 - 1,108,839
Dividends paid - - (214,364) - - (214,364)
Net income - - 4,695,484 - - 4,695,484
Unrealized depreciation
in investment securities - - - (3,975,318) - (3,975,318)
-------- ----------- ----------- ----------- ----------- -----------
Balance - December 1994 $477,250 $12,757,715 $33,664,076 $(2,866,479) $(1,101,084) $42,931,478
======== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
65
FINANCIAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net income $ 4,695,484 $ 5,261,154 $ 5,083,572
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses and losses on
other real estate (500,000) 289,450 829,799
Depreciation 712,371 665,166 798,768
Net accretion of discounts on investment securities (194,958) (380,514) (663,586)
Deferred income taxes (benefit) 108,307 (60,000) (115,000)
Net gain on sale of equipment and other real estate (150,195) (70,022) (57,816)
Accretion of excess book value over cost of
bank shares purchased (12,182) (12,184) (12,184)
Proceeds on sales of trading securities -- -- 2,022,500
Purchases of trading securities -- -- (2,013,437)
Gain on sale of securities (29,136) (1,224,853) (1,083,483)
Change in accrued interest on loans and (988,237) 188,648 560,930
investment securities
Change in other assets (249,489) (130,808) (188,971)
Change in accrued interest payable 422,962 (13,772) (234,476)
Change in income taxes payable or refundable (117,366) (226,577) 42,967
Change in other liabilities 90,883 (96,855) 10,851
------------- ------------- -------------
Net cash provided (used) by operating activities 3,788,444 4,188,833 4,980,434
------------- ------------- -------------
Cash flows from investing activities:
Increase in interest-bearing deposits -- -- (500,000)
Proceeds from sale and maturities of 49,577,609 91,917,015 69,448,748
investment securities
Purchases of investment securities (90,284,251) (93,004,061) (71,890,051)
Change in Federal funds sold 14,040,000 (11,325,000) (5,750,000)
Change in net loans 12,671,280 (21,195,274) (3,955,647)
Proceeds from sale of bank premises and equipment 40 9,864 829,239
Purchases of bank premises and equipment (1,245,322) (847,328) (832,371)
Proceeds from sale of other real estate 490,000 129,905 316,500
------------- ------------- -------------
Net cash provided (used) by investing activities (14,750,644) (34,314,879) (12,333,582)
------------- ------------- -------------
Cash flows from financing activities:
Change in deposits 19,902,671 13,103,936 13,603,401
Net borrowings (payments) of other borrowed money (4,059,472) 5,983,528 (736,594)
Dividends paid (214,364) (107,182) (80,387)
------------- ------------- -------------
Net cash provided (used) by financing activities 15,628,835 18,980,282 12,786,420
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 4,666,635 (11,145,764) 5,433,272
Cash and cash equivalents - beginning of year 12,538,311 23,684,075 18,250,803
------------- ------------- -------------
Cash and cash equivalents - end of year $ 17,204,946 $ 12,538,311 $ 23,684,075
============= ============= =============
Supplementary disclosures of cash flowsinformation:
Cash paid during the year for:
Interest $ 8,646,355 $ 7,266,772 $ 9,148,302
Income taxes 1,468,330 2,352,453 2,144,189
F-6
66
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Financial Investment
Corporation ("the Corporation") conform with generally accepted
accounting principles and practices within the banking industry. The
policies that materially affect financial position and the results of
operations are summarized as follows:
a. Basis of presentation - The consolidated financial statements
include the accounts of the Corporation and its wholly-owned
subsidiary, First National Bank of Springdale ("the Bank"). All
material intercompany accounts and transactions have been
eliminated in consolidation.
b. Cash and cash equivalents - For purposes of reporting cash
flows, cash and cash equivalents includes cash on hand and
amounts due from banks.
c. Investment securities - Effective January 1, 1994, the
Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS
115, requires that debt and equity securities be classified into
three categories: securities held as trading securities,
securities which are available-for-sale and securities being
held-to-maturity. Securities classified as trading securities
are reported at fair value, with unrealized gains and losses
included in earnings. Securities classified as available-for-
sale are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate
component of stockholders' equity. Securities classified as
held-to-maturity are reported at amortized cost. On January 1,
1994, the fair value of the Bank's available-for-sale securities
exceeded their amortized cost by $1,680,060. This unrealized
gain, net of an estimated income tax effect, is reflected as an
adjustment of stockholders' equity in the accompanying financial
statements.
d. Loans and reserve for loan losses - Loans are stated at the
amount of unpaid principal, reduced by unearned discounts and
the reserve for loan losses. Unearned discounts on installment
loans are recognized as income over the terms of the loans by
the Rule of 78's interest method. Interest on other loans is
calculated by using the simple interest method on daily balances
of the principal amount outstanding.
The reserve for loan losses is established through a
provision for loan losses charged to expenses. Loans are
charged against the reserve for loan losses when management
believes that the collectibility of the principal is unlikely.
The reserve 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. For income tax purposes,
the Bank provides the maximum addition to the reserve for loan
losses allowable under the applicable tax laws.
e. Bank premises and equipment - Bank premises and equipment are
stated at cost, less accumulated depreciation. Depreciation is
provided over the estimated useful lives of the related assets,
primarily by
F-7
67
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. Summary of Significant Accounting Policies (cont.)
the straight-line method for book purposes and accelerated
methods for tax purposes.
f. Property acquired through foreclosure - Real estate and other
property acquired through foreclosure is reported at the lower
of cost or estimated realizable value. During the years ended
December 31, 1994, 1993 and 1992, the Bank acquired $249,051 and
$129,450 and $359,800, respectively, of other real estate as a
result of foreclosing on past due loans. Foreclosed properties
in the amounts of $ -0- in 1994 and $90,000 in 1993 are included
in other assets.
g. Income taxes - The Corporation utilizes the liability method in
accounting for income taxes. Deferred income taxes are reported
for temporary differences between items of income or expense
reported in the financial statements and those reported for
income tax return purposes. These differences relate primarily
to depreciation of bank premises and equipment, provisions to
the reserve for loan losses and contributions to the defined
benefit plan.
F-8
68
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
2. Investment Securities
At December 31, 1994, 1993 and 1992, the amortized cost and
estimated market values of investment securities were as follows:
1994
------------------------------------------------------
Amortized Unrealized Unrealized Market
Available-For-Sale Cost Gains Losses Value
---- ----- ------ -----
Securities
United States treasury
securities $ 91,550,065 $ 45,246 $ (2,968,124) $ 88,627,187
Securities of United States
government agencies 19,219,407 18,916 (403,389) 18,834,934
Other securities 27,821,453 31,782 (1,274,398) 26,578,837
------------- --------- ------------ -------------
Total available-for-sale
securities 138,590,925 95,944 (4,645,911) 134,040,958
------------- --------- ------------ -------------
Held-to-Maturity Securities
Obligations of states and
political subdivisions 38,541,344 285,080 (1,793,573) 37,032,851
Total held-to-maturity
securities 38,541,344 285,080 (1,793,573) 37,032,851
------------- --------- ------------ -------------
Total investment securities $ 177,132,269 $ 381,024 $ (6,439,484) $ 171,073,809
============= ========= ============ =============
1993
--------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
United States treasury
securities $ 76,789,134 $ 929,111 $ (46,015) $ 77,672,230
Securities of United States
government agencies 10,552,873 450,603 (12,432) 10,991,044
Obligations of states and
political subdivisions 32,203,366 1,214,034 (68,446) 33,348,954
Other securities 16,656,160 353,773 (6,250) 17,003,683
------------ ----------- ----------- ------------
$136,201,533 $ 2,947,521 $ (133,143) $139,015,911
============ =========== =========== ============
F-9
69
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
2. Investment Securities (cont.)
1992
---------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Loses Value
---- ----- ----- -----
United States treasury
securities $ 60,944,366 $1,259,926 $ (1,792) $ 62,202,500
Securities of United State
government agencies 31,229,829 965,164 (125,928) 32,069,065
Obligations of states and
political subdivisions 25,174,956 690,186 (40,125) 25,825,017
Other investments 16,159,969 483,354 (25,949) 16,617,374
------------ ---------- ---------- ------------
$133,509,120 $3,398,630 $ (193,794) $136,713,956
============ ========== ========== ============
F-10
70
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
2. Investment Securities (cont.)
The amortized cost and estimated market value by contractual
maturity of investment securities classified as available-for-sale and
held-to-maturity at December 31, 1994 are shown below. Expected
maturities may differ from contractual maturities with or without call
or prepayment penalties.
Available-for-Sale Held-to-Maturity
------------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 33,029,324 $ 32,689,998 $ 2,035,933 $ 2,037,834
Due after one year
through 88,733,389 85,157,031 4,527,627 4,506,104
five years
Due after five years
through 16,158,212 15,598,929 9,498,552 9,223,187
ten years
Due after ten years 670,000 595,000 22,479,232 21,265,456
------------- ------------- ------------ ------------
Totals $ 138,590,925 $ 134,040,958 $ 38,541,344 $ 37,032,581
============= ============= ============ ============
Expected maturities for mortgage back securities were determined by
using the estimated average life of the securities based upon scheduled
maturity dates.
At December 31, 1994, the net unrealized depreciation on available-
for-sale securities was $2,866,479. The change in net unrealized
depreciation for the year ended December 31, 1994 of $3,975,318 has been
reflected as a separate line item on the statement of stockholders' equity.
Proceeds from sale of available-for-sale securities during 1994 were
$49,577,609. Gross gains of $129,965 and gross losses of $100,829 were
realized on these sales in 1994. The adjusted cost of the specific security
sold is used to compute the realized gain or loss. Proceeds from sales of
investments in debt securities during 1993 was $191,917,015. Gross gains of
$1,231,884 and gross losses of $7,031 were realized on those sales in 1993.
As required by law, investment securities carried at approximately
$36,305,000 in 1994 and $54,151,000 in 1993 were pledged to secure public
deposits and for other purposes.
F-11
71
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
3. Loans
The following is a summary of the loan portfolio by principal
regulatory categories at December 31, 1994 and 1993:
1994 1993
---- ----
Commercial, financial and agricultural $ 21,267,589 $ 35,720,650
Real estate - construction 17,832,023 16,818,068
Real estate - mortgage 81,069,005 79,739,609
Consumer 19,590,133 20,670,931
Other 286,419 196,543
------------- --------------
140,045,169 153,145,801
Unearned income (261,347) (287,627)
------------- --------------
139,783,822 152,858,174
Reserve for possible loan losses (1,688,767) (2,342,788)
------------- --------------
$ 138,095,055 $ 150,515,386
============= ==============
The outstanding balance of borrowings by officers, directors
(including a principal shareholder), and their affiliates as of
December 31, 1994 and 1993 was $2,597,002 and $2,253,994,
respectively. All loans to officers and directors of the Bank and
affiliates of such persons are, in the opinion of management, made in
the ordinary course of business at substantially the same terms,
including interest rates and collateral, as those prevailing at the
time for comparable loans of like qualities and risks of
collectibility.
Loan maturities as of December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Within one year $ 77,051,119 $ 84,088,921
One to five years 56,315,872 67,432,480
After five years 6,678,178 1,624,400
------------- -------------
$ 140,045,169 $ 153,145,801
============= =============
Loans on which the accrual of interest has been reduced or
discontinued amounted to $938,864 and $1,996,844 at December 31, 1994
and 1993, respectively.
F-12
72
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
4. Reserve for Loan Losses
A summary of transactions within the reserve for loan losses for
the years ending December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
---- ---- ----
Balance - beginning of year $2,342,788 $1,934,958 $ 1,989,538
Provision charged to operating expense (500,000) 250,000 700,000
Recoveries on loans previously charged-off 342,901 570,637 282,574
---------- ---------- -----------
2,185,689 2,755,595 2,972,112
Loans charged-off 496,922 412,807 (1,037,154)
---------- ---------- -----------
Balance - end of year $1,688,767 $2,342,788 $ 1,934,958
========== ========== ===========
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1994 and 1993 are as
follows:
1994 1993
---- ----
Land $ 1,006,250 $ 1,005,250
Buildings 5,997,472 5,174,664
Equipment 4,909,808 4,623,549
Assets owned and leased to third parties - 9,259
Construction in process - 106,729
------------ --------------
11,913,530 10,919,451
Accumulated depreciation (5,674,094) (5,212,173)
------------ -------------
$ 6,239,436 $ 5,707,278
============ =============
F-13
73
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
6. Time Deposits
Maturities of time deposits at December 31, 1994, 1993 and 1992
are as follows:
1994 1993 1992
---- ---- ----
Three months or less $ 64,101,567 $ 66,653,305 $ 67,065,148
Three through six months 40,103,491 37,132,630 35,779,777
Six through twelve months 23,469,836 19,550,216 12,993,923
Over twelve months 24,466,891 11,292,581 12,024,765
------------ ------------ ------------
$152,141,785 $134,628,732 $127,863,613
============ ============ ============
7. Income Taxes
The components of income tax expense for the years ended
December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
---- ---- ----
Current provision $1,352,820 $2,126,331 $2,187,156
Deferred provision (benefit) 108,307 (60,000) (115,000)
---------- ---------- ----------
Income taxes $1,461,127 $2,066,331 $2,072,156
========== ========== ==========
The reasons for the difference between the actual tax expense
and tax computed at the federal tax rate are as follows:
1994 1993 1992
---------------- ----------------- ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ -------- ------ -------
Tax on pre-tax income $2,093,248 34.0% $2,491,345 34.0% $2,432,948 34.0%
State income taxes, net
of federal tax benefit (38,379) (.6) 51,298 7 (296,730) (4.1)
Interest and other items
exempt from income tax (593,742) (9.6) (476,312) (6.5) (64,062) ( .9)
---------- ---- ---------- ---- ---------- ----
Income taxes $1,461,127 23.8% $2,066,331 28.2% $2,072,156 29.0%
========== ==== ========== ==== ========== ====
F-14
74
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
7. Income Taxes (cont.)
The sources of timing differences that result in deferred income
tax expense (benefit) and the tax effects of each are as follows:
1994 1993 1992
---- ---- ----
Use of accelerated depreciation for income tax $ (35,192) $(15,231) $(193,871)
purposes
Security transactions - 17,563 12,604
Provision for loan losses 191,450 (85,000) 10,113
Deferred compensation expense (17,391) (12,517) (13,800)
Benefit plan contribution 28,529 42,323 76,663
Other (59,089) (7,138) (6,709)
--------- -------- ---------
Deferred provision (benefit) $ 108,307 $(60,000) $(115,000)
========= ======== =========
Total gross deferred tax assets and gross deferred tax
liabilities at December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
Gross deferred tax assets $(1,999,320) $(431,197)
Gross deferred tax liabilities 564,139 571,197
----------- ---------
Net deferred tax (asset) liability $(1,435,181) $ 140,000
=========== =========
8. Common Stock
On February 24, 1994, the Board of Directors of the Corporation
authorized a 2-for-1 stock split, thereby increasing the number of
issued and outstanding shares to 1,909,000 which includes 122,632
shares of treasury stock, and decreasing the par value of each share
to $.25. All references in the accompanying financial statements to
the number of common shares for 1993 have been restated to reflect the
stock split.
F-15
75
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
9. Pension Plan
The Bank has a noncontributory defined benefit pension plan
covering substantially all of its employees meeting certain age and
length of service requirements. The funding policy is to make annual
contributions to the plan in amounts equal to or greater than the
actuarial minimum recommended contribution. This contribution
includes the normal funding cost for current year operations plus a
portion of the amortized funding cost of the initial accrued liability
at the date of the plan's inception.
The actuarially determined net periodic pension cost for the
years ended December 31, 1994 and 1993 is as follows:
1994 1993
---- ----
Service cost $ 173,751 $ 137,933
Interest cost 261,534 265,193
Actual return loss (gain) on assets for year (46,904) (87,305)
Net gain on all other components (183,472) (147,018)
---------- ----------
Net periodic pension cost $ 204,909 $ 168,803
======== ========
The following is a reconciliation of the actuarially determined
funding status of the plan with the amount reported in the Bank's
balance sheet as of December 31, 1994 and 1993:
1994 1993
---- ----
Fair value of plan assets $ 3,409,074 $3,118,004
Projected benefit obligation (vested benefit
obligation $3,165,229 and $2,319,286; for the
years ended December 31, 1994 and 1993,
respectively; accumulated benefit obligation
$3,187,242 and $2,329,518 for the years (4,502,324) (3,256,236)
ended December 31, 1994 and 1993,
respectively)
Unrecognized net loss 2,298,416 1,233,386
Prior service cost (70,920) -
Remaining unrecognized asset at transition (318,754) (354,171)
------------- -----------
Net asset recognized in the balance sheet $ 815,492 $ 740,983
============= ===========
The weighted-average assumed discount rate of 7% and a rate of
compensation increase of 5% were used to measure the actuarially
projected benefit obligation. The weighted-average expected long-term
rate of return on plan assets used was 9%.
F-16
76
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
10. Trust Department Assets and Income
Property, other than cash deposits, held by the Bank's trust
department in its fiduciary or agency capacities for customers is not
included in the accompanying financial statements, since such items
are not assets of the Bank. Income from trust services is recognized
on the cash basis in accordance with customary banking practice.
11. Commitments and Contingencies
a. The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure
to fluctuation in interest rates. These financial instruments
include commitments to extend credit, standby letters of credit
and interest rate caps and floors written.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit is represented by the
contractual notional amount of those instruments. The Bank has
the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. For
interest rate caps and floors, the contract or notional amounts
do not represent exposure to credit loss.
Financial instruments, whose contract amount represents
credit risk, consist of commitments to extend credit of
$29,039,385 and $24,407,250 at December 31, 1994 and 1993,
respectively.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
repayment of a fee. Since these commitments may expire without
being drawn upon, the total commitments amounts do not
necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's
credit evaluation on the counterpart. Collateral held varies
but may include account receivable, inventory, property, plant
and equipment, and income-producing commercial properties.
b. The Bank grants agribusiness, commercial and residential loans
to customers within its lending region. The Bank maintains a
limited diversified loan portfolio with a high concentration of
residential and agribusiness loans.
F-17
77
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
12. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
a. Cash and short term investments - For those short term
instruments, the carrying amount is a reasonable estimate of
fair value.
b. Investment securities - For securities held for investment
purposes, fair values are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar
securities or the carrying amount.
c. Loans - The fair value of loans is estimated by discounting the
future cash flows using the current rate at which similar loans
would be made to borrowers with similar credit ratings and for
the same remaining maturities.
d. Deposit liabilities - The fair value of demand deposits, savings
accounts and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed
maturity certificates is estimated using the rates currently
offered for deposits of similar remaining maturities.
e. Short-term borrowing - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
f. Long-term borrowing - The fair value of long-term debt is
estimated based on the current rates offered to the Corporation
for debt of the same remaining maturities.
g. Commitments to extend credit and standby letters of credit - The
fair value of commitments is based upon the remaining terms of
the agreements and the difference between current levels of
interest rates and committed rates.
F-18
78
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
12. Fair Value of Financial Instruments (cont.)
The estimated fair values of the Corporation's financial
instruments as of December 31, 1994 and 1993, are as follows:
1994 1993
---- ----
Assets
------
Cash and due from banks $ 17,204,946 $ 12,538,311
------------- -------------
Interest-bearing deposits in banks 497,750 514,755
------------- -------------
Investment securities
United States treasury securities 88,627,187 77,672,230
Securities of United States government 18,834,934 10,991,044
agencies
Obligations of state and political 37,032,851 33,348,954
subdivisions
Other investments 26,578,837 17,003,683
------------- -------------
Total investment securities 171,073,809 139,015,911
------------- -------------
Federal funds sold 3,885,000 17,925,000
------------- -------------
Loans
Commercial loans 131,951,727 144,866,632
Installments loans 7,024,557 7,431,498
------------- -------------
Net loans 138,976,284 152,298,130
------------- -------------
Total financial assets $ 331,637,789 $ 322,292,107
============= =============
F-19
79
FINANCIAL INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
12. Fair Value of Financial Instruments (cont.)
Liabilities 1994 1993
---- ----
Deposits
Demand deposits $ 45,324,940 $ 43,614,260
NOW accounts 65,038,616 67,598,187
Savings 32,813,042 29,574,533
Time deposits 151,963,939 134,961,770
------------- -------------
Total deposits 295,140,537 275,748,750
------------- -------------
Other borrowed money
Treasury, tax and loan 1,661,551 3,900,000
Repurchase agreements 3,553,922 5,073,896
Other indebtedness 47,876 352,014
------------- -------------
Total borrowed money 5,263,349 9,325,910
------------- -------------
Total financial liabilities $ 300,403,886 $ 285,074,660
============= =============
The estimated net fair value of the Bank's financial instruments
exceeded (is less than) their net carrying amount by $(451,668) in 1994 and
$4,285,750 in 1993.
Unrecognized Financial Instruments
Standby letters of credit $ 1,489,500 $ 892,500
Commitments to extend credit 23,402,795 19,571,964
Unfunded credit card loans 4,147,090 3,942,786
--------------- ---------------
Total unrecognized financial instruments $ 29,039,385 $ 24,407,250
=============== ===============
F-20
80
Financial Investment Corporation
Consolidated Balance Sheet
June 30, 1994 and 1995
Assets 1995 1994
------ ------------ ------------
Cash and due from banks $ 17,676,414 $ 13,485,662
------------ ------------
Interest-bearing deposits in banks 500,000 500,000
------------ ------------
Investment securities
United States treasury securities 74,636,443 88,563,175
Securities of United States government agencies 10,045,924 13,464,833
Obligations of states and political subdivisions 35,117,605 32,947,766
Other investments 24,764,338 24,889,140
Unrealized appreciation (depreciation) on investment securities 742,982 (1,907,637)
------------ ------------
Total investment securities 145,307,292 157,957,277
------------ ------------
Federal funds sold 7,825,000 9,565,000
------------ ------------
Loans
Commercial loans 155,754,522 141,023,126
Installment loans 6,887,015 7,385,761
------------ ------------
162,641,537 148,408,887
Reserve for loans losses (1,630,232) (2,139,426)
Unearned discounts (269,586) (268,129)
------------ ------------
Net loan 160,741,719 146,001,332
------------ ------------
Bank premises and equipment, net of accumulated depreciation 5,944,943 6,149,037
------------ ------------
Accrued interest on loans and securities 3,473,900 3,014,255
------------ ------------
Refundable income taxes 0 137,077
------------ ------------
Deferred income tax benefit 0 506,344
------------ ------------
Other assets 1,580,016 1,457,123
------------ ------------
Total assets $343,049,284 $338,773,107
============ ============
F-21
81
Liabilities and stockholders' equity 1995 1994
------------------------------------ ------------ ------------
Deposits
Demand deposits $ 45,936,139 $ 42,067,830
NOW accounts 68,282,477 71,730,259
Savings 30,599,300 32,363,676
Time deposits 141,185,504 142,116,232
------------ ------------
Total deposits 286,003,420 288,277,997
------------ ------------
Other borrowed money
Treasury, tax and loan 3,000,000 3,000,000
Repurchase agreement 3,593,800 3,755,851
Other indebtedness 46,776 48,925
------------ ------------
Total other borrowed money 6,640,576 6,804,776
------------ ------------
Accrued interest payable 1,217,258 760,927
------------ ------------
Income taxes payable 49,375 0
------------ ------------
Deferred income taxes 492,217 0
------------ ------------
Other liabilities 836,301 841,055
------------ ------------
Stockholders' equity
Common stock 477,250 477,250
Capital surplus 12,757,715 12,757,715
Retained earnings 35,185,888 31,156,282
Unrealized appreciation (depreciation) on investment securities 490,368 (1,201,811)
------------ ------------
48,911,221 43,189,436
Treasury stock, at cost (1,101,084) (1,101,084)
------------ ------------
Total stockholders' equity 47,810,137 42,088,352
------------ ------------
Total liabilities and stockholders' equity $343,049,284 $338,773,107
============ ============
F-22
82
Financial Investment Corporation
Consolidated Statements of Income
For The Three Months Ended June 30, 1994 and 1995
and The Six Months Ended June 30, 1994 and 1995
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
Interest income $3,308,736 $2,848,888 $ 6,283,711 $5,621,777
Interest and fees on loans 118,218 117,249 188,300 186,015
Interest on Federal funds
Interest and dividends on investment securities:
United States treasury securities 1,138,832 1,123,781 2,364,791 2,038,963
Securities of United States government agencies 217,524 242,068 595,027 434,491
Obligations of states and political subdivisions 509,790 453,702 1,041,069 910,957
Other securities 454,403 337,689 922,305 588,914
---------- ---------- ----------- ----------
Total interest income 5,747,503 5,123,377 11,395,203 9,781,117
---------- ---------- ----------- ----------
Interest expense
NOW accounts 600,228 448,837 1,171,146 878,875
Savings deposits 264,850 219,258 541,091 424,200
Time deposits - under $100,000 1,294,488 766,293 2,473,762 1,462,574
- over $100,000 813,646 630,001 1,668,753 1,146,616
Other interest 70,253 39,771 147,555 98,746
---------- ---------- ----------- ----------
Total interest expense 3,043,465 2,104,160 6,002,307 4,011,011
---------- ---------- ----------- ----------
Net interest income 2,704,038 3,019,217 5,392,896 5,770,106
Provision for loan losses 0 0 0 0
---------- ---------- ----------- ----------
Net interest income after provision for loan losses 2,704,038 3,019,217 5,392,896 5,770,106
---------- ---------- ----------- ----------
Other operating income
Trust division income 146,707 143,533 293,017 295,303
Service charges on deposit accounts 375,925 375,568 740,502 734,257
Other service charges and fees 161,149 310,391 284,211 518,201
Lease income 1,872 3,798 2,401 6,116
Securities gains (losses) (20,682) 11,846 172,047 9,799
Other income 3,045 3,045 6,090 6,090
---------- ---------- ----------- ----------
Total other operating income 668,016 848,181 1,498,268 1,569,766
---------- ---------- ----------- ----------
Other operating expenses
Salaries and wages 997,216 988,904 2,026,970 1,915,565
Pension and other employee benefits 293,271 215,798 530,643 414,469
Occupancy expense 86,043 77,763 178,102 157,289
Depreciation of bank premises and equipment 197,706 173,200 393,003 344,661
Other expenses 849,317 863,606 1,786,848 1,663,132
---------- ---------- ----------- ----------
Total other operating expenses 2,423,553 2,319,271 4,915,566 4,495,116
---------- ---------- ----------- ----------
Income before income taxes 948,501 1,548,127 1,975,598 2,844,756
Income taxes 158,636 428,526 346,604 764,248
---------- ---------- ----------- ----------
Net income $ 789,865 $1,119,601 $ 1,628,994 $2,080,508
========== ========== =========== ==========
F-23
83
Financial Investment Corporation
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 1994 and 1995
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Cash flows from operating activities:
Net income 1,628,994 2,080,508
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 393,003 344,661
Net accretion of discounts on investment securities (73,131) (55,459)
Deferred income taxes (benefit) (8,704) 59,482
Net gain on sale of equipment and other real estate 3,017 (10,040)
Accretion of excess book value over cost of bank shares purchased (6,090) (6,090)
Gain on sale of investment securities (172,047) (9,799)
Proceed from sale of trading securities 0 1,832,500
Purchase of trading securities 0 (1,820,938)
Change in accrued interest on loans and investment securities 111,373 (417,219)
Change in other assets 19,135 (106,984)
Change in accrued interest payable 159,537 126,168
Change in income taxes payable or refundable 148,060 (155,758)
Change in other liabilities 220,598 304,053
----------- -----------
Net cash provided (used) by operating activities 2,423,745 2,165,085
----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturities of investment securities 38,047,826 24,745,727
Purchases of investment securities (5,234,689) (48,355,412)
Change in Federal funds sold (3,940,000) 8,360,000
Change in net loans (22,678,969) 4,481,273
Proceeds from sale of bank premises and equipment 0 40
Purchases of bank premises and equipment (101,527) (786,420)
Proceeds from sale of other real estate 0 100,000
----------- -----------
Net cash provided (used) by investing activities 6,092,641 (11,454,792)
----------- -----------
Cash flows from financing activities:
Change in deposits (9,314,963) 12,862,285
Net borrowings (payments) of other borrowed money 1,377,227 (2,518,045)
Dividends paid (107,182) (107,182)
----------- -----------
Net cash provided (used) by financing activities (8,044,918) 10,237,058
----------- -----------
Net increase (decrease) in cash and cash equivalents 471,468 947,351
Cash and cash equivalents - beginning of period 17,204,946 12,538,311
----------- -----------
Cash and cash equivalents - end of period 17,676,414 13,485,662
=========== ===========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest 5,842,770 3,884,843
Income taxes 207,248 846,510
F-24
84
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 21ST DAY OF FEBRUARY, 1995
BY AND BETWEEN
FIRST TENNESSEE NATIONAL CORPORATION
AND
FINANCIAL INVESTMENT CORPORATION
85
TABLE OF CONTENTS
-----------------
PAGE
----
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
1.2 Conversion of FIC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
1.3 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
1.4 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
ARTICLE II
ACTIONS PENDING MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6
ARTICLE IV
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
ARTICLE V
CONDITIONS TO CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
ARTICLE VI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
ARTICLE VII
EFFECTIVE DATE AND EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
ARTICLE VIII
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
86
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 21st day of February,
1995, by and between FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), a Tennessee
corporation, and FINANCIAL INVESTMENT CORPORATION ("FIC"), an Arkansas
corporation.
RECITALS
1. 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 Two
and 50/100 Dollars ($2.50) per share ("FTNC Common Stock"), of which 32,768,938
shares are outstanding as of January 31, 1995, 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).
2. FIC; FIRST NATIONAL BANK. FIC has been duly incorporated and is
an existing corporation in good standing under the laws of the State of
Arkansas, with its principal executive offices located in Springdale, Arkansas.
As of the date hereof, FIC has 2,000,000 authorized shares of common stock, par
value $0.25 per share ("FIC Common Stock"), of which 1,786,368 shares are
outstanding as of the date hereof (no other class of capital stock being
authorized). FIC owns all of the issued and outstanding common stock of First
National Bank of Springdale, Arkansas ("First National Bank").
3. RIGHTS, ETC. Neither FTNC, FIC nor First National Bank 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, 1989, between
FTNC and First Tennessee Bank National Association, as Rights Agent (the "FTNC
Rights Agreement"); (ii) for securities issued by FTNC in connection with
acquisitions by FTNC of other entities; and (iii) as set forth on EXHIBIT "A"
hereto (as to FTNC) and EXHIBIT "B" hereto (as to FIC) and First National Bank.
4. INTENTION OF THE PARTIES. It is the intention of the parties to
this Agreement that the Merger 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").
5. MATERIALITY. Unless the context otherwise requires, any reference
in this Agreement to materiality shall, as to FIC, be deemed to be with respect
to FIC 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 FIC 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
87
ARTICLE I
THE MERGER
1.1 THE MERGER. On the Effective Date (as defined in Article VII),
FIC 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 Corporations Act. At the
Effective Time (as defined in Article VII), 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.
1.2 CONVERSION OF FIC 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 FIC 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 FIC, 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:
(a) FIC Common Stock Shares. Each share of FIC 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 a
conversion ratio (the "Conversion Number") determined as follows:
(i) if the FTNC Common Stock Average Price (hereafter
defined) is Thirty-Four Dollars ($34.00) or greater, the
Conversion Number will be equal to the quotient of (y) the
quotient of (1) Seventy Million Dollars ($70,000,000.00)
divided by (2) the FTNC Common Stock Average Price, divided by
(z) 1,786,368 (the issued and outstanding shares of FIC);
provided, however, if the FTNC Common Stock Average Price is
greater than Forty-Nine Dollars ($49.00), FIC shall have the
right to terminate this Agreement as provided in Section 6.4;
and
(ii) if the FTNC Common Stock Average Price is less than
Thirty-Four Dollars ($34.00), the Conversion Number will be
equal to 1.1525192; provided, however, if the FTNC Common
Stock Average Price is less than Thirty-Four Dollars ($34.00),
FIC shall have the right to terminate this Agreement as
provided in Section 6.4.
The FTNC Common Stock Average Price shall be equal to the average of
the closing prices per share of the FTNC Common Stock as reported on
The Nasdaq Stock Market's National Market System during the
Calculation Period. The Calculation Period shall consist of the
twenty (20) business days immediately prior to the business day
preceding the Effective Date (not including the Effective Date). For
purposes of this Section 1.2, a "business day" shall be a day on which
The Nasdaq Stock Market is generally open for trading.
(b) FTNC Common Stock Shares. Each share of FTNC Common Stock
issued and outstanding at the Effective Time [other than (x) shares,
if any, held directly or indirectly by FIC (or any FIC 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.
A-2
88
(c) Change In FTNC Common Stock Shares. 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 different number or class of shares by reason
of any reclassification, recapitalization, stock split or reverse
stock split, split-up or if a stock dividend thereon shall be declared
with a record date within such period, or other like changes in FTNC's
capitalization shall have occurred, the terms and provisions of
Sections 1.2(a) and 6.4 shall be adjusted accordingly.
1.3 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 FIC Common Stock exchanged pursuant
to this Agreement who would otherwise be entitled to a fractional share an
amount in cash determined by multiplying such holder's fractional interest by
the FTNC Common Stock Average Price (rounded to the nearest cent).
1.4 PROCEDURES.
(a) EXCHANGE OF CERTIFICATES. Certificates which represent shares of
FIC 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.
(b) SURRENDER OF CERTIFICATES. As promptly as practicable after the
Effective Date, FTNC shall send to each holder of record of shares of FIC
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 FIC 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. FTNC will instruct the Exchange Agent to deliver the
FTNC Common Stock to the exchanging FIC shareholders promptly following receipt
by the Exchange Agent of the surrendered Certificates and all required
documents. 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.
(c) FTNC SHAREHOLDERS: RIGHTS AND DIVIDENDS/DISTRIBUTIONS. No
holder of FIC 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 FIC of shares of FIC 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 FIC,
they shall be cancelled and exchanged for the shares of FTNC Common Stock
deliverable in respect thereof as
A-3
89
determined in accordance with the provisions of Section 1.2 and in accordance
with the procedures set forth in this Section 1.4(c).
(d) FIC SHAREHOLDERS: RIGHTS. After the Effective Time, holders of
FIC Common Stock shall cease to be, and shall have no rights as, stockholders
of FIC, other than to receive shares of FTNC Common Stock into which such
shares have been converted or fractional share payments pursuant to this
Agreement.
(e) LIABILITY TO FORMER FIC SHAREHOLDERS. Notwithstanding the
foregoing, neither FTNC nor FIC nor any other person shall be liable to any
former holder of shares of FIC Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(f) CERTIFICATE REPLACEMENT. 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 Common Stock and the fractional
share payment, if any, deliverable in respect thereof as determined in
accordance with Section 1.3.
ARTICLE II
ACTIONS PENDING MERGER
Prior to the earlier of the Effective Time or termination of this
Agreement by either party under Article VI,
2.1 FIC STOCK; OTHER FIC MERGERS/CONSOLIDATIONS. Without the prior
written consent of FTNC, FIC will not:
(a) (y) make, declare or pay any dividend on FIC Common Stock
provided that (i) if the Merger is not consummated by the date that
will allow exchanging shareholders of FIC to receive the FTNC dividend
payable on July 1, 1995, FIC will have the right to pay prior to the
Effective Date up to One Hundred Seven Thousand One Hundred Eighty-Two
and 08/100 Dollars ($107,182.08) in dividends for the period ending
June 30, 1995; and (ii) if the Merger is not consummated by the date
that will allow exchanging shareholders of FIC to receive the FTNC
dividend payable on October 1, 1995, FIC will have the right to pay
prior to the Effective Date a dividend up to the lesser of (1) Seven
Hundred Fifty Thousand Dollars ($750,000.00) or (2) the product of (A)
eighty percent (80%) of FIC's net income for the period of July 1,
1995 through September 22, 1995, multiplied by (B) 1.0952, or (z)
(except as provided in the immediately preceding clause (y)) declare
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 FIC's capital
stock, or any options, calls or commitments relating to its 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 capital stock or the capital stock of any
subsidiary; and/or
(b) merge or consolidate or permit any subsidiary to merge or
consolidate with any other entity or engage in any similar transaction
or sell or otherwise dispose of the stock of First National Bank.
2.2 FIC OPERATIONS. Without the prior written consent of FTNC, which
consent will not be unreasonably withheld, FIC will not and will not permit any
subsidiary to:
A-4
90
(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, or enter into any employment
contracts with any persons;
(b) 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;
(c) except as contemplated by Section 4.13, 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;
(d) except for transactions 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;
(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 in whole or in
part of indebtedness owed FIC) any assets or business that is material
to such party;
(f) except in the ordinary course of its banking business, enter into
off-balance sheet transactions;
(g) take any other action not in the ordinary course of business of
it or its subsidiaries;
(h) make any negative provision to the reserve for possible loan
losses of First National Bank unless required by a regulatory
authority having jurisdiction; or
(i) directly or indirectly agree to take any of the foregoing actions.
2.3 FIRST NATIONAL BANK DIVIDENDS. Immediately prior to the
Effective Time, FIC shall cause First National Bank to declare and pay a
dividend to FIC at such time and in such amount as shall be requested by FTNC.
FIC shall take and shall cause First National Bank to take all appropriate and
necessary steps, including without limitation, obtaining the requisite approval
from the Office of the Comptroller of the Currency, for the declaration and
payment of such dividend. First National Bank also may pay dividends to FIC to
enable FIC to make the dividend payments permitted under Section 2.1.
2.4 LIMITATION ON FTNC PURCHASE OF FTNC COMMON STOCK. Neither FTNC
nor any affiliated purchaser as defined by Rule 10b-6 under the Securities
Exchange Act of 1934, as amended, will purchase any FTNC Common Stock that is
prohibited by Rule 10b-6 during the Calculation Period; provided, however, that
this provision shall not prohibit or limit purchases of FTNC Common Stock made
in the ordinary course by an independent agent for any employee benefit plan,
stock reinvestment plan or similar plan for employees or shareholders of FTNC
or its subsidiaries.
A-5
91
ARTICLE III
REPRESENTATIONS AND WARRANTIES
FTNC represents and warrants to FIC, and FIC represents and warrants
to FTNC, that, except as previously disclosed in a letter of FTNC or FIC,
respectively, of even date herewith delivered to the other party or in the
Exhibits attached hereto:
3.1 RECITALS OF FACT. The facts set forth in the Recitals of this
Agreement with respect to it are true and correct.
3.2 CAPITAL STOCK SHARES. The outstanding shares of capital stock of
it and as to FIC, its subsidiaries, and as to FTNC, 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.
3.3 JURISDICTIONAL POWER AND AUTHORITY. Each of it and as to FIC,
its subsidiaries, and as to FTNC, its Significant Subsidiaries (EXHIBIT 3.3(A))
hereto in the case of FTNC sets forth a list of its Significant Subsidiaries
and EXHIBIT 3.3(B) hereto in the case of FIC sets forth a list of its
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.
3.4 CAPITAL STOCK SHARES. The shares of capital stock as to FIC, of
each of its subsidiaries and as to FTNC, 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.
3.5 VALIDITY OF AGREEMENT. Subject in the case of FIC 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, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
3.6 BREACHES OR VIOLATIONS. 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 (a) 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, will have a Material Adverse Effect, or enable any person to
enjoin any of the transactions contemplated hereby or (b) a breach or violation
of, or a default under, the certificate or articles of incorporation or bylaws
of it or as to FIC, any of its subsidiaries, or as to FTNC, 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
A-6
92
required approvals of applicable regulatory authorities referred to in Sections
5.1(b) and (c) and the approval of shareholders of FIC referred to in Section
3.5 and other than any consents and approvals the absence of which will not
have a Material Adverse Effect.
3.7 STATEMENTS OF MATERIAL FACT. In the case of FTNC, as of their
respective dates, its Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and 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 FIC, its audited financial statement for the year ended December
31, 1994 (collectively the "Reports") did not contain any untrue statement of a
material fact or omit 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. 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 Form 10-Q filed with the SEC as to FTNC and
since the date of its Reports as to FIC, 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 singly or in the aggregate have a Material Adverse Effect.
3.8 FINANCIAL CONDITION. 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.
3.9 TAXES; TAX RETURNS; TAX LIABILITIES. 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 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.
A-7
93
3.10 PENDING LITIGATION AND/OR OTHER BINDING AGREEMENTS.
(a) PENDING LITIGATION. Except as disclosed in EXHIBIT 3.10(A) as to
FTNC or EXHIBIT 3.10(B) as to FIC hereto, no 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 Chief Executive Officer 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 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
(b) BINDING AGREEMENTS. 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.
3.11 MATERIAL CONTRACTS. Except as disclosed in EXHIBIT 3.11(A)
hereto in the case of FTNC and EXHIBIT 3.11(B) hereto in the case of FIC and
except for this Agreement and arrangements made in the ordinary course of
business, neither it and nor any of subsidiaries are 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;
3.12 EMPLOYEE BENEFIT PLANS. All "employee benefit plans," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), that cover as to FIC, its or any of its subsidiaries, employees or as
to FTNC, 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 on FIC or FTNC; neither
it nor as to FIC, any of its subsidiaries, or as to FTNC, 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 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 thirty (30) day reporting requirement has not been
waived has been required to be filed for any
A-8
94
Pension Plan within the twelve (12) month period ending on the date hereof;
neither it nor as to FIC, any of its subsidiaries, or as to FTNC, 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; as to FIC, it and
its subsidiaries and as to FTNC, 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 as to FIC, it or its subsidiaries and as to
FTNC, it and its Significant Subsidiaries do not have any obligations for
retiree health and life benefits under any benefit plan, contract or
arrangement.
3.13 TITLE TO PROPERTY. Except as set forth in EXHIBIT 3.13 for FIC,
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 on it.
3.14 REGULATORY APPROVALS. It knows of no reason why the regulatory
approvals referred to in Sections 5.1(b) and (c) should not be obtained without
the imposition of any condition of the type referred to in the proviso following
such Sections 5.1(b) and (c).
3.15 LOAN RESERVE. As to FTNC, its reserve for possible loan losses
as shown in its Report for the fiscal year ended December 31, 1993, and as to
FIC its reserve for possible loan losses as shown in its Report for the fiscal
year ended December 31, 1994, was adequate in all material respects under GAAP
applicable to banks and bank-holding companies and safe and sound banking
practices.
3.16 PERMITS, ETC. AND FILINGS, ETC. It and as to FIC each of its
subsidiaries, and as to FTNC each of its Significant 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.
3.17 CAPITAL STOCK SHARES. 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.
3.18 COLLECTIVE BARGAINING. 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.
3.19 BROKER/FINDER FEES. Except for services performed by Southard
Finance for FIC, 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;
3.20 UNTRUE STATEMENTS. 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,
A-9
95
registering the FTNC Common Stock to be issued to the shareholders of FIC in
the Merger (the "Registration Statement"), or (2) the proxy statement to be
distributed in connection with FIC's 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.
3.21 ENVIRONMENTAL LAW VIOLATIONS.
(a) DEFINITIONS. For purposes of this section, the following terms
shall have the indicated meanings:
"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 (a) 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 (b) 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 now or previously owned or operated by FTNC or FIC or
any of their subsidiaries including properties owned or operated in a
fiduciary capacity.
(b) VIOLATIONS BY CORPORATE/SUBSIDIARY. Neither it nor any of its
subsidiaries have 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.
(c) VIOLATIONS BY LOAN PORTFOLIO PROPERTIES AND OTHER PROPERTIES
OWNED. None of the Loan Portfolio Properties and Other Properties Owned by it
or its subsidiaries have been or are in violation of or liable under any
Environmental Law, except any such violations or liabilities which singly or in
the aggregate will not have a Material Adverse Effect; and
A-10
96
(d) PENDING LIABILITY. 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 or result in a Material
Adverse Effect.
ARTICLE IV
COVENANTS
FTNC hereby covenants to FIC, and FIC hereby covenants to FTNC, that:
4.1 BEST EFFORTS. 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 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.
4.2 SHAREHOLDERS' MEETING AND APPROVAL. In the case of FIC, it shall
(a) 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; (b) recommend to its shareholders that they
approve this Agreement and use its best efforts to obtain such approval; (c)
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 (d) cooperate and
consult with FTNC with respect to each of the foregoing matters.
4.3 PREPARATION/FILING OF PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT. 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.
4.4 EFFECTIVE TIME OF REGISTRATION STATEMENT; STOP ORDERS, ETC. In
the case of FTNC, it will advise FIC, 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.
4.5 BLUE SKY PERMITS. In the case of FTNC, it shall use its
reasonable 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.
4.6 PRESS RELEASES. 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.
4.7 COPIES OF WRITTEN COMMUNICATIONS. 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
A-11
97
delivered by any of the foregoing to, any governmental body or agency in
connection with or material to the transactions contemplated hereby.
4.8 ACCESS TO CORPORATE INFORMATION.
(a) ACCESS TO CORPORATE RECORDS. 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 as to FIC, it shall cause each of its subsidiaries and as to FTNC, 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, 1993; 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 Section 4.8 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.
(b) INFORMATION PROVIDED TO ANY GOVERNMENTAL BODY OR AGENCY. 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, FIC 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
(c) PROHIBITED USE AND CONFIDENTIALITY OF INFORMATION. It will not
use any information obtained pursuant to this Section 4.8 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 Section 4.8 in confidence unless and until such time as such information
or documents otherwise become publicly available 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.
4.9 INFORMATION DISCLOSURE: PROHIBITION. As to FIC, neither it nor
any of its subsidiaries shall solicit or knowingly encourage inquiries or
proposals with respect to, or 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 this Agreement, and it shall instruct its
officers, directors, agents, advisors and affiliates to comply with the above.
FIC agrees that it shall notify FTNC immediately if any inquiries or proposals
as described in this Section 4.9 are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated with, FIC or any of its subsidiaries.
4.10 MATERIAL ADVERSE EFFECT. It shall notify the other party hereto
as promptly as practicable of (a) 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 (b) any change in its condition (financial
A-12
98
or otherwise), properties, business, results of operations or prospects (in its
marketplace or with respect to its existing customers) that could have a
Material Adverse Effect.
4.11 FILINGS, ETC. 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.
4.12 INFORMATION SUBMITTED TO THIRD PARTIES. It shall (a) 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 (b) 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.
4.13 POLICIES AND PRACTICES: CONFORMITY. At or immediately prior to
the Closing, FIC 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 FIC shall not be
obligated to take any such action pursuant to this Section 4.13 unless and until
FTNC certifies that all conditions to its obligation to consummate the Merger
have been satisfied, the Merger will be consummated and the date of the
consummation of the Merger. Not later than three (3) weeks prior to the
Effective Date, FTNC will notify the Office of the Comptroller of the Currency
of any increase to be made in First National Bank's loan loss provision pursuant
to this Section.
4.14 INDEMNIFICATION.
(a) COOPERATIVE DEFENSE. 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 FIC 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
or thereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their best
efforts to defend against and respond thereto. It is understood and agreed
that FTNC shall indemnify and hold harmless, as and to the fullest extent
permitted by applicable law, each such Indemnified Party against any losses,
claims, 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):
A-13
99
(i) Expenses. 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) Counsel. 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, FIC 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.
(iii) Best Efforts; Liability. 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 Section 4.14
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 Section 4.14 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 FIC or any Indemnified Party.
(b) SURVIVAL OF MERGER; LENGTH OF TERM. FTNC and FIC agree that all
rights to indemnification and all limitations of liability existing in favor of
the Indemnified Parties as provided in FIC's 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, except for claims for which the applicable statute of
limitations is five (5) years as to which the indemnification provisions of
this Section 4.14(b) shall survive for five (5) years, 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.
(c) BINDING EFFECT. This Section 4.14 is intended to benefit the
Indemnified Parties and shall be binding on all successors and assigns of FTNC.
(d) ASSUMPTION OF OBLIGATIONS. 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
A-14
100
person, 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 Section
4.14.
4.15 WRITTEN UNDERTAKINGS. In the case of FIC, it shall use its best
efforts to cause each person who is on the date hereof an "affiliate" of FIC
(for purposes of Rule 145 under the Securities Act) to execute and deliver to
FTNC the written undertakings in substantially the form attached hereto as
EXHIBIT 4.15 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.
4.16 REASONABLE DISPATCH. It shall not take or agree or commit to
take any action which would cause it to be unable to consummate the Merger with
reasonable dispatch, unless such action, agreement or commitment is otherwise
required by law, rules or regulations.
4.17 REGULATORY APPROVAL. It shall not take any action unless
otherwise required by law, rules or regulations, that would materially adversely
affect the ability of either party or any of its subsidiaries to obtain any
necessary approval of regulatory authorities required for the consummation of
the Merger without imposition of a condition or restriction of the type referred
to in Sections 5.1(b) and (c).
ARTICLE V
CONDITIONS TO CONSUMMATION
5.1 CONDITIONS. The respective obligations of FTNC and FIC to effect
the Merger shall be subject to the satisfaction prior to the Effective Time of
the following conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved by the requisite vote of the shareholders of FIC in
accordance with applicable law;
(b) 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;
(c) 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 Sections 5.1(b) and
(c) 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 or FIC (as
to any condition or requirement which directly adversely affects the
shareholders of FIC) would not have entered into this Agreement had
such conditions or requirements been known at the date hereof;
(d) the satisfaction of all other requirements prescribed by law
which are necessary to the consummation of the transactions
contemplated by this Agreement;
(e) 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;
(f) no statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any
governmental authority which prohibits, restricts or makes illegal
consummation of the Merger or which imposes restrictions, conditions
or requirements on
A-15
101
consummation of the Merger which would reduce the benefits of the
Merger to such a degree that FTNC or FIC (as to any restriction,
condition or requirement which directly adversely affects the
shareholders of FIC) would not have entered into this Agreement had
such conditions or requirements been known at the date hereof;
(g) 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
(h) Baker, Donelson, Bearman & Caldwell shall have delivered its
opinion dated as of the Effective Date, substantially in the form of
EXHIBIT "C" attached hereto.
5.2 ADDITIONAL CONDITIONS. The obligation of FTNC to effect the
Merger shall be subject to the satisfaction prior to the Effective Time of the
following additional conditions:
(a) FTNC and its directors and officers who sign the Registration
Statement shall have received from FIC's independent certified public
accountants "cold comfort" letters, dated (i) the date of the mailing
of the Proxy Statement/Prospectus to FIC's shareholders and (ii)
shortly prior to the Effective Date, with respect to certain financial
information regarding FIC in the form reasonably acceptable to FTNC;
(b) FTNC shall have received an opinion, dated the Effective Date, of
FIC's counsel substantially in the form of EXHIBIT "D" attached
hereto;
(c) each of the representations, warranties and covenants contained
herein of FIC, subject to the disclosure letter of FIC 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 would not have a Material Adverse Effect,
and (z) as to representations, warranties or covenants contained
herein of FIC 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 Chief Executive Officer of FIC,
dated the Effective Date, to such effect. Any effect on FIC as a
result of action taken by FIC pursuant to Section 4.13 shall be
disregarded for purposes of determining the truth or correctness of
any representation or warranty of FIC and for purposes of determining
whether any conditions are satisfied;
(d) FTNC shall have received all state securities laws and "Blue Sky"
permits and other authorizations necessary to consummate the
transactions contemplated hereby;
(e) no litigation or proceeding is pending which (i) has been brought
against FTNC or FIC 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 FIC will have a Material Adverse Effect on FIC;
and
(f) on the Effective Date FIC's 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 FIC's prior practices; (ii) Transaction Expenses (as defined in
Section 8.6); (iii) adjustments under Section 4.13; and (iv) other
expenses or obligations incurred in connection with the Merger,
including, but not limited to, accrual for or payment of severance
benefits,
A-16
102
prepayment of certain employee benefits and other transactions or
expenses approved by FTNC) shall not be less than $46,750,000,
increased by an amount equal to any negative provision to the reserve
for possible loan losses.
(g) the payment of a dividend by First National Bank to FIC pursuant
to Section 2.3 hereof.
(h) the completion of environmental surveys of the main office
property at 100 W. Emma Avenue, Springdale, Arkansas, as well as of
other sites identified by FTNC in a written notice to FIC delivered
within twenty-one (21) days from the date of this Agreement (the cost
of such surveys to be paid by FTNC), and such surveys do not indicate
the existence of or reasonable possibility of a breach of Section 3.21
hereof.
5.3 ADDITIONAL CONDITIONS. The obligation of FIC to effect the
Merger shall be subject to the satisfaction or prior to the Effective Time of
the following additional conditions:
(a) FIC shall have received an opinion, dated the Effective Date, of
FTNC's counsel substantially in the form of EXHIBIT "E" attached
hereto;
(b) 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 would not have a Material Adverse Effect
and (z) as to representations, warranties or covenants contained
herein of FTNC which do not specifically refer to Material Adverse
Effect, for breaches which are not material and FIC shall have
received a certificate signed by the Chief Executive Officer or Chief
Financial Officer of FTNC, dated the Effective Date, to such effect;
and
(c) no litigation or proceeding is pending which (i) has been brought
against FTNC or FIC 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 will have a Material Adverse Effect on FTNC.
ARTICLE VI
TERMINATION
This Agreement will be terminated as set forth in Section 6.2(a)and
this Agreement may be terminated prior to the Effective Date, either before or
after its approval by the stockholders of FIC:
6.1 MUTUAL MAJORITY VOTE. By the mutual consent of FTNC and FIC, if
the Board of Directors of each so determines by vote of a majority of the
members of its entire Board.
6.2 NONAPPROVAL OF AGREEMENT BY FIC SHAREHOLDERS.
(a) In the event of the failure of the shareholders of FIC to approve
this Agreement by the requisite vote at its meeting called to consider
such approval, this Agreement shall terminate automatically; or
(b) By FTNC or FIC, if its Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event of a
breach by the other party hereto of any representation, warranty
A-17
103
or agreement contained herein which is not cured or not curable within
sixty (60) days after written notice of such breach is given to the
party committing such breach by the other party hereto which have or
will have had a Material Adverse Effect on the breaching party.
6.3 DELAYED MERGER CONSUMMATION. By FTNC or FIC, 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 October 1, 1995,
unless the failure to so consummate by such time is due to the breach of this
Agreement by the party seeking to terminate.
6.4 FTNC COMMON STOCK AVERAGE PRICE: LOWER VALUE. By FIC, 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 Thirty-Four
Dollars ($34.00) or greater than Forty-Nine Dollars ($49.00) per share by
written notice to FTNC delivered not later than the close of business on the
business day preceding the Effective Date.
6.5 ACQUISITION OF FTNC. By FIC, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event that prior to the Effective Date, FTNC enters into a letter of intent or
comparable document or a definitive purchase and sale agreement to be acquired
by another Person (hereafter defined) or another Person publicly announces the
intent to acquire 25% or more of the outstanding equity securities of FTNC
whether by tender offer or otherwise or FTNC enters into a letter of intent or
comparable document or a definitive merger agreement in which FTNC is not the
surviving corporation.
6.6 LIQUIDATED DAMAGES. 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, FIC will pay to FTNC liquidated damages in the amount of $3,500,000.
For purposes of this Section 6.6, 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:
(a) FIC 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 FIC shall have recommended that the stockholders of FIC 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 FIC or
any of its subsidiaries, (y) a purchase, lease or other acquisition of
all or any substantial part of the assets of FIC or any of its
subsidiaries or (z) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or otherwise) for value of
securities representing 10% or more of the voting power of FIC. 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;
(b) Any person [other than (i) FTNC, a subsidiary of FTNC or
any fiduciary acting under any employee benefit plan for FTNC or any
of its subsidiaries or (ii) any natural person who or not-for-profit
charitable organization which acquires ownership or beneficial
ownership by or through a transfer made without consideration or
value] shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of the FIC 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);
A-18
104
(c) Any person (other than FTNC or a subsidiary of FTNC)
shall have made a proposal (in writing or orally) to FIC or any one or
more of its shareholders owning 10% or more (singly or in the
aggregate) of the outstanding shares of FIC Common Stock that results
in or is a part of an Acquisition Transaction;
(d) After a proposal is made by any person (other than FTNC
or a subsidiary of FTNC) to FIC or its stockholders to engage in an
Acquisition Transaction, FIC 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 after written notice; or
(e) 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 and which results in an
Acquisition Transaction.
"Subsequent Triggering Event" shall mean either of the following
events or transactions occurring after the date hereof:
(1) Other than by or through a transfer made without
consideration or value to a natural person or not-for-profit
charitable organization, the acquisition by any person of beneficial
ownership of 25% or more of the then outstanding FIC Common Stock; or
(2) The occurrence of the Initial Triggering Event described
in clause (1) of the definition of "Initial Triggering Event" of this
Section 6.6, 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.
FIC shall notify FTNC promptly in writing of the occurrence of any
Initial Triggering Event and of any Subsequent Triggering Event.
6.7 POST-TERMINATION LIABILITY. Subject to the provisions of Section
8.2, in the event of the termination of this Agreement by either FTNC or FIC,
as provided above, this Agreement shall thereafter become void and there shall
be no liability on the part of any party hereto under this Agreement 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.
ARTICLE VII
EFFECTIVE DATE AND EFFECTIVE TIME
Unless otherwise mutually agreed, subject to satisfaction or waiver of
the provisions of Article V hereof and expiration of all applicable waiting
periods in connection with governmental approvals, effective September 30,
1995, a certificate of merger or articles of merger, as appropriate, shall have
been executed in accordance with all appropriate legal requirements and shall
be filed as required by law, and the Merger
A-19
105
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 5:00 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
8.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings indicated except where otherwise specifically
defined:
(a) "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 (in its marketplace or with respect
to its existing customers) of such person and its subsidiaries, taken
as a whole, except as may have resulted or may result from changes to
laws of the United States or regulations of federal bank or bank
holding company regulators or changes in national economic conditions
applicable to banking institutions generally or in national general
levels of interest rates that affect it 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 FIC in Sections 3.21(a), (b), (c) and (d), 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 FIC is or may be subject under
Environmental Laws as a result of any one or more breaches of such
representations and warranties exceed $600,000 in the aggregate
calculated on a pre-tax basis and as to all other representations,
warranties and covenants of FIC, a Material Adverse Effect shall have
occurred if the actual or reasonably projected costs of all losses,
fines, penalties, costs or expenses (including attorneys' fees) as a
result of any one or more breaches of such representations, warranties
and covenants exceed $400,000 in the aggregate calculated on a pre-tax
basis.
(b) "Person" includes an individual, corporation, partnership,
limited liability company, association, trust or unincorporated
organization.
8.2 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 Section 4.8(c), in Section 6.5 and Sections 8.6
and 8.7 shall survive such termination.
8.3 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 and as to FIC approved by its Boards of Directors (to the
extent allowed by law), except that, after the vote by the shareholders of FIC,
Section 1.2 shall not be amended or revised.
8.4 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.
A-20
106
8.5 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Tennessee.
8.6 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 that (a) the filing
fee and expenses incurred in connection with the filing of the Registration
Statement with the SEC and (b) the expenses incurred in connection with
printing and mailing the Proxy Settlement/Prospectus shall be shared equally
between FTNC and FIC. FIC agrees that its Transaction Expenses will not exceed
$100,000.
8.7 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 Section 4.6 unless it is advised by counsel that any such
information is required by law to be disclosed.
8.8 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 (confirmed by overnight
courier delivery of original document), 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 FIC, TO: FINANCIAL INVESTMENT CORPORATION
c/oFirst National Bank of Springdale, Arkansas
100 W. Emma Avenue
Springdale, Arkansas 72764-4392
ATTN: Gene Thompson, Chief Executive Officer
Telecopy No.: 501/750-5679
With Copies to: MITCHELL, WILLIAMS, SELIG, GATES & WOODYARD, P.L.L.C.
Suite 1000
320 West Capitol Avenue
Little Rock, Arkansas 72201
ATTN: John Selig
Telecopy No.: 501/688-8807
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: BAKER, DONELSON, BEARMAN & CALDWELL
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
ATTN: Charles T. Tuggle, Jr.
Telecopy No.: 901/577-2303
A-21
107
FIRST TENNESSEE NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Harry A. Johnson, III
Telecopy No.: 901/523-4248
8.9 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.
8.10 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, except as to the Confidentiality Agreement between the parties
dated as of January 9, 1995.
8.11 ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the written consent of the other parties.
8.12 DIRECTORS' SHARES. To the extent that directors' qualifying
shares shall exist with respect to First National Bank, First National 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
FINANCIAL INVESTMENT CORPORATION
By: /s/ Louis H. Lichlyter
Title: Chairman of the Board
FIC
A-22
108
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This First Amendment to Agreement and Plan of Merger ("First
Amendment") is made and entered into as of the 30th day of June, 1995, by and
between FIRST TENNESSEE NATIONAL CORPORATION, a Tennessee corporation ("FTNC"),
and FINANCIAL INVESTMENT CORPORATION, an Arkansas corporation ("FIC").
WHEREAS, FTNC and FIC are parties to that certain Agreement and Plan
of Merger dated as of February 21, 1995 (the "Merger Agreement");
WHEREAS, the parties contemplate and desire that the conversion,
transition and implementation of the processes, systems and procedures of First
National Bank shall occur at or near the Effective Time;
WHEREAS, Section 2.1 of the Merger Agreement sets forth certain
actions pending the merger and provides that without the prior written consent
of FTNC, FIC will not:
(a) (y) make, declare or pay any dividend on FIC Common Stock provided
that (i) if the Merger is not consummated by the date that will allow
exchanging shareholders of FIC to receive the FTNC dividend payable on
July 1, 1995, FIC will have the right to pay prior to the Effective
Date up to One Hundred Seven Thousand One Hundred Eighty-Two and
08/100 Dollars ($107,182.08) in dividends for the period ending June
30, 1995; and (ii) if the Merger is not consummated by the date that
will allow exchanging shareholders of FIC to receive the FTNC dividend
payable on October 1, 1995, FIC will have the right to pay prior to
the Effective Date a dividend up to the lesser of (1) Seven Hundred
Fifty Thousand Dollars ($750,000.00) or (2) the product of (A) eighty
percent (80%) of FIC's net income for the period of July 1, 1995
through September 22, 1995, multiplied by (B) 1.0952, or (z) (except
as provided in the immediately preceding clause (y)) declare 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 FIC's capital
stock, or any options, calls or commitments relating to its 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 capital stock or the capital stock of any
subsidiary; and
WHEREAS, Section 5.2 of the Merger Agreement further provides that,
among other conditions, the obligation of FTNC to effect the Merger shall be
subject to the satisfaction prior to the Effective Time of the following
condition:
(f) on the Effective Date FIC's 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 FIC's prior practices; (ii) Transaction Expenses (as defined in
Section 8.6); (iii) adjustments under Section 4.13; and (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) shall not be less than
$46,750,000, increased by an amount equal to any negative provision to
the reserve for possible loan losses.
WHEREAS, the parties desire to take such necessary and appropriate
steps prior to the Effective Time in order to effectuate the conversion,
transition and implementation of the processes, systems and procedures of First
National Bank.
109
NOW, THEREFORE, the parties agree as follows:
1. Conversion.
The parties hereto agree to take all necessary and appropriate
steps prior to the Effective Time to effectuate the conversion, transition and
implementation of the systems, processes and procedures of First National Bank
to those of FTNC at or near the Effective Time.
2. Costs.
FIC agrees to pay or accrue all costs related to such conversion,
transition and implementation including reimbursement of First Tennessee Bank
National Association for any costs incurred by it in connection with such
conversion, transition and implementation on behalf of FIC and such costs will
be expensed on FIC books and records prior to the Effective Time. The parties
agree that they will consult with each other and agree upon such costs (the
"Approved Costs").
3. Amendment of Section 2.1(a) of the Merger Agreement.
Subsection (a) of Section 2.1 of the Merger Agreement is
amended by inserting the following after the figure "1.0952."
; provided that all Approved Costs incurred by FIC or First Tennessee
Bank National Association on behalf of FIC, whether paid or accrued
related to the conversion, transition and implementation of systems,
processes, or procedures of First National Bank to those of FTNC shall
be excluded on an after tax basis for the purposes of the calculation
required by this subsection (a),
4. Amendment of Section 5.2(f) of the Merger Agreement.
Subsection (f) of Section 5.2 of the Merger Agreement is
amended by inserting the following at the end of the subsection.
; provided that all Approved Costs incurred by FIC or First Tennessee
Bank National Association on behalf of FIC, whether paid or accrued
related to the conversion, transition and implementation of systems,
processes, or procedures of First National Bank to those of FTNC shall
be excluded on an after tax basis for the purposes of the calculation
required by this subsection (f),
5. Indemnification for Approved Costs.
In the event the transaction contemplated by the Merger
Agreement is not consummated, FTNC shall immediately reimburse FIC and First
National Bank for all Approved Costs either of them has paid to FTNC or other
third parties in connection with the conversion, transition and implementation
process.
6. Miscellaneous.
Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of Tennessee applicable to a
contract executed and performed in such State without giving effect to the
conflicts of laws of principles thereof.
Successors and Assigns. This First Amendment is binding upon,
inures to the benefit of, and is enforceable by the parties hereto and their
respective successors and assigns.
- 2 -
110
Defined Terms. All defined terms used in this First Amendment
shall have the same meaning as provided in the Merger Agreement except where
specifically herein modified.
Ratification. As modified and amended by this First
Amendment, the parties hereby ratify, approve and confirm the Merger Agreement
in all respects and agree that the execution and performance of this First
Amendment will not result in a breach of any of the other terms and provisions
set forth in the Merger Agreement not specifically referred to herein.
Amendments. This First Amendment may not be changed orally,
but only by an agreement in writing signed by the parties hereto.
Counterparts. To facilitate execution, this First Amendment
may be executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each party, or that the
signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this First Amendment to produce or account for more than a number of
counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto.
IN WITNESS WHEREOF, this First Amendment has been duly executed and
delivered by the duly authorized officer of each party as of the date first
above written.
FIRST TENNESSEE NATIONAL CORPORATION
BY: /s/ ELBERT L. THOMAS, JR.
----------------------------------
ELBERT L. THOMAS, JR.
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
FINANCIAL INVESTMENT CORPORATION
BY: /s/ LOUIS H. LICHLTYER
----------------------------------
LOUIS H. LICHLYTER, CHAIRMAN
OF THE BOARD
- 3 -
111
APPENDIX "B"
FAIRNESS OPINION
MERGER BY AND BETWEEN
FIRST TENNESSEE NATIONAL CORPORATION
AND
FINANCIAL INVESTMENT CORPORATION
As of February 21, 1995
Report Dated
February 21, 1995
112
February 21, 1995
Board of Directors
Financial Investment Corporation
Springdale, Arkansas
RE: FAIRNESS OPINION RELATIVE TO PENDING AGREEMENT OF FINANCIAL
INVESTMENT CORPORATION, SPRINGDALE, ARKANSAS, TO MERGE WITH AND INTO
FIRST TENNESSEE NATIONAL CORPORATION, MEMPHIS, TENNESSEE
Gentlemen:
The Board of Directors of Financial Investment Corporation ("FIC") 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 FIC 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 FIC or FTNC. This opinion is
issued based upon financial data as of December 31, 1994.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
- A review of the financial performance and position of FIC 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 Arkansas and surrounding states;
- A review of the investment characteristics of the common stock of FIC
and FTNC;
- A review of the Agreement and Plan of Merger between FTNC and FIC,
dated February 21, 1995;
- An evaluation of the impact of the merger on the expected return to
the current shareholders of FIC; and,
- An evaluation of other factors as were considered necessary to render
this opinion.
113
Board of Directors
Financial Investment Corporation
Page 2
It is Southard Financial's understanding that the merger and resulting exchange
of the stock of FTNC for the outstanding common stock of FIC constitutes a
non-taxable exchange for federal income tax purposes.
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Southard Financial reviewed the documents
specifically outlined in Exhibit 1 pertaining to FIC and in Exhibit 2
pertaining to FTNC.
REVIEW OF FINANCIAL INVESTMENT CORPORATION
Southard Financial visited with the management of FIC in Springdale, Arkansas.
Discussions included questions regarding the current and historical financial
position and performance of FIC, 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 operating subsidiaries, its outlook
for the future, and other pertinent factors.
MERGER DOCUMENTATION
Southard Financial reviewed the Agreement and Plan of Merger Between FTNC and
FIC, dated February 21, 1995. Appropriate aspects of this agreement were
discussed with management and with legal counsel for FIC. (See Exhibit 3,
Terms of the Agreement and Plan of Merger.)
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 FIC, but reviewed data supplied by the management of both
institutions.
114
Board of Directors
Financial Investment Corporation
Page 3
MAJOR CONSIDERATIONS
Numerous factors were considered in the overall review of the proposed merger.
The review process included considerations regarding FIC, FTNC, and the
proposed merger. The major considerations are as follows:
FINANCIAL INVESTMENT CORPORATION
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in FIC's market;
- The competitive environment in FIC's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in FIC's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
FIRST TENNESSEE NATIONAL CORPORATION
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in FTNC's market;
- The competitive environment in FTNC's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in FTNC's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
COMMON FACTORS
- Historical and current bank merger pricing;
- Current market prices for minority blocks of common stocks of regional
bank holding companies in Arkansas and surrounding states;
115
Board of Directors
Financial Investment Corporation
Page 4
THE PROPOSED MERGER
- The merger agreement and its terms;
- The specific pricing of the merger;
- Adequacy of the consideration paid to the shareholders of FIC;
- The assumption that the tax opinion regarding the tax-free nature of
the exchange will be upheld;
- The amount of debt and goodwill on the balance sheet of FTNC and the
impact of the merger of FIC on FTNC's capital and liquidity positions;
- The historical dividend payments of FTNC and the likely impact on the
dividend income of the current shareholders of FIC (equivalency of
cash dividends);
- Pro-forma combined income statements for FTNC post merger and the
expected returns to FIC shareholders (equivalency of earnings yield);
- The market for minority blocks of FTNC common stock; and,
- Other such factors as deemed appropriate.
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. In its analyses, Southard Financial made numerous
assumptions, many of which are beyond the control of FIC 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 3-7.)
DIVIDEND YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of FIC,
Southard Financial reviewed the dividend paying histories of FIC and FTNC.
Based upon this review, it is reasonable to expect that the shareholders of
FIC, in total, will receive dividends above the level currently paid by
FIC, 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).
116
Board of Directors
Financial Investment Corporation
Page 5
EARNINGS YIELD ANALYSIS
In evaluating the impact of the proposed merger on the shareholders of FIC,
Southard Financial determined that, based upon the proposed exchange ratio, the
shareholders of FIC 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 year-end 1994. The analysis also suggests
expected higher earnings yields for FIC 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 FIC,
Southard Financial determined that the shareholders of FIC would have seen an
increase in the book value of their investment had the merger been consummated
prior to December 31, 1994.
ANALYSIS OF ALTERNATIVES
In evaluating the fairness of the proposed merger on the shareholders of FIC,
Southard Financial reviewed another offer (ultimately withdrawn) received for
the purchase/merger of FIC. Further, Southard Financial considered recent
public market merger pricing information (see Exhibit 5).
ANALYSIS OF MARKET TRANSACTIONS
Based upon the merger terms, FIC shareholders will receive 163% of year-end
1994 book value per share, 14.9x reported 1994 earnings, and 23.3x budgeted
1995 earnings (preliminary, unapproved). Based upon the review conducted by
Southard Financial, the pricing for FIC in the merger is above the multiples
seen in recent bank acquisitions (see Exhibit 5).
117
Board of Directors
Financial Investment Corporation
Page 6
FUNDAMENTAL ANALYSIS
Southard Financial reviewed the financial characteristics of FIC and FTNC with
respect to profitability, capital ratios, liquidity, asset quality, and other
factors. Southard Financial compared FIC 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 FIC stock, FTNC shares are actively traded on the NASDAQ market.
Further, except in the case of officers, directors, and certain principal
shareholders of FIC, 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 FIC or FTNC.
Throughout the due diligence process, all information provided by FIC, FTNC,
and third party sources, was relied upon by Southard Financial without
independent verification.
Based upon the analyses discussed above, and other analyses performed by
Southard Financial, the impact of the merger on the shareholders of FIC is
expected to be favorable.
118
Board of Directors
Financial Investment Corporation
Page 7
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 Financial Investment Corporation by First Tennessee
National Corporation pursuant to the Agreement and Plan of Merger are fair,
from a financial viewpoint, to the shareholders of Financial Investment
Corporation.
Thank you for this opportunity to be of service to the shareholders of
Financial Investment Corporation.
Sincerely yours,
SOUTHARD FINANCIAL
David A. Harris, CFA, ASA
Douglas K. Southard, DBA, CFA, ASA
Attachments:
Exhibit 1: Financial Investment 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
Financial Investment Corporation
Exhibit 5: Comparison of The Merger Pricing to Public Market Transactions
Exhibit 6: Overview of Financial Investment Corporation
Exhibit 7: Overview of First Tennessee National Corporation
Exhibit 8: Qualifications of Southard Financial
119
EXHIBIT 1
FINANCIAL INVESTMENT CORPORATION
DOCUMENT REVIEW LIST
1. Consolidated Reports of Condition and Income ("Call Report") of First
National Bank of Springdale for the periods ended December 31, 1993,
and December 31, 1994.
2. Uniform Bank Performance Report ("UBPR") of First National Bank of
Springdale for the periods ended December 31, 1993 and September 30,
1994.
3. Audited Financial Statements of First National Bank of Springdale for
the periods ended December 31, 1991-93.
4. Plan and Budget for 1995 of First National Bank of Springdale.
5. Audited Financial Statements of Financial Investment Corporation for
the periods ended December 31, 1991-94.
6. Parent Company Only Financial Statements for Bank Holding Companies
(FR Y-9LP) of Financial Investment Corporation for the periods ended
December 31, 1993 and September 30, 1994.
7. Annual Report of Bank Holding Companies (FR Y-6) of Financial
Investment Corporation for the period ended December 31, 1993.
8. Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
of Financial Investment Corporation for the periods ended December 31,
1993 and September 30, 1994.
9. Audited Financial Statements of the First National Bank of Springdale
Pension Plan and Trust for the periods ended December 31, 1993-94.
10. Summary analysis of loan loss reserve calculation and determination of
adequacy as of November 30, 1994.
11. The Bank Strategist Report, September 1994 Update, for First National
Bank of Springdale and Washington and Benton Counties, Arkansas
(obtained by FTNC management).
12. Additional pertinent information deemed necessary to render this
opinion.
120
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, June 30, 1994, and September 30, 1994.
4. News Release, dated January 17, 1995, including unaudited financial
highlights for 1994.
5. Research reports by First Manhattan Co.; Morgan Keegan & Company,
Inc.; J.C. Bradford & Co.; Goldman Sachs; and Raymond James &
Associates.
6. 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 December 31, 1994.
7. Minutes of all regular and special meetings of the Board of Directors
during 1993 and 1994.
8. Daily activity of FTNC stock (high, low, and closing prices, and
volume) from January 20, 1994 through February 10, 1995 from NASDAQ.
9. Additional pertinent information deemed necessary to render this
opinion.
121
EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF MERGER
The Agreement and Plan of Merger, dated as of February 21, 1995, by and between
First Tennessee National Corporation and Financial Investment Corporation (the
"Agreement") contains several provisions. The following are key provisions of
the Agreement:
In exchange for the 1,786,368 shares of FIC common stock outstanding, FIC
shareholders will receive shares of FTNC common stock. The FTNC shares
issued to FIC shareholders may be purchased in the market, rather than newly
issued.
The parties intend for the merger to qualify as a "reorganization" under the
Internal Revenue Code. Thus, the exchange of FIC 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 based upon the result of $70,000,000, divided by
the average of the closing prices of FTNC common stock on the twenty
business (trading) days immediately prior to the first business (trading)
day preceding the effective date of the transaction (the "average price").
If the average price is greater than or equal to $34.00 per share, the
exchange ratio will be calculated as $70,000,000 divided by the average
price, divided by 1,786,368 FIC shares. If the average price is less than
$34.00 per share, the exchange ratio will be set at 1.1525192. Further, if
the average price is below $34.00 or above $49.00, FIC has the right to
terminate the Agreement.
No fractional shares will be issued by FTNC. FIC shareholders who would
otherwise have been entitled to fractional shares (after aggregating all
shares owned) will be paid in cash based upon the average price of FTNC
stock as defined above.
The Agreement may be terminated by mutual consent of the Board of Directors
of each institution and will automatically terminate if the merger is not
approved by FIC's 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, FIC shareholders would receive:
- 0.9796413 shares of FTNC stock (fractional shares paid in cash) if the
average price of FTNC stock (as defined above) is equal to the recent
price of $40.00 per share;
- 1.1525192 shares of FTNC stock (fractional shares paid in cash) if the
average price of FTNC stock is $34.00 per share or below;
- something less than 0.9796413 shares of FTNC stock (fractional shares
paid in cash) if the average price is above $40.00 per share.
122
EXHIBIT 4
EXPECTED IMPACT OF THE MERGER
ON THE SHAREHOLDERS OF FINANCIAL INVESTMENT 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 FIC and its shareholders.
The average price of FTNC common stock for the twenty trading days prior to the
date of this opinion, as calculated by Southard Financial, was approximately
$40.00 per share. Assuming this price as the average price to be used in the
merger, FIC shareholders would receive 0.9796413 equivalent shares of FTNC
stock for each share of FIC stock exchanged under the Agreement.
EARNINGS FIC earned $2.63 per share in 1994. FTNC earned $4.56 per
share in 1994. Had the merger been consummated prior to
January 1, 1994, each former FIC share would have earned $4.47
in 1994 (FTNC 1994 earnings of $4.56 per share times 0.9796413
equivalent shares). This represents an increase of 70% over
what FIC earned in 1994.
Based upon the analysts surveyed, FTNC is expected to earn
$4.80-$4.90 per share in 1995. FIC is budgeted to earn about
$1.70 per share in 1995 (preliminary, unapproved). Given the
mid-point of the FTNC estimate, and assuming that the merger
was consummated prior to January 1, 1995, FIC shareholders
would see an increase of about 180% over what FIC management
budgeted to earn in 1995, absent the merger.
DIVIDENDS Each share of FIC stock received $0.12 per share in dividends
in 1994. Had the merger been consummated prior to January 1,
1994, each former share of FIC stock would have received
dividends of $1.69 in 1994 (FTNC 1994 dividends of $1.73 per
share times 0.9796413 equivalent shares). This represents a
14-fold increase over the dividends paid to FIC shareholders
in 1994.
BOOK VALUE Reported book value of FIC was $24.03 per share at December
31, 1994. Reported book value of FTNC at December 31, 1994
was $23.51 per share. Had the merger been consummated prior
to December 31, 1994, each former FIC stock would have book
value of $23.03 (FTNC book value of $23.51 per share times
0.9796413 equivalent shares). This represents a 96% of FIC
book value at December 31, 1994. The reason for the reduction
in book value is that FTNC stock is trading at a price/book
value ratio in excess of 163% (the multiple for FIC stock
implied by the Agreement).
LIQUIDITY Unlike FIC stock, FTNC shares are actively traded on the
NASDAQ market. Average daily trading volume was about 50,000
shares during the first two months of 1995. Further, except
in the case of officers and directors of FIC, FTNC shares
received will be freely tradeable with no restrictions.
123
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
(nationwide and in Arkansas and in contiguous states) is summarized as follows:
Price/ Price/ Price/ Equity/
Transactions Announced in 1994(1) Earnings Book Val Assets ROAA Assets ROAE
------------------------------ -------- -------- ------ ------ ------- ------
Nationwide (229) 16.6x 175.8% 15.6% 1.12% 9.03% 12.72%
AR, TX. LA, TN, MO, OK, MS (66)(3) 13.8 173.7 15.5 1.32 8.92 15.34
Arkansas (3)(2) 9.7 137.2 10.2 1.06 7.43 14.46
FIC 14.9 163.1 20.3 1.39 12.38 11.31
(1) Insufficient information existed regarding transactions announced in 1995
to-date
(2) Excluding TCBankshares and Worthen Banking Corp. due to their size
(3) Excluding TCBankshares, Worthen Banking Corp., and Grenada Sunburst due to
their size
Based upon a purchase price of $70 million, the merger of FIC into FTNC will
take place at 14.9x 1994 FIC earnings, 23.3x budgeted 1995 earnings
(preliminary, unapproved), and 163% of December 31, 1994 book value, or above
recent market multiples. Given FIC's 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 FIC. (See Exhibit 5a for
pricing multiples based upon capital ratios of 7%-9%.)
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 December 31, 1994.
Price/ Price/ Current Current
Publicly Traded Banks(1) Earnings Book Val ROAE Yield
-------------------------- -------- -------- ------- -------
All Banks (200) 10.76x 140.2% 13.43% 2.99%
South Central Banks (54) 10.65 142.3 13.69 3.24
AR/TX/LA/TN/MO/OK/MS (28) 9.87 144.4 14.72 3.05
Arkansas Banks (5) 9.53 152.9 15.72 3.18
FTNC 8.07 169.1 20.95 4.61
(1) Subject to certain screens performed by Southard Financial
Based upon an analysis of the data provided above, FTNC's price/earnings
multiple is 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.
124
EXHIBIT 5(a)
PRICE/BOOK VALUE FOR
REQUIRED LEVELS OF EQUITY
FOR FINANCIAL INVESTMENT CORPORATION
FIRST NATIONAL BANK OF SPRINGDALE (FNB)
=======================================
FNB Total Assets 12/31/94 $344,888,000
FNB Book Value 12/31/94 $ 42,694,000
------------
FNB Equity/Assets 12/31/94 12.38%
============
REQUIRED EQUITY LEVEL
----------------------------------------
FNB EQUITY AT REQUIRED LEVEL 7.00% 8.00% 9.00%
============================ ------------ ------------ ------------
FNB Book Value 12/31/94 $ 42,694,000 $ 42,694,000 $ 42,694,000
Excess Equity at Required Level 19,940,000 16,400,000 12,800,000
------------ ------------ ------------
FNB Equity at Required Equity/Assets $ 22,754,000 $ 26,294,000 $ 29,894,000
FNB Assets at Required Equity/Assets 324,948,000 328,488,000 332,088,000
------------ ------------ ------------
FNB Equity/Assets at Required Level 7.00% 8.00% 9.00%
============ ============ ============
HOLDING COMPANY EQUITY AT REQUIRED LEVEL
========================================
FNB Equity at Required Equity/Assets $22,754,000 $26,294,000 $29,894,000
Other Holding Company Assets 12/31/94 32,000 32,000 32,000
------------ ------------ ------------
FIC Equity at Required Level $22,786,000 $26,326,000 $29,926,000
============ ============ ============
PRICE/BOOK RATIO AT REQUIRED EQUITY
===================================
Stated Purchase Price $70,000,000 $70,000,000 $70,000,000
FIC Excess Equity at Required Level 19,940,000 16,400,000 12,800,000
------------ ------------ ------------
Purchase Price for Required Equity $50,060,000 $53,600,000 $57,200,000
FIC Equity at Required Level 22,786,000 26,326,000 29,926,000
------------ ------------ ------------
Price/Book Value for Required Equity 219.70% 203.60% 191.14%
============ ============ ============
125
EXHIBIT 6
OVERVIEW OF FINANCIAL INVESTMENT CORPORATION
Financial Investment Corporation is a one-bank holding company, incorporated in
1983, whose primary asset is 100% of the common stock of First National Bank of
Springdale in Springdale, Washington County, Arkansas ("FNB"). FNB, which was
founded in 1907, serves the Springdale area with a main office and three
branches, nine ATMs and 151 employees. FNB provides full-service banking to
retail and commercial customers in the Springdale area.
FNB has the largest deposit market share in Springdale, and is the largest
locally-owned, independent bank in northwest Arkansas. Currently, northwest
Arkansas is the highest growth market in the state. The major competitors are:
Springdale Bank & Trust (an Arvest bank); Worthen National Bank of Northwest
Arkansas (now owned by Boatmen's); Bank of Fayetteville; and United Bank
(formerly United Federal Savings Bank, a thrift). Other significant banks in
Benton and Washington counties are: Arkansas State Bank (Siloam Springs); Bank
of Bentonville; First National Bank & Trust Company of Rogers; First National
Bank (Siloam Springs); McIlroy Bank & Trust Company; and Arkansas National Bank
(Bentonville).
FNB had total assets of $344.9 million at December 31, 1994, and equity of
12.38% of assets, or well above peer averages. Total loans (net of unearned
income) were 40.47% of total assets at year-end, or well below peer averages.
The historical composition of FNB's balance sheet was very consistent. As of
January 1994, the Main branch had about 70% of FNB's checking and savings
deposits, while the West branch had about 27%, the South branch had about 3%,
and the East branch (opened June 1994) had less than 1%.
FNB earned $4.96 million (1.68% of average assets) in 1992, $5.22 million
(1.71%) in 1993, and $4.74 million (1.39%) in 1994. Earnings are budgeted at
$3.00 million in 1995, for an ROAA of about 0.84%. FNB's loan loss provision
was negative $500 thousand in 1994, and is budgeted to be the same in 1995.
Parent company assets, net of liabilities, are not significant ($31.5 thousand
at year-end 1994). Reported book value of the holding company was $42.93
million, or $24.03 per share for the 1,786,368 shares outstanding. Earnings
were $2.63 per share in 1994, $2.95 per share in 1993, and $2.85 per share in
1992. Earnings are budgeted to be about $1.70 per share in 1995. Dividends of
$0.12 per share were declared in 1994 (4.56% of earnings), up from $0.06 per
share in 1993 (2.03%).
Senior management consists of Gene Thompson, 65, (President; 42 years of
service with FNB); Jerry Reinert, 50, (Executive Vice President of Operations;
19 years of service with FNB and 13 prior years with another bank in Missouri);
and Vaughn Neil, 63, (Executive Vice President of Lending; 43 years with FNB).
Further details on FIC and FNB are documented in Southard Financial's files.
126
EXHIBIT 7
OVERVIEW OF FIRST TENNESSEE NATIONAL CORPORATION
First Tennessee National Corporation is the nation's 56th largest bank holding
company with assets of $10.52 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 150 offices in 25 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; (7) FTNC acquired Planters Bank, in Tunica, Mississippi, in August
1994; (8) FTNC acquired Emerald Mortgage Company, a mortgage banking company in
Seattle, Washington, in August 1994; and, (9) FTNC acquired Carl I. Brown and
Company, a mortgage banking operation in Kansas City, in January 1995.
Further, FTNC approved the acquisition of Community Bancshares of Germantown,
Tennessee in September 1994; and approved the acquisition of Peoples Financial
Services Corporation in Senatobia, Mississippi, in October 1994.
FTNC earned $3.31 per share in 1993 (adjusted to reflect 1994 acquisitions) and
$4.56 per share in 1994 (unaudited). The consensus earnings estimate for 1995
is about $4.90 per share, or 7.5% above 1994 earnings. Earnings per share
increased in each year since 1989. Return on average assets was 1.45% in 1994,
up from 1.11% in 1993, while return on average equity was 20.04%, up from
16.07%. Dividends of $1.73 per share in 1994 were 15.3% above 1993 dividends
of $1.50 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 $1.88 per share in 1995.
Total shareholders' equity was 7.12% of total assets as of December 31, 1994.
Book value per share increased from $21.65 at year-end 1993 to $23.51 at
year-end 1994. Loans represented 63.84% of total assets at year-end. 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
$17.5 million in 1994. Also, FTNC's efforts reduced non-performing assets to
total loans from 2.35% at year-end 1990 to 0.55% at December 31, 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 banks with
good market share and/or earnings potential. More details on FTNC are
contained in Southard Financial's file.
127
EXHIBIT 8
QUALIFICATIONS OF SOUTHARD FINANCIAL
128
AN OVERVIEW OF SOUTHARD FINANCIAL
BACKGROUND - Founded in 1987.
- Principals have combined business valuation
experience of approximately 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.
- 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.
129
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
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
130
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)
Board of Directors, Solomon Schechter Day School of Memphis, Inc.
(1993-94)
President, West Tennessee Chapter, American Society of Appraisers
(1990-91)
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
131
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 Sellers
- 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
132
ARKANSAS BUSINESS CORPORATION ACT, ACTS 1965, N0. 576 APPENDIX "C"
4-26-1007. RIGHTS OF DISSENTING SHAREHOLDERS
(a) If a shareholder of a corporation which is a party to a merger
or consolidation files with the corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to the plan of merger or consolidation and does
not vote in favor thereof, and the shareholder within ten (10) days after
the date on which the vote was taken makes written demand on the surviving
or new domestic or foreign corporation for payment of the fair value of his
shares as of the day prior to the date on which the vote was taken approving
the merger or consolidation, then, if the merger or consolidation is
effected, the surviving or new corporation shall pay to the shareholder,
upon surrender of his certificate or certificates representing the shares,
the fair value thereof.
(b) The demand shall state the number and class of the shares owned
by the dissenting shareholder.
(c) Any shareholder failing to make demand within the ten-day period
shall be bound by the terms of the merger or consolidation.
(d) Within ten (10) days after the merger or consolidation is
effected, the surviving or new corporation, as the case may be, shall give
notice to each dissenting shareholder who has made demand as herein provided
for the payment of the fair value of his shares.
(e) (1) If within thirty (30) days after the date on which the
merger or consolidation was effected the value of such shares is
agreed upon between the dissenting shareholder and the surviving
or new corporation, payment shall be made within ninety (90)
days after the date on which such merger or consolidation was
effected, upon the surrender of his certificate or certificates
representing those shares.
(2) Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in those shares or in the
corporation.
(f) (1) If within the period of thirty (30) days the shareholder and
the surviving or new corporation do not so agree, then the
dissenting shareholder, within sixty (60) days after the
expiration of the thirty-day period, may file a petition in the
circuit court of the county in which the registered office of
the surviving corporation is located, if the surviving
corporation is a domestic corporation or in the Pulaski County
Circuit Court if the surviving corporation is a foreign
corporation, asking for a finding and determination of the fair
value of the shares and shall be entitled to judgment against
the surviving or new corporation for the amount of the fair
value as of the day prior to the date on which the vote was
taken approving such merger or consolidation, together with
interest thereon to the date of the judgment.
(2) The judgment shall be payable only upon and simultaneously
with the surrender to the surviving or new corporation of the
certificate or certificates representing the shares.
(3) Upon payment of the judgment, the dissenting shareholder
shall cease to have any interest in the shares or in the
surviving or new corporation.
(4) Unless the dissenting shareholder files the petition within
the time herein limited, the shareholder and all persons
claiming under him shall be bound by the terms of the merger or
consolidation.
133
(g) Shares acquired by the surviving or new corporation pursuant to
the payment of the agreed value thereof or to payment of the judgment
entered, as in this section provided, may be held and disposed of by the
corporation as in the case of other treasury shares.
(h) The provisions of this section shall not apply to a merger if, on
the date of the filing of the articles of merger, the surviving corporation
is the owner of all the outstanding shares of the other domestic or foreign
corporations that are parties to the merger.
134
Exhibit 2
AGREEMENT AND PLAN OF MERGER
(INCLUDED AS APPENDIX "A" TO THE PROXY STATEMENT-PROSPECTUS)
Omitted Schedules and Annexes
Pursuant to Item 601 (b)(2) of Regulation S-K, the schedules, annexes
and exhibits to Exhibit 2 of this Registration have been omitted. Set forth
below is a list of such omitted documents.
Exhibit A Schedule of FTNC stock reserved for issuance or with
respect to which commitments exist
Exhibit B Schedule of FIC and First National Bank stock
reserved for issuance or with respect to which
commitments exist
Exhibit III(C)(1) Significant subsidiaries of FTNC
Exhibit III(C)(2) Significant subsidiaries of FIC
Exhibit III(J)(1) Undisclosed material litigation of FTNC
Exhibit III(J)(2) Undisclosed material litigation of FIC
Exhibit III(K)(1) Unfiled material contracts of FTNC
Exhibit III(K)(2) Unfiled material contracts of FIC
Exhibit IV(P) Form of Rule 145 Affiliate Letter
135
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 herein by reference.
3(ii) Bylaws of FTNC, as amended, attached as Exhibit 3(ii) to
FTNC's Annual Report on Form 10-K for the year ended December
31, 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
II-1
136
4(d) FTNC and certain of its consolidated subsidiaries have
outstanding certain long-term debt. See Note 12 in FTNC's
1994 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 Frost & Company.
* 23(c) Consent of Ernst & Young LLP.
23(d) Consents of Baker, Donelson, Bearman & Caldwell included in
Exhibit 8.
23(e) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
* 23(f) Consent of Southard Financial.
* 24 Powers of Attorney.
* 99(a) Form of Proxy for Special Meeting of Shareholders of FIC.
_____________________
* Previously filed.
(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-2
137
Exhibit
Number Description
- ------- -----------
(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;
(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
II-3
138
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.
II-4
139
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Memphis, State Tennessee, on August 22, 1995.
FIRST TENNESSEE NATIONAL CORPORATION
By: James F. Keen
-------------------------------------
James F. Keen, Senior Vice President and
Controller
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ------------------------------ ---------------------------------------------- --------------
* Chief Executive Officer (principal executive August 22, 1995
- ------------------------------ officer) and a Director
Ralph Horn
* Senior Vice President and Chief Financial August 22, 1995
- ------------------------------ Officer (principal financial officer)
Elbert L. Thomas, Jr.
James F. Keen Senior Vice President and Controller (principal August 22, 1995
- ------------------------------ accounting officer)
James F. Keen
* Director August 22, 1995
- ------------------------------
Jack A. Belz
* Director August 22, 1995
- ------------------------------
Robert C. Blattberg
* Director August 22, 1995
- ------------------------------
J. R. Hyde, III
* Director August 22, 1995
- ------------------------------
R. Brad Martin
* Director August 22, 1995
- ------------------------------
Joseph Orgill, III
* Director August 22, 1995
- ------------------------------
Richard E. Ray
* Director August 22, 1995
- ------------------------------
Vicki G. Roman
* Director August 22, 1995
- ------------------------------
Michael D. Rose
* Director August 22, 1995
- ------------------------------
William B. Sansom
II-5
140
* Director August 22, 1995
- -------------------------------
Gordon P. Street, Jr.
* Director August 22, 1995
- -------------------------------
Ronald Terry
*By: Clyde A. Billings, Jr. August 22, 1995
--------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
[The Power of Attorney was previously filed as Exhibit 24.]
II-6
141
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 Annual
Report on Form 10-K for the year ended December 31, 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 12 in FTNC's 1994 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 Frost & Company.
*23(c) Consent of Ernst & Young LLP.
23(d) Consent of Baker, Donelson, Bearman & Caldwell included in Exhibit 8.
23(e) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
*23(f) Consent of Southard Financial.
*24 Powers of Attorney.
*99(a) Form of Proxy for Special Meeting of Shareholders of FIC.
________________________
* Previously filed.