1
REGISTRATION NO. 333-61321
FILED PURSUANT TO RULE 424(b)(3)
August 25, 1998
Dear Shareholder:
We are pleased to enclose your Notice of Special Meeting and
Prospectus/Proxy Statement for the Special Meeting of Shareholders of The Middle
Tennessee Bank ("MTB") to be held on September 24, 1998 at 3:00 P.M., local
time, at 700 North Garden Street, Columbia, Tennessee 38402 (the "Special
Meeting").
At the Special Meeting you will be asked to consider and vote on a
proposed merger of MTB with and into First American National Bank ("FANB"), a
wholly owned subsidiary of First American Corporation, a Tennessee corporation
("First American"). By virtue of the proposed transaction, each share of MTB
common stock, par value $10.00 per share ("MTB Common Stock"), outstanding
immediately prior to the time that the proposed merger of MTB into FANB is
completed, except as provided in the Bank Merger Agreement, dated as of May 26,
1998, by and among MTB, FANB and First American (the "Agreement"), will be
exchanged for 7.768 shares of common stock of First American, par value $2.50
per share ("First American Common Stock") (the proposed merger and share
exchange, collectively, are the "Merger"). First American is headquartered in
Nashville, Tennessee. As of June 30, 1988, First American had banking operations
in Tennessee, Mississippi, Louisiana, Arkansas, Virginia and Kentucky, and had
consolidated assets of about $19.l billion, deposits of about $13.6 billion and
shareholders' equity of about $1.6 billion. First American Common Stock is
listed and traded on the New York Stock Exchange under the symbol "FAM." The
closing price of First American Common Stock in composite trading on August 24,
1998 was $40.69 per share, as reported in The Wall Street Journal. MTB Common
Stock is neither listed on any securities exchange nor publicly traded.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER
AND RECOMMENDS A VOTE "FOR" THE MERGER. The proposed Merger has been approved by
the MTB Board of Directors (the "MTB Board") as being in the best interest of
MTB and its shareholders. The MTB Board reached this decision after careful
consideration of a number of factors. The enclosed Prospectus/Proxy Statement
contains more detailed information concerning the MTB Board's decision and the
Merger. We urge you to consider it carefully.
The affirmative vote of the holders of two-thirds of MTB Common Stock
entitled to vote thereon is required to approve the Agreement. IT IS VERY
IMPORTANT THAT YOUR SHARES ARE VOTED AT THE SPECIAL MEETING, REGARDLESS OF
WHETHER YOU ATTEND IN PERSON. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE
ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE AGREEMENT. PLEASE COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, RETURN ENVELOPE. MTB
and First American intend to consummate the Merger by October 1, 1998.
IF YOU VOTE TO APPROVE THE AGREEMENT, WE ASK THAT YOU SEND THE
CERTIFICATE OR CERTIFICATES REPRESENTING YOUR SHARE(S) OF MTB COMMON STOCK TO
EDWARD D. GREEN OR BEVERLY DOUGLAS, JR. AT MTB. Your certificates will be held
by MTB pending the completion of the Merger. Certificates representing the
shares of First American Common Stock you are entitled to receive as a result of
the Merger will be sent to you as soon as practicable following completion of
the Merger. If the Merger is not completed for any reason, MTB will return your
MTB certificates to you. If you do not send in your MTB certificates and the
Merger is completed, you will be provided information after the Merger
describing the procedure to be followed to exchange your MTB certificates for
First American certificates. You will not receive any certificates for First
American Common Stock until you have surrendered your MTB certificates. IF YOU
WISH TO EXERCISE DISSENTERS' RIGHTS WITH RESPECT TO THE MERGER (SEE "ADDITIONAL
INFORMATION -- DISSENTERS' APPRAISAL RIGHTS"), YOU SHOULD NOT SEND YOUR MTB
CERTIFICATES TO MTB AT THIS TIME.
In order to make sure that your vote is represented, indicate your vote
on the enclosed proxy form, date and sign it, and return it in the enclosed
envelope. If you attend the meeting in person, you may revoke your proxy at the
Special Meeting and vote in person.
Sincerely,
/s/ Edward D. Green /s/ Beverly Douglas, Jr.
Edward D. Green Beverly Douglas, Jr.
President and Chief Executive Officer Chairman of the Board
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS OR OTHER GOVERNMENTAL AGENCY OR OTHER GOVERNMENTAL AGENCY HAVE
APPROVED THE FIRST AMERICAN COMMON STOCK TO BE ISSUED UNDER THIS
PROSPECTUS/PROXY STATEMENT OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Prospectus/Proxy Statement dated August 25,
1998 and first mailed to shareholders on August 26, 1998.
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THE MIDDLE TENNESSEE BANK
700 NORTH GARDEN STREET
COLUMBIA, TN 38402
(423) 388-1000
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON SEPTEMBER 24, 1998
TO THE SHAREHOLDERS OF
THE MIDDLE TENNESSEE BANK:
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders of The Middle
Tennessee Bank ("MTB") will be held at 700 North Garden Street, Columbia,
Tennessee 38402 on September 24, 1998 at 3:00 P.M., local time, (the "Special
Meeting") for the purpose of considering and voting upon the following matters:
1. Approval and adoption of the Bank Merger Agreement (the "Agreement"),
dated as of May 26, 1998, by and among MTB, a Tennessee banking
association, First American National Bank ("FANB"), a national banking
association, and First American Corporation ("First American"), a
Tennessee corporation and the sole shareholder of FANB, a copy of which
is included as Appendix A to the accompanying Prospectus/Proxy Statement
and incorporated by reference herein, pursuant to which: (x) MTB will be
merged with and into FANB; and (y) each outstanding share of common
stock of MTB ("FANB Common Stock"), par value $10.00 per share, will be
exchanged for 7.768 shares of common stock of First American's, par
value $2.50 per share, plus an associated right to purchase shares of
First American Series A Junior Preferred Stock, and cash in lieu of any
fractional share determined in accordance with the terms of the
Agreement (the merger and share exchange, collectively, are the
"Merger").
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Only holders of record of MTB Common Stock at the close of business on August
21, 1998, are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements of the Special Meeting.
All shareholders are cordially invited to attend the Special Meeting. To ensure
your representation at the Special Meeting, please complete and promptly mail
your proxy in the return envelope enclosed. This will not prevent you from
voting in person, but will help to secure a quorum and avoid added solicitation
costs. Your proxy may be revoked at any time before it is voted. Please review
the Prospectus/Proxy Statement accompanying this notice for more complete
information regarding the Merger and the Special Meeting.
Under Section 215a of Title 12 of the United States Code ("12 U.S.C. ss. 215a"),
holders of MTB Common Stock who comply with 12 U.S.C. ss. 215a will have the
right to dissent from the Merger and to obtain payment of the fair value of
their shares. A copy of 12 U.S.C. ss. 215a is attached as Appendix C to the
accompanying Prospectus/Proxy Statement. Please see the section entitled
"ADDITIONAL INFORMATION--Dissenters' Appraisal Rights" in the attached
Prospectus/Proxy Statement for a discussion of the procedures to be followed in
asserting these dissenters' rights.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Edward D. Green /s/ Beverly Douglas, Jr.
Edward D. Green Beverly Douglas, Jr.
President and Chief Executive Officer Chairman of the Board
August 25, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF MTB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE AGREEMENT.
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QUESTIONS AND ANSWERS
ABOUT THE FIRST AMERICAN/MTB TRANSACTION
Q: WHY IS MTB CHOOSING TO COMBINE WITH FIRST AMERICAN?
A: We have approved the Merger based upon our assessment of the financial
condition of MTB in particular and the competitive and regulatory
environment for financial institutions generally. In addition, MTB's
financial advisor has advised that the aggregate consideration provided
for in the Merger is fair, from a financial point of view, to the holders
of MTB Common Stock. The nonfinancial terms of the Merger, including the
treatment of the Merger as a tax-free exchange of MTB Common Stock for
First American Common Stock for federal income tax purposes (except in
respect of cash received for MTB Common Stock), are also favorable to MTB
shareholders. The Merger will enable MTB stockholders to exchange their
shares of common stock for stock in a larger and more diversified entity,
the stock of which is more widely held and more actively traded. Based
upon these and other factors, we believe that combining with First
American is in the best interests of MTB and the MTB shareholders.
Q: AS AN MTB SHAREHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: You will have the right to receive 7.768 shares of First American Common
Stock in exchange for each share of MTB Common Stock you own. However,
First American won't issue any fractional shares. Instead, you will
receive an amount of cash for any fraction of a share based on the market
value of First American Common Stock over a period close to the date the
Merger is completed.
Example: If you own one share of MTB Common Stock, upon completion of the
Merger you'll have the right to receive seven shares of First American
Common Stock and a check for the market value of 0.768 of a share of
First American Common Stock.
Q: WHAT HAPPENS AS THE MARKET PRICE OF FIRST AMERICAN COMMON STOCK FLUCTUATES?
A: The exchange ratio is fixed at 7.768. Since the market value of First
American Common Stock will fluctuate before and after the closing of the
Merger, the value of the stock MTB shareholders will receive in the
Merger will fluctuate as well and could decrease.
Q: WHAT HAPPENS TO MY DIVIDENDS IN THE FUTURE?
A: After the Merger, First American expects to pay $.25 per share, the
amount First American has recently paid as a regular quarterly cash
dividend to its shareholders. While the board of directors of First
American ("First American Board") currently expects to pay those
dividends, it can't assure these payments. The First American Board will
use its discretion to decide whether and when to declare dividends and in
what amount, and it will consider all relevant factors in doing so.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the Merger by October 1, 1998. In addition to the
approval of the MTB shareholders, we must also obtain regulatory
approvals, which include approval of the Federal Reserve Board, the
Office of the Comptroller of the Currency and the Tennessee Department of
Financial Institutions.
Q: AS AN MTB SHAREHOLDER, WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES
TO ME?
A: We expect that for U.S. federal income tax purposes, your exchange of
shares of MTB Common Stock for shares of First American Common Stock by
virtue of the Merger generally will not cause you to recognize any gain
or loss. You will, however, have to recognize gain in connection with any
cash received instead of fractional shares. This tax treatment won't
apply to you if you dissent from the Merger under applicable law.
We provide a more detailed review of the U.S. federal income tax
consequences of the Merger at page 28 of this document.
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Q: AS AN MTB SHAREHOLDER, DO I HAVE TO ACCEPT FIRST AMERICAN COMMON STOCK IN
EXCHANGE FOR MY MTB SHARES IF THE MERGER IS APPROVED?
A: No. If you are an MTB shareholder and you follow the procedures
prescribed by 12 U.S.C. ss. 215a, you may dissent from the Merger and
have the fair value of your stock appraised and paid in cash. If you
follow those procedures, you won't receive First American Common Stock.
The fair value of your MTB Common Stock, determined in the manner
prescribed by 12 U.S.C. ss. 215a, will be paid to you in cash. For a more
complete description of these dissenters' rights, see page 59 of this
document. A copy of 12 U.S.C. ss. 215a is attached to this
Prospectus/Proxy Statement as Appendix C.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail
the proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at the Special Meeting. If you sign
and send in your proxy but don't indicate how you want to vote, your
proxy will be counted as a vote in favor of the Merger. If you don't vote
on the Merger or if you abstain, the effect will be a vote against the
Merger.
The Special Meeting will take place on September 24, 1998. You are
invited to the Special Meeting to vote your shares in person, rather than
signing and mailing your proxy card. If you do sign your proxy card, you
can take back your proxy up to and including the date of your
shareholders' meeting and either change your vote or attend the Special
Meeting and vote in person. We provide more detailed instructions about
voting on page 16.
Applicable law permits you to dissent from the Merger and to have the
fair value of your stock appraised and paid to you in cash. To do this,
you must follow certain procedures, including the filing of certain
notices with us or voting against the Merger. If you execute a proxy card
and desire to effect your appraisal rights, you must mark the proxy card
"Against" the proposal relating to the Merger because if the proxy card
is left blank, it will be voted "For" the proposal relating to the
Merger. If you dissent from the Merger, your shares of MTB Common Stock
will not be exchanged for shares of First American Common Stock in the
Merger, and your only right will be to receive the appraised value of
your shares in cash. We provide more detailed instructions about
dissenting from the Merger on page 59.
THE BOARD OF DIRECTORS OF MTB UNANIMOUSLY RECOMMENDS VOTING IN FAVOR OF
THE PROPOSED MERGER.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Only if you provide instructions on how your broker should vote. You
should instruct your broker how to vote your shares, following the
directions your broker provides. Without instructions from you to your
broker, your shares will not be voted and this will effectively be a vote
against the Merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: Yes. If you vote in favor of the Merger, we ask that you send your MTB
stock certificates to MTB to the attention of Edward D. Green or Beverly
Douglas, Jr. at the address listed below. MTB will hold your stock
certificates in escrow until the Merger is completed. If for any reason
the Merger is not completed, your MTB stock certificates will be returned
to you. However, if you vote against the Merger and wish to preserve your
dissenters' rights, you should continue to hold your MTB stock
certificates.
After the Merger is completed, First American will send you written
instructions on how to exchange your MTB Common Stock for First American
Common Stock if you do not send in your MTB stock certificates prior to
the Special Meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions
about the Merger, you should contact:
The Middle Tennessee Bank
700 North Garden Street
Columbia, TN 38402
Attention: Mark Hines
Phone Number: (423) 388-1000
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TABLE OF CONTENTS
PAGE
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SUMMARY
The Companies.......................................................................................................... 1
First American Corporation........................................................................................ 1
The Middle Tennessee Bank......................................................................................... 1
MTB's Reasons for the Merger........................................................................................... 1
The Shareholders' Meeting.............................................................................................. 1
MTB's Recommendation to Shareholders................................................................................... 1
Record Date; Voting Power.............................................................................................. 1
Vote Required.......................................................................................................... 1
The Merger............................................................................................................. 1
Conditions to Completion of the Merger............................................................................ 1
Termination of the Agreement...................................................................................... 2
Federal Income Tax Consequences................................................................................... 2
Accounting Treatment.............................................................................................. 2
Opinion of MTB's Financial Advisor................................................................................ 2
Board of Directors and Management of First American Following the Merger.......................................... 2
Interests of Other Persons in the Merger That are Different from Yours............................................ 2
Dissenters' Appraisal Rights...................................................................................... 3
Regulatory Approvals.............................................................................................. 3
Termination Fee................................................................................................... 3
Comparative Per Share Market Price Information.................................................................... 3
Forward-Looking Statements May Prove Inaccurate................................................................... 3
Comparative Unaudited Per Share Data................................................................................... 4
Selected Financial Data................................................................................................ 6
Selected Historical Financial Data of First American.............................................................. 6
Selected Historical Financial Data of MTB......................................................................... 7
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Pro Forma Combined Condensed Balance Sheets............................................................................ 9
Pro Forma Combined Condensed Income Statements......................................................................... 10
Notes to Unaudited Pro Forma Combined Condensed Financial Information.................................................. 15
THE MTB SPECIAL MEETING
General .............................................................................................................. 16
Proxies .............................................................................................................. 16
Solicitation of Proxies................................................................................................ 16
Record Date and Voting Rights.......................................................................................... 16
Dissenters' Rights..................................................................................................... 17
Recommendation of the MTB Board........................................................................................ 17
THE MERGER
Description of the Merger.............................................................................................. 18
Background of the Merger............................................................................................... 18
Reasons of MTB for the Merger.......................................................................................... 19
Opinion of MTB's Financial Advisor..................................................................................... 20
The Effective Time..................................................................................................... 23
Exchange of Certificates............................................................................................... 24
Conduct of Business Prior to the Merger and Other Covenants............................................................ 25
Conditions to the Merger............................................................................................... 25
Termination of the Agreement........................................................................................... 26
Termination Fee........................................................................................................ 27
Expenses............................................................................................................... 28
Certain Federal Income Tax Consequences................................................................................ 28
Interests of Certain Persons in the Merger............................................................................. 29
Accounting Treatment................................................................................................... 31
Regulatory Matters..................................................................................................... 31
Restrictions on Resales by Affiliates.................................................................................. 32
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PAGE
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INFORMATION ABOUT OUR COMPANIES
Information About First American....................................................................................... 33
General........................................................................................................... 33
Pending Acquisitions.............................................................................................. 33
Information About MTB.................................................................................................. 33
Management and Operations After the Merger............................................................................. 34
Price Range of Common Stock and Dividends.............................................................................. 34
Market Prices..................................................................................................... 34
Dividends......................................................................................................... 34
Supervision and Regulation of First American and MTB................................................................... 35
General........................................................................................................... 35
Capital and Operational Requirements.............................................................................. 36
Enforcement Powers of the Banking Agencies........................................................................ 37
First American Capital Stock........................................................................................... 37
First American Common Stock....................................................................................... 37
First American Preferred Stock.................................................................................... 38
Comparative Rights of Shareholders of First American and MTB........................................................... 38
Board of Directors................................................................................................ 38
Business Combination Provisions................................................................................... 39
Shareholder Rights Plan........................................................................................... 39
Shareholder Meetings.............................................................................................. 41
Dissenters' Appraisal Rights...................................................................................... 42
Consideration of Non-Shareholder Interests by Board of Directors.................................................. 42
Certain Purchases of the Corporation's Securities................................................................. 42
Indemnification................................................................................................... 42
Amendments to Articles of Incorporation and Bylaws................................................................ 43
ADDITIONAL INFORMATION CONCERNING MTB
General................................................................................................................ 44
Properties............................................................................................................. 44
Competition............................................................................................................ 44
Customers.............................................................................................................. 44
Loans and Loan Review.................................................................................................. 44
Asset/Liability Management............................................................................................. 45
Legal Proceedings...................................................................................................... 45
"Year 2000" Information System Issues.................................................................................. 45
Supervision and Regulation............................................................................................. 45
Effect of Governmental Policies........................................................................................ 47
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 47
Comparison of Six Months Ended June 30, 1998 and 1997............................................................. 47
Comparison of Years Ended December 31, 1997, 1996 and 1995 ....................................................... 50
Management of MTB...................................................................................................... 53
Directors and Executive Officers.................................................................................. 53
Transactions with Management...................................................................................... 55
Securities Law Limitations........................................................................................ 55
The MTB Board and its Committees.................................................................................. 55
Executive Compensation............................................................................................ 55
Compensation of Directors......................................................................................... 56
Ownership of MTB Common Stock..................................................................................... 56
Description of MTB Capital Stock....................................................................................... 58
ADDITIONAL INFORMATION
Dissenters' Appraisal Rights........................................................................................... 59
Legal Opinion.......................................................................................................... 59
Experts................................................................................................................ 59
Other Matters.......................................................................................................... 60
Where You Can Find More Information.................................................................................... 60
Cautionary Statement Concerning Forward-Looking Information............................................................ 62
ii
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PAGE
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INDEX TO FINANCIAL STATEMENTS OF THE MIDDLE TENNESSEE BANK............................................................. F-1
APPENDICES
APPENDIX A Bank Merger Agreement...................................................................................... A-1
APPENDIX B Opinion of The Carson Medlin Company....................................................................... B-1
APPENDIX C 12 U.S.C. ss. 215a......................................................................................... C-1
iii
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SUMMARY
This summary highlights selected information from this document. It does not
contain all of the information that is important to you. You should carefully
read this entire document and the documents to which we have referred you in
order to understand fully the Merger and to obtain a more complete description
of the legal terms of the Merger. See "ADDITIONAL INFORMATION--Where You Can
Find More Information" (page 60). Each item in this summary includes a page
reference that directs you to a more complete description in this document of
the topic discussed.
THE COMPANIES (PAGE 33)
FIRST AMERICAN CORPORATION
First American Center
Nashville, Tennessee 37237-0700
(615) 748-2000
First American is incorporated in Tennessee and is a federal bank holding
company. We provide banking and other financial services. Our banking services
are provided in Tennessee, Mississippi, Louisiana, Arkansas, Virginia and
Kentucky. First American's principal assets are the stock of its subsidiaries.
As of June 30, 1998, our total assets were about $19.1 billion, our deposits
were about $13.6 billion and shareholders' equity was about $1.6 billion.
THE MIDDLE TENNESSEE BANK
700 North Garden Street
Columbia, Tennessee 38402
(423) 388-1000
MTB is a Tennessee state-chartered bank. MTB operates seven banking offices in
Maury County, Tennessee. As of June 30, 1998, our total assets were about $225
million, our deposits were about $190 million and shareholders' equity was about
$31 million.
MTB'S REASONS FOR THE MERGER (PAGE 19)
We have approved the Merger based upon our assessment of the financial condition
of MTB in particular and the competitive and regulatory environment for
financial institutions generally. In addition, MTB's financial advisor has
advised that the aggregate consideration provided for in the Merger is fair,
from a financial point of view, to the holders of MTB Common Stock. The
nonfinancial terms of the Merger, including the treatment of the Merger as a
tax-free exchange of MTB Common Stock for First American Common Stock for
federal income tax purposes (except in respect of cash received for MTB Common
Stock), are also favorable to MTB shareholders. The Merger will enable MTB
stockholders to exchange their shares of common stock for stock in a larger and
more diversified entity, the stock of which is more widely held and more
actively traded. Based upon these and other factors, we believe that combining
with First American is in the best interests of MTB and the MTB shareholders.
To review the background of, and reasons for, the Merger in greater detail,
please see pages 18 through 19.
THE MTB SPECIAL MEETING (PAGE 16)
The MTB Special Meeting will be held at 700 North Garden Street, Columbia,
Tennessee 38402, on September 24, 1998 at 3:00 P.M. At the Special Meeting, MTB
shareholders will be asked to approve the Agreement.
MTB'S RECOMMENDATION TO SHAREHOLDERS (PAGE 20)
The MTB Board of Directors (the "MTB Board") believes that the Merger is fair to
you and in your best interests, and unanimously recommends that you vote "FOR"
the proposal to approve the Agreement.
RECORD DATE; VOTING POWER (PAGE 16)
You can vote at the Special Meeting if you owned MTB Common Stock as of the
close of business on August 21, 1998, the record date. On that date, 150,000
shares of MTB Common Stock were outstanding and therefore are allowed to vote at
the Special Meeting. You will be able to cast one vote for each share of MTB
common stock you owned on August 21, 1998.
VOTE REQUIRED (PAGE 17)
In order for the Merger to be approved, MTB shareholders holding two-thirds of
the outstanding shares of MTB Common Stock on the record date must vote in favor
of the Merger.
All together, the directors and officers of MTB can cast less than 33.1% of the
votes entitled to be cast at the Special Meeting. We expect that they will vote
all of their shares in favor of the Merger. In addition, other shareholders
owning approximately 30.2% of the votes entitled to be cast at the Special
Meeting have signed shareholder agreements, thereby agreeing to cast their votes
in favor of the Merger.
THE MERGER (PAGE 18)
We have attached the Agreement to this Prospectus/Proxy Statement as Appendix A.
We encourage you to read the Agreement. It is the legal document that governs
the Merger.
THE EXCHANGE RATIO (PAGE 18)
In the Merger, each outstanding share of MTB Common Stock will be converted into
7.768 shares of First American Common Stock.
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CONDITIONS TO COMPLETION OF THE MERGER (PAGE 25)
The completion of the Merger depends on a number of conditions being met,
including the following:
1. MTB shareholders approving the Merger;
2. The New York Stock Exchange (the "NYSE") having approved for listing the
shares First American will issue to MTB shareholders by virtue of the
Merger;
3. receipt of all required regulatory approvals and the expiration of any
regulatory waiting periods;
4. the absence of any governmental order blocking completion of the Merger,
or of any proceedings by a government body trying to block it;
5. receipt of an opinion of MTB's counsel that the U.S. federal income tax
treatment of MTB shareholders, MTB and First American in the Merger will
generally be as we've described it to you in this document; and
6. receipt of a letter from First American's independent public accountants
stating that the Merger will qualify for "pooling of interests"
accounting treatment.
In cases where the law permits, a party to the Agreement could elect to waive a
condition that has not been satisfied and complete the Merger although it is
entitled not to. We can't be certain whether or when any of the conditions we've
listed will be satisfied (or waived, where permissible), or that the Merger will
be completed.
TERMINATION OF THE AGREEMENT (PAGE 27)
First American and MTB can mutually agree at any time to terminate the Agreement
without completing the Merger, even if the MTB shareholders have already voted
to approve it. Also, First American can terminate the Agreement if the MTB Board
withdraws, or modifies in any way adverse to First American, its recommendation
that MTB shareholders approve the Merger.
Moreover, either First American or MTB can terminate the Agreement in the
following circumstances:
1. after a final decision by a governmental authority to prohibit the
Merger, or after the rejection of an application for a governmental
approval required to complete the Merger;
2. if the Merger isn't completed by March 31, 1999, so long as the
terminating party did not materially breach its obligations under the
Agreement in a manner that caused the Merger not to be completed by that
date;
3. if the MTB shareholders don't approve the Merger; or
4. if the other party violates, in a significant way, any of its
representations, warranties or obligations under the Agreement.
Generally, a party can only terminate the Agreement in one of the preceding four
situations if that party isn't in violation of the Agreement or if its
violations of the Agreement aren't the cause of the event permitting
termination.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 28)
We have structured the transaction with the intent that First American, MTB and
MTB's shareholders won't recognize any gain or loss for U.S. federal income tax
purposes in the Merger, except in connection with cash received instead of
fractional shares by MTB shareholders. We have conditioned the merger on the
receipt of a legal opinion that this will be the case, but these opinions won't
bind the Internal Revenue Service, which could take a different view.
THIS TAX TREATMENT MAY NOT APPLY TO CERTAIN MTB SHAREHOLDERS, INCLUDING THE
TYPES OF MTB SHAREHOLDERS DISCUSSED ON PAGE 28 AND WILL NOT APPLY TO ANY MTB
SHAREHOLDER WHO DISSENTS FROM THE MERGER UNDER TENNESSEE LAW. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU CAN BE COMPLICATED. THEY WILL
DEPEND ON YOUR SPECIFIC SITUATION AND MANY VARIABLES NOT WITHIN OUR CONTROL. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S TAX
CONSEQUENCES.
ACCOUNTING TREATMENT (PAGE 31)
First American expects the Merger to qualify as a pooling of interests, which
means that, for accounting and financial reporting purposes, First American will
treat First American and MTB as if they had always been one company. We have
conditioned the Merger on the receipt of a letter from First American's
independent certified public accountants that the Merger will qualify as a
pooling of interests and a letter from each of First American's and MTB's
independent certified public accountants, indicating that they have examined
certain financial information with respect to First American and MTB,
respectively, (as required by the terms of the Agreement) and making such
representations and giving such assurances as are required by the terms of the
Agreement.
OPINION OF MTB'S FINANCIAL ADVISOR (PAGE 20)
In deciding to approve the Merger, the MTB Board considered the opinion of its
financial advisor, The Carson Medlin Company ("CMC"), that as of the date of the
opinion the Merger was fair from a financial point of view to MTB's
shareholders. We have attached this opinion as Appendix B to this document. You
should read it carefully.
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10
BOARD OF DIRECTORS AND MANAGEMENT OF FIRST AMERICAN FOLLOWING THE MERGER
(PAGE 34)
The Board of Directors and executive officers of First American immediately
prior to the Merger shall continue to hold such positions following the Merger.
At the Effective Time, MTB will merge with and into FANB, with FANB as the
surviving bank. The Board of Directors and executive officers of FANB
immediately prior to the Merger shall continue to hold such positions following
the Merger.
INTERESTS OF OTHER PERSONS IN THE MERGER THAT ARE DIFFERENT FROM YOURS (PAGE 29)
Mr. Edward D. (Kelly) Green, who is a director, President and principal
shareholder of MTB, will be employed by First American National Bank ("FANB"), a
national banking association of which First American is the sole shareholder,
after the Merger.
Mr. Green will enter into an employment agreement with FANB that will become
effective upon completion of the Merger. During the term of his agreement, Mr.
Green will receive an annual base salary of $140,000 for the first year and
$70,000 for the second year. Subject to certain conditions, he also will receive
an additional $360,000.
Mr. Beverly Douglas, Jr., who is Chairman of the Board and a principal
shareholder of MTB, will be retained by FANB as a consultant after the Merger
for one year.
Mr. Douglas will enter into a consulting agreement with FANB that will become
effective upon completion of the Merger. During the term of his agreement, Mr.
Douglas will receive an annual base salary of $50,000.
Please refer to pages 29 to 30 for more information concerning the employment
agreement and the consulting agreement.
Members of the MTB Board and MTB's officers also are entitled to indemnification
and liability insurance under the Agreement.
Please refer to pages 29 through 31 for more information concerning employment
arrangements, retention incentives and other interests of MTB directors and
officers in the Merger.
DISSENTERS' APPRAISAL RIGHTS (PAGE 59)
Federal law permits you to dissent from the Merger and to have the fair value of
your stock appraised and paid to you in cash. To do this, you must follow
certain procedures, including filing certain notices with us or voting your
shares against the Merger. If you dissent from the Merger, your shares of MTB
Common Stock will not be exchanged for shares of First American Common Stock in
the Merger, and your only right will be to receive the appraised value of your
shares in cash.
REGULATORY APPROVALS (PAGE 31)
We can't complete the Merger unless we obtain the approval of the Office of the
Comptroller of the Currency (the "OCC"). The U.S. Department of Justice has
input into the approval process by the OCC. Federal law requires us to wait for
up to 30 days before completing the Merger after the federal banking agencies
have approved it. As of the date of this document, [UPDATE PRIOR TO FILING] have
approved the Merger and the required waiting period has expired.
[While we don't know of any reason why we shouldn't obtain the remaining
regulatory approvals in a timely manner, we can't be certain when we will obtain
them or that we will obtain them.]
TERMINATION FEE (PAGE 27)
Under certain circumstances, if First American terminates the Agreement by
reason of certain actions or omissions on the part of MTB, or if MTB terminates
the Agreement and has taken certain actions regarding a possible transaction
with a third party which would result in such third party acquiring a
significant portion of the assets or securities of MTB, MTB may be required to
pay First American liquidated damages in the amount of $2 million. In addition,
if, under certain circumstances, MTB terminates the Agreement by reason of
certain actions or omissions on the part of FANB or First American, FANB or
First American may be required to pay MTB liquidated damages in the amount of $2
million.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 4)
Shares of First American are quoted on the NYSE. Shares of MTB are neither
listed nor publicly traded. On May 22, 1998, the last full trading day prior to
the public announcement of the Merger, First American stock closed at $48.13 per
share. On August 24, 1998, First American stock closed at $40.69 per share.
Based on the exchange ratio in the merger, which is 7.768, the market value of
the consideration that MTB shareholders will receive in the Merger for each
share of MTB Common Stock would be $373.84 based on First American's May 22,
1998 closing price and $316.08 based on First American's August 24, 1998 closing
price. Of course, the market price of First American Common Stock will fluctuate
prior to and after completion of the Merger, while the exchange ratio is fixed.
You should obtain current stock price quotations for First American Common
Stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 62)
We have each made forward-looking statements in this document (and in documents
to which we refer you in this document) that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of First American's operations or performance
after the Merger. Also, when we
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11
use any of the words "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Many possible events or
factors could affect the future financial results and performance of First
American after the Merger and could cause those results or performance to differ
materially from those expressed in our forward-looking statements. These
possible events or factors include the following:
1. legal and regulatory risks and uncertainties;
2. economic, political and competitive forces affecting our businesses,
markets, constituencies or securities;
3. the possibility that our analyses of these risks and forces could be
incorrect, or that the strategies we've developed to deal with them may
not succeed.
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12
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows information about our companies' income per
share, dividends per share and book value per share, and similar information
reflecting the Merger and First American's acquisitions of Peoples Bank
("PEOPLES"), Pioneer Bancshares, Inc. ("PIONEER") and CSB Financial Corp.
("CSB") (collectively, the "PROPOSED TRANSACTIONS") (which is referred to as
"pro forma" information). In presenting the comparative pro forma information
for certain time periods, we assumed the Proposed Transactions were completed at
the beginning of those periods.
In connection with the Merger, First American will exchange 7.768
shares of First American Common Stock for each of the 150,000 outstanding shares
of MTB Common Stock. In connection with its acquisition of Peoples, First
American will exchange 3.70 shares of First American Common Stock for each of
the 250,000 outstanding shares of common stock of Peoples ("PEOPLES COMMON
STOCK"). In connection with its acquisition of CSB, First American will exchange
9.7071 shares of First American Common Stock for each of the 84,946 outstanding
shares of common stock of CSB ("CSB COMMON STOCK") and 4.4653 shares of First
American Common Stock for each of the 6,868 shares of common stock of Cheatham
State Bank not owned by CSB. In connection with its acquisition of Pioneer,
First American will exchange 1.65 shares of First American Common Stock for each
of the 3,735,848 outstanding shares of Pioneer ("PIONEER COMMON STOCK").
In presenting the comparative pro forma information, we also assumed
that we will treat the companies as if they had always been combined for
accounting and financial reporting purposes (a method which is referred to as
the "pooling of interests" method of accounting).
The information listed as "equivalent pro forma" was obtained by
multiplying the pro forma amounts by the exchange ratio of 7.768. It is intended
to reflect the fact that MTB shareholders will be receiving more than one share
of First American Common Stock for each share of MTB Common Stock exchanged in
the Merger.
We expect that we will incur restructuring and merger-related expenses
as a result of the Proposed Transactions. We also anticipate that the Proposed
Transactions will provide financial benefits such as reduced operating expenses
and the opportunity to earn more revenue at branch locations. However, none of
these anticipated expenses or benefits has been factored into the pro forma
information, except for the pro forma combined condensed balance sheet. For that
reason, the pro forma information, while helpful in illustrating the financial
attributes of the combined company under one set of assumptions, doesn't attempt
to predict or suggest future results. Also, the information we've set forth for
the six-month period ended June 30, 1998 doesn't indicate what the results will
be for the full 1998 fiscal year.
The information in the following table is based on the historical
financial information of First American that has been presented in its prior
Securities and Exchange Commission filings, the historical financial information
of MTB that is included at the back of this Prospectus/Proxy Statement and the
historical financial information of Peoples, Pioneer and CSB. First American's
financial information has been incorporated into this Prospectus/Proxy Statement
by reference. See "ADDITIONAL INFORMATION--Where You Can Find More Information"
on page 60.
5
13
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEARS ENDED
ENDED DECEMBER 31
JUNE 30, ------------------------------------------
1998 1997(a) 1996(a) 1995(a)
----------- ---------- --------- ---------
(unaudited)
FIRST AMERICAN COMMON STOCK
Income from continuing operations per common share
Basic:
Historical $ 0.77 $ 2.23 $ 1.96 $ 1.73
Pro Forma - MTB 0.77 2.22 1.96 1.74
Pro Forma - Proposed Transactions (b) 0.78 2.19 1.93 1.70
Diluted:
Historical $ 0.75 $ 2.18 $ 1.93 $ 1.70
Pro Forma - MTB 0.76 2.18 1.93 1.71
Pro Forma - Proposed Transactions (b) 0.77 2.15 1.91 1.67
Cash dividends declared per common share:
Historical(d) $ 0.34 $ 0.73 $ 0.61 $ 0.51
Pro Forma - MTB 0.34 0.73 0.61 0.51
Pro Forma - Proposed Transactions (b) 0.33 0.71 0.60 0.50
Book value per common share as of end of period:
Historical $ 14.59 $ 14.56
Pro Forma - MTB 14.70 14.68
Pro Forma - Proposed Transactions (b) 14.84 14.77
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEARS ENDED
ENDED DECEMBER 31
JUNE 30, ------------------------------------------
1998 1997 1996 1995
----------- ---------- --------- ---------
(unaudited)
MTB COMMON STOCK
Income from continuing operations per common share
Basic:
Historical $ 7.04 $ 13.72 $ 13.85 $ 17.62
Equivalent Pro Forma - MTB (c) 5.98 17.24 15.23 13.52
Equivalent Pro Forma - Proposed Transactions (b) 6.06 17.01 14.99 13.21
Diluted:
Historical $ 7.04 $ 13.72 $ 13.85 $ 17.62
Equivalent Pro Forma - MTB (c) 5.90 16.93 14.99 13.28
Equivalent Pro Forma - Proposed Transactions (b) 5.98 16.70 14.84 12.97
Cash dividends declared per common share:
Historical $ 2.40 $ 4.60 $ 4.40 $ 4.30
Equivalent Pro Forma - MTB (c) 2.64 5.67 4.74 3.96
Equivalent Pro Forma - Proposed Transactions (b) 2.56 5.52 4.66 3.88
Book value per common share as of end of period:
Historical $ 203.68 $ 201.41
Equivalent Pro Forma - MTB (c) 114.19 114.03
Equivalent Pro Forma - Proposed Transactions (b) 115.28 114.73
(a) Historical data has been restated to reflect the acquisition of Deposit
Guaranty Corp. effective May 1, 1998 accounted for using the "pooling of
interests" method of accounting.
(b) First American will account for each of the Proposed Transactions using
the "pooling of interests" method of accounting.
(c) MTB equivalent pro forma amounts are computed by multiplying the First
American pro forma combined amounts by the exchange ratio of 7.768.
(d) First American historical dividends are computed by combining dividends
paid by First American and Deposit Guaranty Corp. divided by the combined
weighted average shares outstanding for the period.
6
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SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical financial
data for First American and MTB. The information we've set forth for the
six-month period ended June 30, 1998 doesn't indicate what the results will be
for the full 1998 fiscal year.
The information in the following tables is based on the historical
financial information of First American that has been presented in its prior
filings with the Securities and Exchange Commission and the historical financial
information of MTB that is attached at the back of this Prospectus/Proxy
Statement. All of the summary financial information provided in the following
tables should be read in connection with this historical financial information.
See "ADDITIONAL INFORMATION--Where You Can Find More Information" on page 62.
First American's and MTB's audited historical financial statements were audited
by KPMG Peat Marwick LLP, independent certified public accountants. The
financial information as of or for the interim periods ended June 30, 1998 and
June 30, 1997 has not been audited and in the respective opinions of management
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data.
SELECTED HISTORICAL FINANCIAL DATA OF FIRST AMERICAN
AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30 AS OF AND FOR THE YEAR ENDED DECEMBER 31
----------------- ---------------------------------------------------------
1998 1997(a) 1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
---- ------- ------- ------- ------- ------- -------
CONDENSED INCOME DATA (THOUSANDS):
Net interest income $ 342,487 $ 325,282 $ 662,123 $ 593,261 $ 539,053 $ 477,623 $ 458,383
Provision for loan losses 11,000 3,750 12,500 5,340 2,243 (14,669) (57,405)
Non-interest income 228,211 188,506 395,761 303,749 203,005 181,224 166,617
Non-interest expense 427,186 330,323 669,731 571,663 463,900 419,317 419,794
Income tax expense 51,408 65,802 137,901 114,825 100,215 89,867 88,650
----------- ----------- ------------ ------------ ----------- ----------- -----------
Income before cumulative effect of
changes in accounting principles,
net of tax 81,104 113,913 237,752 205,182 175,700 164,332 173,961
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income
principles, net of tax - - - - - - (84)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $ 81,104 $ 113,913 $ 237,752 $ 205,182 $ 175,700 $ 164,332 $ 173,877
=========== =========== =========== =========== =========== =========== ===========
END OF PERIOD BALANCE SHEET ITEMS
(THOUSANDS):
Assets $19,059,601 $17,088,911 $17,834,436 $16,806,010 $15,727,890 $13,416,988 $12,612,944
Loans, net of unearned discount and
net deferred loan fees 11,099,030 11,318,111 11,641,732 10,632,665 9,999,637 8,027,142 7,085,384
Deposits 13,641,535 14,104,456 13,405,457 12,848,368 12,180,187 10,354,439 10,082,265
Long-term debt 600,125 417,053 596,218 430,562 421,791 271,473 77,053
Shareholders' equity 1,557,043 1,473,771 1,543,977 1,449,973 1,334,585 1,111,222 1,019,450
PER SHARE DATA:
Income per share:
Basic $ 0.77 $ 1.06 $ 2.23 $ 1.96 $ 1.73 $ 1.67 $ 1.77
Diluted 0.75 1.04 2.18 1.93 1.70 1.64 1.75
Cash dividends declared(b) 0.45 0.36 0.76 0.61 0.53 0.44 0.53
Book value, end of period 14.59 13.84 14.56 13.79 12.78 11.27 10.49
SHARES OUTSTANDING (THOUSANDS):
Basic - Average 105,275 107,330 106,745 104,533 101,593 98,683 98,011
Diluted - Average 107,645 109,642 108,950 106,092 103,300 100,180 99,349
End of period 106,732 106,435 106,032 105,109 104,428 98,583 97,172
(a) Data has been restated to reflect the acquisition of Deposit Guaranty
Corp. effective May 1, 1998 accounted for using the "pooling of
interests" method of accounting.
(b) Cash dividends declared represents dividends declared by First
American without any effect given to the acquisition of
Deposit Guaranty Corp.
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SELECTED HISTORICAL FINANCIAL DATA OF MTB
AS OF OR FOR THE
MONTH ENDED
JUNE 30 AS OF AND FOR THE YEAR ENDED DECEMBER 31
----------------- ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ------- ------- ------- ------- -------
CONDENSED INCOME DATA (THOUSANDS):
Net interest income $ 4,735 $ 4,368 $ 8,997 $ 8,423 $ 8,546 $ 7,941 $ 8,096
Provision for loan losses 145 163 537 323 170 219 100
Non-interest income 640 522 1,077 1,044 943 600 1,196
Non-interest expense 3,630 3,149 6,481 5,906 5,353 5,417 5,257
Income tax expense 544 610 998 1,160 1,323 925 1,308
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of changes
in accounting principles, net of tax 1,056 968 2,058 2,078 2,643 1,980 2,627
Net interest income principles,
net of tax - - - - - - 43
-------- -------- -------- -------- -------- -------- --------
Net income $ 1,056 $ 968 $ 2,058 $ 2,078 $ 2,643 $ 1,980 $ 2,670
======== ======== ======== ======== ======== ======== ========
END OF PERIOD BALANCE SHEET ITEMS
(THOUSANDS):
Assets $225,327 $219,458 $216,630 $217,179 $219,594 $215,684 $215,499
Loans, net of unearned discount
and net deferred loan fees 96,775 89,176 96,200 82,133 75,048 74,093 70,723
Deposits 189,523 185,873 182,393 184,643 187,410 188,840 188,631
Long-term debt 3,188 2,374 2,303 2,444 2,575 2,699 2,807
Shareholders' equity 30,552 29,020 30,212 28,452 27,447 22,874 22,969
PER SHARE DATA:
Net Income:
Basic $ 7.04 $ 6.46 $ 13.72 $ 13.85 $ 17.62 $ 13.20 $ 17.80
Diluted 7.04 6.46 13.72 13.85 17.62 13.20 17.80
Book value, end of period 203.68 193.47 201.41 189.68 182.98 152.49 153.13
SHARES OUTSTANDING (THOUSANDS):
Basic - Average 150 150 150 150 150 150 150
Diluted - Average 150 150 150 150 150 150 150
End of Period 150 150 150 150 150 150 150
8
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Condensed Balance Sheet as
of June 30, 1998, combines the historical consolidated balance sheet of First
American, the historical consolidated balance sheet of MTB, the historical
consolidated balance sheet of Peoples, the historical consolidated balance sheet
of Pioneer and the historical consolidated balance sheet of CSB as if the
Proposed Transactions had been effective on June 30, 1998, on a "pooling of
interests" accounting basis, after giving effect to certain adjustments
described in the attached Notes to Unaudited Pro Forma Combined Condensed
Financial Information.
The following Unaudited Pro Forma Combined Condensed Income Statements
for the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995 present the combined results of operations of First
American, MTB, Peoples, Pioneer, and CSB as if the Proposed Transactions had
been effective at the beginning of each period presented therein, after giving
effect to certain adjustments described in the attached Notes to Unaudited Pro
Forma Combined Condensed Financial Information.
The unaudited pro forma combined condensed financial information and
accompanying notes reflect the application of the "pooling of interests" method
of accounting for the Proposed Transactions. Under this method of accounting,
the recorded assets, liabilities, shareholders' equity, income and expenses of
First American, MTB, Peoples, Pioneer and CSB are combined and reflect all their
historical amounts.
While no assurance can be given, it is expected that the combined
company will achieve significant merger benefits in the form of operating cost
savings and revenue enhancements. The pro forma earnings, which do not reflect
any direct costs, potential savings, or revenue enhancements expected to result
from the consolidation of First American, MTB, Peoples, Pioneer, and CSB are not
indicative of the results of future operations. No assurances can be given with
respect to the ultimate level of expense savings or revenue enhancements.
The pro forma condensed financial information does not include the
effects prior to the date of acquisition of Hartsville Bancshares, Inc. which
was completed on January 1, 1997, the acquisition of Jefferson Guaranty Bancorp
which was completed on January 3, 1997, the acquisition of First Capital Bancorp
which was completed on March 31, 1997, the acquisition of NBC Financial
Corporation which was completed on June 30, 1997, the acquisition of CitiSave
Financial Corporation which was completed on July 31, 1997, and the acquisition
of Victory Bancshares, Inc. which was completed on March 23, 1998. These
acquisitions are not significant to the historical financial position or results
of operations of First American, either individually or in the aggregate.
The financial statements of MTB as of December 31, 1997 and December
31, 1996, and for each of the years in the three-year period ended December 31,
1997, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, also included herein, and upon the authority of said firm as
experts in accounting and auditing.
The same partner of KPMG Peat Marwick LLP is the engagement partner
for both First American and MTB. First American and MTB were aware of this
circumstance prior to the execution of the Agreement, and both First American
and MTB have consented to KPMG Peat Marwick LLP continuing both engagements in
connection with the Merger and the preparation of this Prospectus/Proxy
Statement.
9
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet
combines the consolidated historical balance sheets of First American, MTB,
Peoples, Pioneer and CSB assuming the companies had been combined as of June 30,
1998 on a "pooling of interests" accounting basis.
At June 30, 1998
---------------------------------------------------------------------------------------------------
First Pro Forma Pro Forma
(In thousands) American MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
-------- ----- ----------- ----- ------- ------- ----- ----------- --------
Assets
Cash and due from other banks $ 1,004,527 $ 9,630 $ -- $ 1,014,157 $ 5,210 $ 59,835 $ 4,501 $ -- $ 1,083,703
Time deposits with other banks 4,910 1,179 -- 6,089 0 250 -- -- 6,339
Securities:
Held to maturity 985,792 -- -- 985,792 -- 30,912 3,597 -- 1,020,301
Available for sale 4,906,133 101,224 -- 5,007,357 46,832 176,117 48,807 -- 5,279,113
----------- -------- ------- ----------- -------- ---------- -------- -------- ------------
Total securities 5,891,925 101,224 -- 5,993,149 46,832 207,029 52,404 -- 6,299,414
----------- -------- ------- ----------- -------- ---------- -------- -------- ------------
Federal funds sold and
securities purchased under
agreements to resell 104,250 10,500 -- 114,750 2,400 175 -- -- 117,325
Trading account securities 109,577 - -- 109,577 -- -- -- -- 109,577
Total loans 11,111,109 98,868 -- 11,207,977 75,259 702,343 82,431 -- 12,068,010
Unearned discount and net
deferred loan fees 12,079 93 -- 12,172 31 1,908 79 -- 14,190
----------- -------- -------- ----------- -------- ---------- -------- -------- ------------
Loans, net of unearned
discount and net deferred
loan fees 11,099,030 96,775 -- 11,195,805 75,228 700,435 82,352 -- 12,053,820
Allowance for loan losses 180,138 1,335 -- 181,473 968 9,141 1,060 -- 192,642
----------- -------- -------- ----------- -------- ---------- -------- -------- ------------
Total net loans 10,918,892 95,440 -- 11,014,332 74,260 691,294 81,292 -- 11,861,178
Premises and equipment, net 340,944 4,603 (1,294)(3) 344,303 4,147 23,125 3,280 -- 374,855
Other assets 684,526 2,751 989(3) 688,266 2,818 22,843 3,384 4,122(3) 721,433
----------- -------- ------- ----------- -------- ---------- -------- -------- -----------
Total assets $19,059,601 $225,327 $ (305) $19,284,623 $135,667 $1,004,551 $144,861 $ 4,122 $20,573,824
=========== ======== ======= =========== ======== ========== ======== ======== ===========
Liabilities
Deposits $13,641,535 $189,523 $ -- $13,831,058 $189,019 $ 804,213 $131,679 $ -- $14,884,969
Short-term borrowings 2,786,341 -- -- 2,786,341 -- 68,592 -- -- 2,854,933
Long-term debt 600,125 3,188 -- 603,313 -- 20,000 630 -- 623,943
Other liabilities 474,557 2,064 1,650(3) 478,271 841 8,622 1,559 15,904(3) 505,197
----------- -------- -------- ----------- -------- ---------- -------- -------- -----------
Total liabilities 17,502,558 194,775 1,650 17,698,983 118,860 901,427 133,868 15,904 18,869,042
----------- -------- -------- ----------- -------- ---------- -------- -------- -----------
Shareholder's equity
Common stock 266,829 1,500 1,413(2) 269,742 500 38 85 19,067(2) 289,533
Additional paid in capital 142,586 1,500 (1,413)(2) 142,673 500 65,190 1,639 (19,067)(2) 190,834
Retained earnings 1,171,319 26,800 (1,955)(3) 1,196,164 15,689 38,124 8,912 (11,782)(3) 1,247,107
Other (33,543) -- -- (33,543) -- (1,164) -- -- (34,707)
----------- -------- -------- ----------- -------- ---------- -------- -------- -----------
Realized shareholders'
equity 1,547,191 29,800 (1,955) 1,575,036 16,689 102,188 10,636 (11,782) 1,692,767
Net unrealized gains on
securities available for
sale, net of tax 9,852 752 -- 10,604 118 936 357 -- 12,015
----------- -------- -------- ----------- -------- ---------- -------- -------- -----------
Total shareholders'
equity 1,557,043 30,552 (1,955) 1,585,640 16,807 103,124 10,993 (11,782) 1,704,782
----------- -------- -------- ----------- -------- ---------- -------- -------- -----------
Total liabilities and
shareholders' equity $19,059,601 $225,327 $ (305) $19,284,623 $135,667 $1,004,551 $144,861 $ 4,122 $20,573,824
=========== ======== ======== =========== ======== ========== ======== ======== ===========
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
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PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed income statements
present the combined incomes statements of First American, MTB, Peoples, Pioneer
and CSB assuming the companies had been combined at the beginning of the period
presented on a "pooling of interests" accounting basis.
For the Six Months Ended June 30, 1998
--------------------------------------------------------------------------------------------------
First Pro Forma Pro Forma
American MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
-------- ----- ----------- ----- ------- ------- ------ ----------- --------
(in thousands except per share amounts)
Interest income
Interest and fees on loans $479,844 $4,601 $ -- $484,445 $4,010 $30,556 $4,149 $ -- $523,160
Interest and dividends on
securities 151,601 3,534 -- 155,135 1,333 5,872 1,570 -- 163,910
Other interest income 5,029 286 -- 5,315 74 586 70 -- 6,045
-------- ------ ------ -------- ------ ------- ------ ------- --------
Total interest income 636,474 8,421 -- 644,895 5,417 37,014 5,789 -- 693,115
-------- ------ ------ -------- ------ ------- ------ ------- --------
Interest expense
Interest on deposits 222,923 3,604 -- 226,527 2,443 14,298 2,701 -- 245,969
Interest on short-term
borrowings 52,534 -- -- 52,534 2 2,307 2 -- 54,845
Interest on long-term debt 18,530 82 -- 18,612 -- -- 17 -- 18,629
-------- ------ ------ -------- ------ ------- ------ ------- --------
Total interest expense 293,987 3,686 -- 297,673 2,445 16,605 2,720 -- 319,443
Net interest income 342,487 4,735 -- 347,222 2,972 20,409 3,069 -- 373,672
Provision for loan losses 11,000 145 -- 11,145 -- 2,275 162 -- 13,582
-------- ------ ------ -------- ------ ------- ------ ------- --------
Net interest income after
provision for loan losses 331,487 4,590 -- 336,077 2,972 18,134 2,907 -- 360,090
-------- ------ ------ -------- ------ ------- ------ ------- --------
Noninterest income 225,068 635 -- 225,703 1,160 5,621 799 -- 233,283
Net Realized gain on sales
of securities 3,143 5 -- 3,148 169 8 7 -- 3,332
-------- ------ ------ -------- ------ ------- ------ ------- --------
Total noninterest income 228,211 640 -- 228,851 1,329 5,629 806 -- 236,615
Noninterest expense 427,186 3,630 -- 430,816 2,143 16,393 2,375 -- 451,727
-------- ------ ------ -------- ------ ------- ------ ------- --------
Income from continuing
operations before income
tax expense 132,512 1,600 -- 134,112 2,158 7,370 1,338 -- 144,978
Income tax expense 51,408 544 -- 51,952 637 2,440 439 -- 55,468
-------- ------ ------ -------- ------ ------- ------ ------- --------
Net income $ 81,104 $1,056 $ -- $ 82,160 $1,521 $ 4,930 $ 899 $ -- $ 89,510
======== ====== ======= ======== ====== ======= ====== ======= ========
Net income per common share:
Basic $ 0.77 $ 7.04 $ -- $ 0.77 $ 6.08 $ 1.32 $10.59 $ -- $ 0.78
Diluted 0.75 7.04 -- 0.76 6.08 1.32 10.41 -- 0.77
Weighted-average common shares
outstanding:
Basic - Average 105,275 150 1,015 106,440 250 3,734 85 3,872 114,381
Diluted - Average 107,645 150 1,015 108,810 250 3,732 86 3,872 116,750
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
11
19
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
For the Six Months Ended June 30, 1997
-------------------------------------------------------------------------------------------
First Pro Forma Proforma
American(5) MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
---------- ------ ----------- ----- ------- ------- ------ ----------- --------
(in thousands except per share amounts)
Interest income
Interest and fees on loans $460,485 $3,951 $ -- $464,436 $3,932 $24,325 $3,554 $ -- $496,247
Interest and dividends on securities 136,565 3,892 -- 140,457 1,293 7,179 1,462 -- 150,391
Other interest income 5,453 95 -- 5,548 43 349 34 -- 5,974
-------- ------ ------- -------- ------ ------- ------ ------- --------
Total interest income 602,503 7,938 -- 610,441 5,268 31,853 5,050 -- 652,612
-------- ------ ------- -------- ------ ------- ------ ------- --------
Interest expense
Interest on deposits 223,604 3,495 -- 227,099 2,200 12,781 2,318 -- 244,398
Interest on short-term borrowings 40,563 -- -- 40,563 3 1,365 10 -- 41,941
Interest on long-term debt 13,054 75 -- 13,129 -- 341 7 -- 13,477
-------- ------ ------- -------- ------ ------- ------ ------- --------
Total interest expense 277,221 3,570 -- 280,791 2,203 14,487 2,335 -- 299,816
Net interest income 325,282 4,368 -- 329,650 3,065 17,366 2,715 -- 352,796
Provision for loan losses 3,750 163 -- 3,913 76 1,621 86 -- 5,696
-------- ------ ------- -------- ------ ------- ------ ------- --------
Net interest income after provision
for loan losses 321,532 4,205 -- 325,737 2,989 15,745 2,629 -- 347,100
-------- ------ ------- -------- ------ ------- ------ ------- --------
Noninterest income 187,114 496 -- 187,610 777 4,229 846 -- 193,462
Net realized gain on sales
of securities 1,392 26 -- 1,418 20 62 11 -- 1,511
-------- ------ ------- -------- ------ ------- ------ ------- --------
Total noninterest income 188,506 522 -- 189,028 797 4,291 857 -- 194,973
Noninterest expense 330,323 3,149 -- 333,472 2,068 13,638 2,231 -- 351,409
-------- ------ ------- --------- ------ ------- ------ ------ --------
Income from continuing operations
before income tax expense 179,715 1,578 -- 181,293 1,718 6,398 1,255 -- 190,664
Income tax expense 65,802 610 -- 66,412 484 1,690 410 -- 68,996
-------- ------ ------- -------- ------ ------- ------ ------- --------
Net income $113,913 $ 968 $ -- $114,881 $1,234 $ 4,708 $ 845 $ -- $121,668
======== ====== ====== ======== ====== ======= ====== ======= ========
Net income per common share:
Basic $ 1.06 $ 6.46 $ -- $ 1.06 $ 4.94 $ 1.25 $ 9.95 $ -- $ 1.04
Diluted 1.04 6.46 -- 1.04 4.94 1.25 9.89 -- 1.02
Weighted-average common shares
outstanding:
Basic - Average 107,330 150 1,015 108,495 250 3,737 85 3,877 116,444
Diluted - Average 109,642 150 1,015 110,807 250 3,737 85 3,877 118,756
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
12
20
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
For the Year Ended December 31, 1997
--------------------------------------------------------------------------------------------
First Pro Forma Pro Forma
American(5) MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
----------- ----- ----------- ----- ------- ------- ----- ---------- ----------
(in thousands except per share amounts)
Interest income
Interest and fees on loans $ 949,676 $ 8,467 $ -- $ 958,143 $ 8,194 $53,107 $ 7,465 $ -- $1,026,909
Interest and dividends on securities 271,441 7,539 -- 274,980 2,763 13,384 3,047 -- 298,138
Other interest income 11,014 226 -- 11,240 -- 781 60 -- 12,081
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Total interest income 1,232,131 16,232 -- 1,248,363 10,957 67,236 10,572 -- 1,337,128
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Interest expense
Interest on deposits 451,980 7,087 -- 459,063 4,634 26,378 4,915 -- 494,994
Interest on short-term borrowings 90,067 -- -- 90,067 -- -- 22 -- 90,089
Interest on long-term debt 27,961 148 -- 28,109 -- 3,821 20 -- 31,950
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Total interest expense 570,008 7,235 -- 577,243 4,634 30,199 4,957 -- 617,033
Net interest income 662,123 8,997 -- 671,120 6,323 37,037 5,615 -- 720,095
Provision for loan losses 12,500 537 -- 13,037 284 3,609 232 -- 17,162
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Net interest income after provision
for loan losses 649,623 8,460 -- 658,083 6,039 33,428 5,383 -- 702,933
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Noninterest income 391,527 1,077 -- 392,604 1,696 9,578 1,305 -- 405,183
Net realized gain on sales
of securities 4,234 -- -- 4,234 52 294 192 -- 4,722
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Total noninterest income 395,761 1,077 -- 396,838 1,748 9,872 1,497 -- 409,955
Noninterest expense 669,731 6,481 -- 676,212 4,458 29,373 4,418 -- 714,461
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Income from continuing operations
before income tax expense 375,653 3,056 -- 378,709 3,329 13,927 2,462 -- 398,427
Income tax expense 137,901 998 -- 138,899 952 4,165 822 144,838
---------- ------- ------ ---------- -------- ------- ------- -------- ----------
Net income $ 237,752 $ 2,058 $ -- $ 239,810 $ 2,377 $ 9,762 $ 1,640 $ -- $ 253,589
========== ======= ====== ========== ======== ======= ======= ======== ==========
Net income per common share:
Basic $ 2.23 $ 13.72 $ -- $ 2.22 $ 9.51 $ 2.60 $ 19.31 $ -- $ 2.19
Diluted 2.18 13.72 -- 2.18 9.51 2.60 19.12 -- 2.15
Weighted-average common shares
outstanding:
Basic - Average 106,745 150 1,015 107,910 250 3,760 85 3,889 115,894
Diluted - Average 108,950 150 1,015 110,115 250 3,762 85 3,889 118,101
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
13
21
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
For the Year Ended December 31, 1996
------------------------------------------------------------------------------------------
First Pro Forma Pro Forma
American(5) MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
----------- ----- ----------- ----- ------- ------- ------ ---------- -----------
(in thousands except per share amounts)
Interest income
Interest and fees on loans $ 867,897 $ 7,445 $ -- $ 875,342 $7,032 $41,069 $6,487 $ -- $ 929,930
Interest and dividends on securities 43,853 8,064 -- 251,917 2,402 15,409 2,684 -- 272,412
Other interest income 1,550 321 -- 21,871 -- 486 74 -- 22,431
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Total interest income 1,133,300 15,830 -- 1,149,130 9,434 56,964 9,245 -- 1,224,773
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Interest expense
Interest on deposits 434,116 7,249 -- 441,365 3,937 23,670 4,084 -- 473,056
Interest on short-term borrowings 76,839 -- -- 76,839 -- 2,585 21 -- 79,445
Interest on long-term debt 29,084 158 -- 29,242 -- -- 27 -- 29,269
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Total interest expense 540,039 7,407 -- 547,446 3,937 26,255 4,132 -- 581,770
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Net interest income 593,261 8,423 -- 601,684 5,497 30,709 5,113 -- 643,003
Provision for loan losses 5,340 323 -- 5,663 269 1,097 222 -- 7,251
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Net interest income after provision
for loan losses 587,921 8,100 -- 596,021 5,228 29,612 4,891 -- 635,752
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Noninterest income 301,164 1,044 -- 302,208 1,427 7,881 1,227 -- 312,743
Net realized gain (loss) on sales
of securities 2,585 -- -- 2,585 56 297 (100) -- 2,838
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Total noninterest income 303,749 1,044 -- 304,793 1,483 8,178 1,127 -- 315,581
Noninterest expense 571,663 5,906 -- 577,569 3,784 25,739 3,897 -- 610,989
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Income from continuing operations
before income tax expense 320,007 3,238 -- 323,245 2,927 12,051 2,121 -- 340,344
Income tax expense 114,825 1,160 -- 115,985 805 3,054 670 -- 120,514
---------- ------- ------ ---------- ------ ------- ------ ------ ----------
Net income $ 205,182 $ 2,078 $ -- $ 207,260 $2,122 $ 8,997 $1,451 $ -- $ 219,830
========== ======= ====== ========== ====== ======= ====== ====== ==========
Net Income per common share:
Basic $ 1.96 $ 13.85 $ -- $ 1.96 $ 8.49 $ 2.39 $17.75 $ -- $ 1.93
Diluted 1.93 13.85 -- 1.93 8.49 2.39 17.69 -- 1.91
Weighted-average common shares
outstanding:
Basic - Average 104,533 150 1,015 105,698 250 3,760 82 3,820 113,610
Diluted - Average 106,092 150 1,015 107,257 250 3,760 82 3,820 115,169
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
14
22
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
For the Year Ended December 31, 1995
------------------------------------------------------------------------------------------
First Pro Forma Pro Forma
American(5) MTB Adjustments Total Peoples Pioneer CSB(6) Adjustments Combined
----------- ----- ----------- ----- ------- ------- ----- ----------- --------
(in thousands except per share amounts)
Interest income
Interest and fees on loans $ 754,662 $ 7,224 $ -- $ 761,886 $5,708 $31,572 $ 5,505 $ -- $ 804,671
Interest and dividends on securities 250,437 8,091 -- 258,528 2,223 15,941 2,498 -- 279,190
Other interest income 14,775 401 -- 15,176 -- 1,460 57 -- 16,693
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Total interest income 1,019,874 15,716 -- 1,035,590 7,931 48,973 8,060 -- 1,100,554
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Interest expense
Interest on deposits 382,307 7,006 -- 389,313 3,422 21,233 3,617 -- 417,585
Interest on short-term borrowings 78,543 -- -- 78,543 -- 1,749 15 -- 80,307
Interest on long-term debt 19,971 164 -- 20,135 -- -- 64 -- 20,199
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Total interest expense 480,821 7,170 -- 487,991 3,422 22,982 3,696 -- 518,091
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Net interest income 539,053 8,546 -- 547,599 4,509 25,991 4,364 -- 582,463
Provision for loan losses 2,243 170 -- 2,413 25 619 172 -- 3,229
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Net interest income after provision
for loan losses 536,810 8,376 -- 545,186 4,484 25,372 4,192 -- 579,234
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Noninterest income 201,349 943 -- 202,292 1,046 6,771 1,083 -- 211,192
Net realized gain (loss) on sales
of securities 1,656 -- -- 1,656 40 211 (229) -- 1,678
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Total noninterest income 203,005 943 -- 203,948 1,086 6,982 854 -- 212,870
Noninterest expense 463,900 5,353 -- 469,253 3,236 22,848 3,297 -- 498,634
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Income from continuing operations
before income tax expense 275,915 3,966 -- 279,881 2,334 9,506 1,749 -- 293,470
Income tax expense 100,215 1,323 -- 101,538 701 2,424 616 -- 105,279
---------- ------- ----- ---------- ------ ------- ------- ------ ----------
Net income $ 175,700 $ 2,643 $ -- $ 178,343 $1,633 $ 7,082 $ 1,133 $ -- $ 188,191
========== ======= ===== ========== ====== ======= ======= ====== ==========
Net income per common share:
Basic $ 1.73 $ 17.62 $ -- $ 1.74 $ 6.53 $ 1.89 $ 14.09 $ -- $ 1.70
Diluted 1.70 17.62 -- 1.71 6.53 1.89 14.09 -- 1.67
Weighted-average common shares
outstanding:
Basic - Average 101,593 150 1,015 102,758 250 3,760 80 3,846 110,694
Diluted - Average 103,300 150 1,015 104,465 250 3,760 80 3,846 112,401
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
15
23
NOTES TO UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION
(1) The unaudited pro forma information presented herein is not necessarily
indicative of the results of operations or the combined financial
position that would have resulted had the acquisitions been consummated
at the beginning of the applicable periods presented, nor is it
necessarily indicative of the results of operations in future periods or
the future financial position of the combined entities. See "ADDITIONAL
INFORMATION - Cautionary Statement Concerning Forward-Looking
Information."
(2) Each of the Proposed Transactions will be accounted for on a pooling of
interests accounting basis, and accordingly the related pro forma
adjustments herein reflect, where applicable, an exchange ratio of 7.768
shares of First American Common Stock for each of the 150,000 shares MTB
Common Stock which were outstanding at June 30, 1998, an exchange ratio
of 3.70 shares of First American Common Stock for each the 250,000 shares
of Peoples Common Stock which were outstanding at June 30, 1998, an
exchange ratio of 1.65 shares of First American Common Stock for each of
the 3,735,848 shares of Pioneer Common Stock which were outstanding at
June 30, 1998 and an exchange ratio of 9.7071 shares of First American
Common Stock for each of the 84,946 shares of CSB Common Stock which were
outstanding at June 30, 1998.
As a result, information was adjusted for the Proposed Transactions by
the (i) addition of 9,109,000 shares of First American Common Stock
amounting to $22,800,000; (ii) elimination of 150,000 shares of MTB
Common Stock, 250,000 shares of Peoples Common Stock, 3,735,848 shares of
Pioneer Common Stock, and 84,946 shares of CSB Common Stock; and (iii)
recording the difference of $20,480,000 as a decrease to additional
paid-in capital. In addition, 30,668 shares of First American Common
Stock will be exchanged for 6,868 shares of common stock of Cheatham
State Bank that are not owned by CSB.
As of June 30, 1998, First American, Pioneer and CSB had 24,400,824,
200,000 and 7,684 shares of common stock reserved for issuance, primarily
for stock option plans, respectively, which are not included in the
unaudited pro forma financial information presented herein. MTB and
Peoples have no shares of common stock reserved for issuance.
(3) In connection with the Proposed Transactions, the companies expect to
incur certain restructuring and merger-related costs, including
investment banking, legal, accounting, and other related transaction
costs and fees. Additionally, the companies expect to incur other
restructuring and merger-related costs associated with the integration of
the separate companies and institution of efficiencies anticipated as a
result of the Proposed Transactions. Based on information currently
available, the total amount of restructuring and merger-related charges
to be recognized in connection with the Proposed Transactions is
estimated to be approximately $13.7 million, after tax. The following is
a breakdown of estimated restructuring and merger-related costs by
entity:
MTB PEOPLES PIONEER CSB TOTAL
--- ------- ------- --- -----
Severance $ 295 $ 227 $ 2,675 $ 800 $ 3,997
Systems conversion 1,854 227 2,640 357 5,078
Investment banker and legal expenses - - 4,850 - 4,850
Other 795 999 2,393 736 4,923
------ ------ ------- ------ -------
Estimated restructuring and merger-related costs 2,944 1,453 12,558 1,893 18,848
Income tax effect 989 492 2,988 642 5,111
------ ------ ------- ------ -------
Total $1,955 $ 961 $ 9,570 $1,251 $13,737
====== ====== ======= ====== =======
(4) Certain insignificant reclassifications have been included herein to
conform statement presentations. Transactions conducted in the ordinary
course of business between First American, MTB, Peoples, Pioneer and CSB
are immaterial, and accordingly, have not been eliminated.
(5) On May 1, 1998, Deposit Guaranty Corporation was merged with and into
First American. The transaction was accounted for using the pooling of
interest method. Historical results of First American have been restated
to reflect the impact of the transaction.
(6) For CSB, amounts include the minority interest.
16
24
THE MTB SPECIAL MEETING
GENERAL
This Prospectus/Proxy Statement is first being mailed to the holders
(the "MTB SHAREHOLDERS") of shares of common stock, par value $10.00, ("MTB
COMMON Stock"), of The Middle Tennessee Bank ("MTB") on or about August 26,
1998, and is accompanied by the Notice of Special Meeting and a form of proxy
that is solicited by the Board of Directors of MTB (the "MTB BOARD") for use at
the special meeting of MTB Shareholders to be held on September 24, 1998, at
3:00 P.M., local time, at 700 North Garden Street, Columbia, Tennessee 38402,
and at any adjournments or postponements thereof (the "SPECIAL MEETING"). At the
Special Meeting, MTB Shareholders will consider and vote upon a proposal to
approve and adopt the Bank Merger Agreement, dated as of May 26, 1998, by and
among MTB, First American National Bank ("FANB") and First American Corporation
("FIRST AMERICAN") (the "AGREEMENT") and the transactions contemplated thereby,
including the Merger. The MTB Shareholders may also be asked to vote upon a
proposal to adjourn or postpone the Special Meeting, which adjournment or
postponement could be used for the purpose, among others, of allowing additional
time for the soliciting of additional votes to approve the Agreement.
PROXIES
An MTB Shareholder may use the accompanying proxy if such MTB
Shareholder is unable to attend the Special Meeting in person or wishes to have
his or her shares voted by proxy even if such shareholder does attend the
meeting. A shareholder may revoke any proxy given pursuant to this solicitation
by delivering to the Secretary of MTB, prior to the taking of the vote at the
Special Meeting, a written notice revoking the proxy or a duly executed proxy
relating to the same shares bearing a later date or by attending the meeting and
electing to vote in person; however, attendance at the Special Meeting will not
in and of itself constitute a revocation of a proxy. All written notices of
revocation and other communications with respect to the revocation of MTB
proxies should be addressed to The Middle Tennessee Bank, 700 North Garden
Street, Columbia, Tennessee 38402. For such notice of revocation or later proxy
to be valid, however, it must actually be received by MTB prior to the vote of
the MTB Shareholders at the Special Meeting. All shares represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified therein. If no specification is
made, the proxies will be voted in favor of approval of the Agreement. The MTB
Board is unaware of any other matters that may be presented for action at the
Special Meeting. If other matters do properly come before the Special Meeting,
however, it is intended that shares represented by proxies in the accompanying
form will be voted (or not voted) by the persons named in the proxies in their
discretion, provided that no proxy that is voted against approval and adoption
of the Agreement will be voted in favor of any adjournment or postponement of
the Special Meeting for the purpose of soliciting additional proxies to approve
the Agreement.
SOLICITATION OF PROXIES
The entire cost of soliciting proxies from the MTB Shareholders will be
borne by MTB, except that MTB and First American will each bear half of the
expenses associated with the printing and mailing of this Prospectus/Proxy
Statement and the registration statement and all filing fees in connection
therewith. In addition to the solicitation of proxies by mail, MTB will request
banks, brokers and other record holders to send proxies and proxy material to
the beneficial owners of the stock and secure their voting instructions, if
necessary. MTB will reimburse such record holders for their reasonable expenses
in so doing. If necessary, MTB may also use several of its regular employees,
who will not be specially compensated, to solicit proxies from MTB Shareholders,
either personally or by telephone, telegram, facsimile or special delivery
letter.
RECORD DATE AND VOTING RIGHTS
The MTB Board has fixed August 21, 1998 as the record date (the "MTB
RECORD DATE") for the determination of the MTB Shareholders entitled to receive
notice of and to vote at the Special Meeting. Accordingly, only MTB Shareholders
of record at the close of business on the MTB Record Date will be entitled to
notice of and to vote at the Special Meeting. At the close of business on the
MTB Record Date, there were 150,000 shares of MTB Common Stock entitled to vote
at the Special Meeting held by approximately 471 holders of record. The
presence, in person or by proxy, of shares of MTB Common Stock representing a
majority of the votes entitled to be cast on the Agreement and the transactions
contemplated thereby on the MTB Record Date is necessary to constitute a quorum
at the Special Meeting. Each share of MTB Common Stock outstanding on the MTB
Record Date entitles its holder to one vote as to the approval of the Agreement
and the transactions contemplated thereby and any other proposal that may
properly come before the Special Meeting.
MTB will count shares of MTB Common Stock present in person at the
Special Meeting but not voting, and shares of MTB Common Stock for which it has
received proxies but with respect to which holders of such shares have
abstained, as present at the Special Meeting for purposes of determining the
presence or absence of a quorum for the transaction of business. In addition,
shares represented by proxies returned by a broker holding such shares in
nominee or "street" name will be counted for purposes of determining whether a
quorum exists, even if such shares are not voted in matters where discretionary
voting by the broker is not allowed ("BROKER NON-VOTES"). Under applicable rules
of the New York Stock
17
25
Exchange, Inc. (the "NYSE"), brokers who hold shares of MTB Common Stock in
"street" name for customers who are the beneficial owners of such shares are
prohibited from giving a proxy to vote shares held for such customers with
respect to the matters to be considered and voted upon at the Special Meeting
without specific instructions from such customers.
UNDER APPLICABLE LAW, APPROVAL OF THE AGREEMENT REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF TWO THIRDS OF ALL VOTES ENTITLED TO BE CAST
ON THE AGREEMENT AT THE SPECIAL MEETING. BECAUSE APPROVAL OF THE AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO THIRDS OF OUTSTANDING SHARES
OF MTB COMMON STOCK, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT
AS NEGATIVE VOTES. ACCORDINGLY, THE MTB BOARD URGES MTB SHAREHOLDERS TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE.
As of the MTB Record Date, approximately 49,660 shares of MTB Common
Stock, or approximately 33.107% of the shares entitled to vote at the Special
Meeting, were beneficially owned by directors and executive officers of MTB. It
is currently expected that each such director and executive officer of MTB will
vote the shares of MTB Common Stock beneficially owned by him or her for
approval of the Agreement and the transactions contemplated thereby. In
addition, the owners of approximately 45,363 shares of MTB Common Stock, or
approximately 30.242% of the votes entitled to be cast at the Special Meeting,
have signed shareholder agreements and have thereby agreed to cast their votes
in favor of the Merger. As of the MTB Record Date, the bank and trust
subsidiaries of First American held no shares of MTB Common Stock.
For additional information with respect to beneficial ownership of MTB
Common Stock by individuals and entities owning more than 5% of such stock and
more detailed information with respect to beneficial ownership of MTB Common
Stock by directors and executive officers of MTB, see "ADDITIONAL INFORMATION
CONCERNING MTB -- Ownership of MTB Common Stock."
DISSENTERS' RIGHTS
Under Section 215a of Title 12 of the United States Code ("12 U.S.C.
SS. 215A"), holders of MTB Common Stock who vote against the Merger or who
deliver to MTB the required written notice and who otherwise comply with the
requirements of 12 U.S.C. ss. 215a will be entitled to receive the value of
their shares in cash as determined under the provisions of 12 U.S.C. ss. 215a.
SUCH RIGHT WILL BE LOST, HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF 12 U.S.C.
SS. 215A ARE NOT FULLY AND PRECISELY SATISFIED. See "ADDITIONAL INFORMATION --
Dissenters' Rights."
RECOMMENDATION OF THE MTB BOARD
The MTB Board has unanimously approved the Agreement and the
transactions contemplated thereby. The MTB Board believes that the Merger is
fair to and in the best interests of MTB and the MTB Shareholders and
unanimously recommends that the MTB Shareholders vote "FOR" approval and
adoption of the Agreement and the transactions contemplated thereby. See "THE
MERGER--Reasons of MTB for the Merger."
18
26
THE MERGER
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE AGREEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE, AND, WITH THE EXCEPTION OF CERTAIN EXHIBITS
THERETO, IS ATTACHED AS APPENDIX A TO THIS PROSPECTUS/ PROXY STATEMENT.
DESCRIPTION OF THE MERGER
At the effective time of the Merger (the "EFFECTIVE TIME"), MTB will be
merged with and into FANB. Subject to the satisfaction or waiver of certain
conditions set forth in the Agreement and described more fully in "--Conditions
to the Merger," the Merger will become effective on the date and at the time
agreed to with the Office of the Comptroller of the Currency (the "OCC") and
after the filing of the articles of merger ("ARTICLES OF MERGER") with the
Tennessee Department of Financial Institutions ("TDFI") and the Secretary of
State of the State of Tennessee.
At the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or MTB Shareholder, each share of
MTB Common Stock (excluding shares of MTB Common Stock with respect to which
dissenters' rights have been properly exercised in accordance with 12 U.S.C. ss.
215a ("DISSENTING SHARES"), or held by MTB or by First American or any of its
subsidiaries, in each case, other than Trust Account Shares or shares held in
respect of a debt previously contracted) issued and outstanding immediately
prior to the Effective Time will become and be converted into the right to
receive 7.768 (the "EXCHANGE RATIO") shares of First American Common Stock
(which Exchange Ratio is subject to potential adjustment as described under
"--Termination of the Agreement"), plus associated rights to purchase shares of
First American's Series A Junior Preferred Stock, and cash in lieu of any
fractional share (together, the "MERGER CONSIDERATION"). If, before the
Effective Time, the shares of First American Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares
due to any reorganization (but not a merger), reclassification, stock dividend,
stock split, reverse stock split or other similar change, the Exchange Ratio
will be adjusted accordingly.
It is expected that the market price of First American Common Stock
will fluctuate between the date of this Prospectus/Proxy Statement and the date
on which the Merger is consummated and thereafter. Because the Exchange Ratio is
fixed (subject to possible adjustment in the circumstances described under
"--Termination of the Agreement") and because the market price of First American
Common Stock is subject to fluctuation, the value of the shares of First
American Common Stock that holders of MTB Common Stock will receive in the
Merger may increase or decrease prior to the Merger. For further information
concerning the historical market prices of First American Common Stock and MTB
Common Stock, see "INFORMATION ABOUT OUR COMPANIES--Price Range of Common Stock
and Dividends--Market Prices." No assurance can be given concerning the market
price of First American Common Stock before or after the Effective Time.
As of the Effective Time, by virtue of the Merger and without any
action on the part of the MTB Shareholders, all shares of MTB Common Stock that
are owned by MTB or by First American or any subsidiary of First American (other
than shares in trust accounts, managed accounts, custodial accounts and the like
that are beneficially owned by third parties (any such shares, "TRUST ACCOUNT
SHARES")) shall be canceled and retired and shall cease to exist and no stock of
First American or other consideration shall be delivered in exchange therefor.
All shares of $2.50 par value common stock of First American (the "FIRST
AMERICAN COMMON STOCK") that are owned by MTB (other than Trust Account Shares)
shall become authorized but unissued stock of First American, and all other
shares of First American Common Stock outstanding as of the Effective Time will
remain outstanding. Further, Dissenting Shares will not be converted into the
right to receive, or be exchangeable for, the Merger Consideration; instead, the
holders of Dissenting Shares will be entitled to payment of the appraised value
of the Dissenting Shares if they deliver a written demand therefor to MTB in
accordance with 12 U.S.C. ss. 215a. Notwithstanding the foregoing: (a) if any
holder of Dissenting Shares subsequently delivers A written withdrawal of such
holder's demand for appraisal thereof, or (b) if any such holder fails to
establish such holder's entitlement to dissenters' rights under 12 U.S.C. ss.
215a, or (c) if no holder of Dissenting Shares has filed a petition demanding a
determination of the value of all Dissenting Shares within the timE provided in
12 U.S.C. ss. 215a, such holder or holders will forfeit the right to appraisal
and such shares will be deemed to have been converted into the right tO receive,
and to have become exchangeable for, the Merger Consideration. See "ADDITIONAL
INFORMATION--Dissenters' Appraisal Rights."
BACKGROUND OF THE MERGER
Management of MTB recognized that MTB was at a crossroads in late 1997
and early 1998. MTB had always been more than adequately capitalized and
management was faced with the prospect of steadily increasing capital levels and
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potentially lower equity returns. Management and the board did not consider
branching or acquisitions outside of Maury County as a viable alternative to
leverage this excess capital. In addition, MTB had continued to be contacted by
other financial institutions as to its interest in being acquired. On February
17, 1998, representatives of the majority shareholders (the Chairman and
President) of MTB met and discussed the advisability of pursuing a transaction
to best realize shareholder value. The majority shareholders of MTB considered
several factors in their discussions including the trend of industry
consolidation, multiples being paid for independent community banks, liquidity
for MTB stockholders, and successor management issues. On February 24, 1998,
representatives of the majority shareholders met with The Carson Medlin Company
("CMC"), an investment banking firm which specializes in the securities of
southeastern United States financial institutions, to discuss the marketability
of the bank and a range of values that potentially could be realized in a sale.
While not making any decision whether any transaction involving the sale of MTB
should be pursued, the majority shareholders retained CMC on February 25, 1998
to serve as their financial advisor and to solicit indications of interest from
interested parties to merge or otherwise acquire MTB. Baker, Donelson, Bearman
and Caldwell ("BAKER DONELSON") was also retained to serve as their legal
counsel at the same time.
At the regularly scheduled directors meeting of MTB on March 10, 1998,
management made a presentation to the board on their findings regarding the best
way to realize shareholder value, which included the possibility of seeking a
transaction that could potentially result in the sale of MTB. The directors
unanimously voted to approve the retention of CMC and Baker Donelson and to
assume the agreements entered into by the majority shareholders with these
advisors. The board also authorized the executive committee to serve as its
liaison in the process.
The MTB board of directors met on March 24, 1998, (with financial and
legal advisors present) to discuss the fiduciary duties of the directors, a
range of values that could be expected if the bank were sold, a list of
potential bidders, and the possible form of a sale or merger transaction.
Through the remainder of March and early April, representatives of MTB and CMC
identified and evaluated potential acquirors. In that time, CMC contacted
thirteen companies (including First American) to explore more formally their
interest in acquiring MTB. Eight of the companies contacted elected to sign a
confidentiality agreement to obtain confidential information regarding MTB. On
April 15, 1998, CMC received preliminary offers from three companies (including
First American).
Representatives of CMC met with MTB's executive committee on April 20,
1998 to review the preliminary offers. As part of its consideration of the
offers presented, representatives of MTB management and CMC held discussions
with management of two of the interested parties (including First American).
From April 29, 1998 to May 5, 1998, these two companies conducted their due
diligence investigations of MTB and presented their final offers. The third
party was excluded from further consideration due to an inadequate preliminary
offer.
On May 7, 1998, CMC and the executive committee of MTB met and reviewed
the final offers received and recommended that the board accept the First
American offer. The Board of MTB on May 12, 1998, unanimously agreed to accept
the offer from First American and authorized MTB management (together with legal
and financial advisors) to negotiate a definitive merger agreement. The final
definitive merger agreement was distributed to the Board of MTB for its review
on May 22, 1998.
On May 26, 1998, the Board of MTB met with CMC and Baker Donelson to
discuss the final terms of the agreement. Counsel reviewed again for MTB's
directors the fiduciary obligations of directors in the sale of financial
institutions and commented on the form of definitive agreement, the agreement to
be entered into between MTB's directors and First American, and the employment
and consulting agreements to be entered into with two MTB officers (see
"--Interests of Certain Persons in the Merger"). CMC rendered its opinion that
the aggregate consideration provided for in the agreement was fair, from a
financial point of view, to the stockholders of MTB. See "--Opinion of MTB's
Financial Advisor." MTB's Board then unanimously approved the agreement, and the
transactions contemplated thereby. MTB's management also was authorized to
execute the agreement, which was signed by First American and MTB on May 26,
1998.
REASONS OF MTB FOR THE MERGER
In approving the Merger, the directors of MTB considered a number of
factors. Without assigning any relative or specific weights to the factors, the
MTB Board of Directors considered the following material factors: (a) the
information presented to the directors by the management of MTB concerning the
business, operations, earnings, asset quality, and financial condition of MTB,
including the competitive and regulatory environment for financial institutions
generally; (b) the financial terms of the Merger, including the relationship of
the merger price to the market value, tangible book value, and earnings per
share of MTB Common Stock; (c) the nonfinancial terms of the Merger including
the treatment of the Merger as a tax-free exchange of MTB Common Stock for First
American Common Stock for federal income tax purposes (except in respect of cash
received for MTB Common Stock); (d) that the Merger will enable MTB stockholders
to exchange their shares of common stock for stock in a larger and more
diversified entity, the stock of which is more widely held and more actively
traded; (e) the likelihood of the Merger being approved by applicable regulatory
authorities without undue conditions or delay; and (f) the opinion rendered by
MTB's financial advisor to the effect that the aggregate consideration provided
for in the Agreement is fair, from a financial point of view, to the holders of
MTB Common Stock.
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The terms of the Merger were the result of arms-length negotiations
between representatives of MTB and representatives of First American. Based upon
the consideration of the foregoing factors, the Board of Directors of MTB
unanimously approved the Merger as being in the best interests of MTB and its
stockholders. Each member of the Board of Directors of MTB has agreed to vote
those shares of MTB Common Stock over which such member has voting authority
(other than in a fiduciary capacity) in favor of the Merger.
MTB's Board of Directors unanimously recommended that MTB stockholders
vote FOR approval of the Agreement.
THE MTB BOARD BELIEVES THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, MTB AND THE MTB SHAREHOLDERS. THE MTB BOARD UNANIMOUSLY RECOMMENDS THAT MTB
SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF MTB'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated February 24, 1998, CMC was
engaged to provide the Board of Directors of MTB with a written opinion
regarding the fairness of the Merger from a financial point of view to the
shareholder of MTB. MTB selected CMC as its financial advisor on the basis of
CMC's experience and expertise in representing community banks in acquisition
transactions. As part of its investment banking activities, CMC is regularly
engaged in the valuation of financial institutions and transactions relating to
their securities.
As part of its engagement, representatives of CMC attended the meeting
of MTB's Board held on May 26, 1998, at which meeting the terms of the proposed
Merger were discussed and considered. CMC delivered its written opinion dated
May 26, 1998 to the Board of Directors of MTB stating that the aggregate
consideration to be provided for in the Agreement is fair, from a financial
point of view, to the shareholders of MTB. CMC subsequently confirmed such
opinion in writing as of the date of this Prospectus/Proxy Statement.
The full text of CMC's written opinion, dated the date of this
Prospectus/Proxy Statement, is attached as Appendix B to this Prospectus/Proxy
Statement and should be read in its entirety with respect to the procedures
followed, assumptions made, matters considered and qualification and limitation
on the review undertaken by CMC in connection with its opinion. CMC's opinion is
addressed to MTB's Board of Directors and is substantially identical to the
written opinion delivered to MTB's Board dated May 26, 1998. The summary of the
opinion of CMC set forth in this Prospectus/Proxy Statement is qualified in its
entirety by reference to the full text of such opinion. CMC's opinions to MTB's
Board of Directors on the Merger do not constitute a recommendation to any MTB
shareholder regarding how such shareholder should vote at the MTB Special
Meeting.
No limitations were imposed by the Board of Directors or management of
MTB upon CMC with respect to the investigations made or the procedures followed
by CMC in rendering its opinions.
The preparation of a fairness opinion involves various determinations
as to the most appropriate methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, is not readily
susceptible to partial analysis or summary description. In connection with
rendering its opinions, CMC performed a variety of financial analyses. CMC
believes that its analyses must be considered together as a whole and that
selecting portions of such analyses and the facts considered therein, without
considering all other factors and analyses, could create an incomplete or
inaccurate view of the analyses and the process underlying CMC's opinion. In its
analyses, CMC made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of First American and MTB and which may not be realized. Any
estimates contained in CMC's analyses are not necessarily predictive of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which such companies or their securities may
actually be sold. Except as described below, none of the analyses performed by
CMC were assigned a greater significance by CMC than any other.
CMC has relied upon, without independent verification, the accuracy and
completeness of the information reviewed by it for purpose of its opinion. CMC
did not undertake any independent evaluation or appraisal of the assets and
liabilities of First American or MTB, nor was it furnished with any such
appraisals. CMC is not expert in the evaluation of loan portfolios, including
under-performing or non-performing assets, charge-offs or the allowance for loan
losses. It has not reviewed any individual credit files of First American or
MTB. Instead, it has assumed that the allowances for each of First American and
MTB are in the aggregate adequate to cover such losses. CMC's opinion is
necessarily based on economic, market and other conditions existing on the date
of its opinion, and on information as of various earlier dates made available to
it. CMC reviewed certain financial projections prepared by First American and
MTB. CMC assumed that these projections were prepared on a reasonable basis
using the best and most current information available to the managements of
First American and MTB, and that such projections will be realized in the
amounts and at the times contemplated thereby. Neither First American nor MTB
publicly discloses internal management projections of the type provided to CMC.
Such projections were not prepared for, or with a view toward, public
disclosure. CMC assumed that the Merger will be recorded as a
pooling-of-interests under generally accepted accounting principles.
In connection with its opinion, dated as of the date hereof, CMC
reviewed: (i) the Agreement; (ii) the annual reports to shareholders of First
American, including the audited financial statements for the five years ended
December 31, 1997; (iii) audited financial statements of MTB for the five years
ended December 31, 1997; (iv) the unaudited interim financial
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statements of First American for the six months ended June 30, 1998; (v) the
unaudited interim financial statements of MTB for the six months ended June 30,
1998; (vi) certain financial and operating information with respect to the
business, operations and prospects of First American and MTB; and (vii) this
Prospectus/Proxy Statement. In addition, CMC: (a) held discussions with members
of the senior management of First American and MTB regarding the historical and
current business operations, financial condition and future prospects of their
respective companies; (b) reviewed the historical market prices and trading
activity for the common stock of First American and MTB and compared them with
those of certain publicly traded companies which it deemed to be relevant; (c)
compared the results of operations of First American and MTB with those of
certain financial institutions which it deemed to be relevant; (d) compared the
financial terms of the Merger with the financial terms, to the extent publicly
available, of certain other recent business combinations of financial
institutions; (e) analyzed the pro forma financial impact of the Merger on First
American; and (f) conducted such other studies, analyses, inquiries and
examinations as CMC deemed appropriate.
Valuation Methodologies. The following is a summary of the principal
analyses performed by CMC and presented to the MTB Board of Directors on May 26,
1998, in connection with CMC's opinion of that date.
Summary of Proposal. CMC reviewed the terms of the proposed Merger,
including the form of consideration, the Exchange Ratio, the closing price of
First American's Common Stock as of May 21, 1998, and the resulting price per
share of MTB Common Stock pursuant to the proposed Merger. Under the terms of
the Agreement, each outstanding share of MTB Common Stock will be converted into
7.768 shares of First American's Common Stock resulting in an indicated value of
$378.69 per share based on the closing price of First American's Common Stock on
May 21, 1998 of $48 3/4 per share. CMC calculated that the indicated value
represented 190% of stated book value at March 31, 1998, 248% of normalized book
value (based on an equity to assets ratio of 8%), 26.2 times 1998 estimated
earnings, a 16.0% core deposit premium (defined as the aggregate transaction
value minus stated book value divided by core deposits) and 24.9% of total
assets of MTB at March 31, 1998.
Industry Comparative Analysis. In connection with rendering its
opinion, CMC compared selected operating results of MTB to those of 50
publicly-traded community commercial banks in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Virginia and West Virginia (the
"SIBR BANKS") as contained in the Southeastern Independent Bank Review(TM), a
proprietary research publication prepared by CMC quarterly since 1991. The SIBR
Banks range in asset size from approximately $125 million to $2.5 billion and in
shareholder's equity from approximately $13.4 million to $247.8 million. CMC
considers this group of financial institutions more comparable to MTB than
larger, more widely traded regional financial institutions. CMC compared, among
other factors, profitability, capitalization, and asset quality of MTB to these
financial institutions. CMC noted that based on results for 1997:
- MTB had a return on average assets (ROA) of 0.95%, compared to
mean ROA of 1.25% for the SIBR Banks;
- MTB had a return on average equity (ROE) of 7.0%, compared to
mean ROE of 12.5% for the SIBR Banks;
- MTB had common equity to total assets at December 31, 1997 of
13.9%, compared to mean common equity to total assets of 9.93%
for the SIBR Banks; and
- MTB had non-performing assets (defined as loans 90 days past
due, nonaccrual loans and other real estate) to total loans
net of unearned income and other real estate at December 31,
1997 of 2.41%, compared to mean non-performing assets to total
loans net of unearned income and other real estate of 0.92%
for the SIBR Banks.
This comparison indicated that MTB's financial performance was below
the average SIBR Bank for most of the factors considered.
CMC also compared selected operating results of First American to those
of five other publicly-traded community oriented bank holding companies in the
southeast (the "PEER BANKS"). The Peer Banks include: AmSouth Bancorporation,
Inc., First Tennessee National Corp., Regions Financial Corp., SouthTrust
Corporation, and Union Planters Corp. CMC considers this group of financial
institutions comparable to First American as to financial characteristics,
operating philosophy, stock price performance and trading volume. CMC compared
selected balance sheet data, asset quality, capitalization, profitability ratios
and market statistics using financial data at or for the three month period
ended March 31, 1998 and market data as of May 21, 1998. This comparison showed,
among other things, that:
- for the three months ended March 31, 1998, First American's
ROA was 1.43% compared to a mean of 1.35% and a median of
1.33% for the Peer Banks;
- for the three months ended March 31, 1998, First American's
ROE was 16.50% compared to a mean of 17.30% and a median of
17.50% for the Peer Banks;
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- for the three months ended March 31, 1998, First American's
efficiency ratio (defined as non interest expense divided by
the sum of non interest income and taxable equivalent net
interest income before provision for loan losses) was 58.0%
compared to a mean of 58.8% and a median of 55.0% for the Peer
Banks;
- at March 31, 1998, First American's stockholders' equity to
total assets was 8.46% compared to a mean of 7.85% and a
median of 7.60% for the Peer Banks;
- at March 31, 1998, First American's non-performing assets to
total assets were 0.25% compared to a mean of 0.49% and a
median of 0.51% for the Peer Banks;
- at May 21, 1998, First American's price to trailing twelve
months earnings was 21.9 times compared to a mean of 22.0
times and a median of 22.5 times for the Peer Banks;
- at May 21, 1998, First American's price to book value was 334%
compared to a mean of 329% and a median of 300% for the Peer
Banks.
This comparison indicated that First American's financial performance
is at or above average in comparison to the Peer Banks for most of the factors
considered.
Comparable Transaction Analysis. CMC reviewed certain information
relating to 12 selected southeastern bank mergers with total assets between $150
million and $300 million announced since January 1996, (the "Comparable
Transactions"). The Comparable Transactions were (acquiree/acquiror): Salem
Trust Bank/CCB Financial Corp., Citizens Gwinnett Bancshares, Inc./Premier
Bancshares, Inc., FirstSouth Bank/Centura Banks, Inc., Jacobs Bank/Regions
Financial Corp., First Patriot Bankshares, Inc./United Bankshares, Inc.,
Merchants Bancshares/Whitney Holding Corp., First American Bancorp/Alabama
National Bancorporation, Bank of Mecklenburg/Triangle Bancorp, Inc., CB&T
Inc./Union Planters Corp., W.B.T. Holding Co./First Commercial Corp., Bank
Corporation of Georgia/Century South Banks, Inc., and First United
Bancorporation/Regions Financial Corp. CMC considered, among other factors, the
earnings, capital level, asset size and quality of assets of the acquired
financial institutions. CMC compared the transaction prices to stated and
normalized book values, earnings, core deposit premiums and total assets.
On the basis of the Comparable Transactions, CMC calculated a range of
purchase prices as a percentage of stated book value for the Comparable
Transactions from a low of 213.2% to a high of 393.8%, with a mean of 261.3%.
These transactions indicated a range of values for MTB from $424.25 per share to
$783.62 per share, with a mean of $519.96 per share (based on MTB's stated book
value of $198.99 per share at March 31, 1998). The consideration implied by
multiplying the Exchange Ratio and First American's Common Stock price as of May
21, 1998 was $378.69 per share and implies a price to stated book value multiple
of 190% which is below the low end of the range for the Comparable Transactions.
Because MTB was substantially overcapitalized at March 31, 1998, CMC
calculated a normalized book value based on an equity to assets ratio of 8%.
Under this scenario, book value would have been $121.78 per share at March 31,
1998 and there would have been $77.21 per share in excess capital. The
calculated range of purchase prices assumes that MTB would receive a premium for
all equity up to 8% plus $77.21 per share for the excess capital. Based on the
Comparable Transactions, the purchase prices ranged from a low of 214.7% to a
high of 375.5%, with a mean of 286.2%. These transactions indicated a range of
values for MTB from $338.67 per share to $534.49 per share, with a mean of
$425.74 per share (based on MTB's normalized book value of $121.78 per share and
excess book value of $77.21 per share at March 31, 1998). The consideration
implied by multiplying the Exchange Ratio and First American's Common Stock
price as of May 21, 1998 was $378.69 per share and implies a price to normalized
book value multiple of 248% which is slightly below the average for the
Comparable Transactions.
CMC calculated a range of purchase prices as a multiple of earnings for
the Comparable Transactions, from a low of 16.3 times to a high of 31.2 times,
with a mean of 22.6 times. These transactions indicated a range of values for
MTB from $235.86 to $451.46 per share, with a mean of $327.02 per share (based
on MTB's 1998 estimated earnings per share of $14.47 per share). The
consideration implied by the terms of the Agreement is $378.69 per share and
implies a price to earnings multiple of 26.2 times which is above the average
for the Comparable Transactions.
CMC calculated the core deposit premiums for the Comparable
Transactions and found a range of values from a low of 15.7% to a high of 33.0%,
with a mean of 22.1%. The premium on MTB's core deposits implied by the terms of
the Agreement is 16.0%, near the low end of the range for the Comparable
Transactions. CMC noted that the core deposit premium increased to 22.8% when
compared to normalized book value.
Finally, CMC calculated a range of purchase prices as a percentage of
total assets for the Comparable Transactions from a low of 16.2% to a high of
34.3%, with a mean of 23.7%. The percentage of total assets implied by the terms
of the Agreement is approximately 24.9%, above the average of the range for the
Comparable Transactions.
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No company or transaction used in CMC's analyses is identical to First
American, MTB or the contemplated transaction. Accordingly, the results of these
analyses necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of First American and MTB
and other factors that could affect the value of the companies to which they
have been compared.
Present Value Analysis. CMC calculated the present value of MTB
assuming that MTB remained an independent bank. For purposes of this analysis,
CMC utilized certain projections of MTB's future growth of assets, earnings and
dividends and assumed that the MTB Common Stock would be sold at the end of 5
years at 22.6X of projected 2002 earnings (based on the average of the
Comparable Transactions). This value was then discounted to present value
utilizing discount rates of 14% through 16%. These rates were selected because,
in CMC's experience, they represent the rates that investors in securities such
as the MTB Common Stock would demand in light of the potential appreciation and
risks. On the basis of these assumptions, CMC calculated that the present value
of MTB as an independent bank ranged from $247.15 per share to $268.91 per
share. The consideration implied by the terms of the Agreement was $378.69 per
share which falls above the high end of the range under present value analysis.
CMC noted that the present value analysis was included because it is a widely
used valuation methodology, but noted that the results of such methodology are
highly dependent upon the numerous assumptions that must be made, including
assets and earnings growth rates, dividend payout rates, terminal values and
discount rates.
Stock Trading History. CMC reviewed and analyzed the historical trading
prices and volumes for the First American Common Stock on a monthly basis from
December 1992 to April 1998. CMC also compared price performance of the First
American Common Stock to the five Peer Banks over the past thirteen quarters
ended March 31, 1998 on a price to earnings and price to book value basis. CMC
considers First American Common Stock to be liquid and marketable in comparison
with these Peer Banks and other bank holding companies.
This analysis showed that over the past thirteen quarters, First
American's stock has generally traded at or below the average of the Peer Banks
based on price to trailing 12 months earnings. In the most recent quarter, First
American's stock traded at 20.4 times earnings compared to 21.5 times for the
Peer Banks. The analysis of First American's trading on a book value basis was
similar. In the most recent quarter, First American's stock traded at 314% of
book value compared to 330% of book value for the Peer Banks.
CMC also examined the trading prices and volumes of MTB Common Stock.
MTB Common Stock has not traded in volumes sufficient to be meaningful.
Therefore, CMC did not place any weight on the market price of the MTB Common
Stock.
Contribution Analysis. CMC reviewed the relative contributions in terms
of various balance sheet and income statement components to be made by MTB and
First American to the combined institution based on (i) balance sheet data at
March 31, 1998, and (ii) net income for the three months ended March 31, 1998.
In this analysis, CMC adjusted First American's financial statements for the
acquisition of Deposit Guaranty Corp. which closed on May 1, 1998. The income
statement and balance sheet components analyzed included total assets, net
loans, total deposits, shareholders' equity, and net income. This analysis
showed that, while MTB shareholders would own approximately 1.1% of the
aggregate outstanding shares of the combined institution based on the Exchange
Ratio, MTB was contributing 1.2% of total assets, 0.9% of loans, net of unearned
income, 1.4% of total deposits, 1.9% of shareholders' equity, and 0.9% of net
income for the three months ended March 31, 1998.
Other Analysis. CMC also reviewed selected investment research reports
on and earnings estimates for First American and prepared a shareholder claims
analysis.
The opinion expressed by CMC was based upon market, economic and other
relevant considerations as they existed and have been evaluated as of the date
of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of MTB
could materially affect the assumptions used in preparing the opinion.
In connection with its opinion dated as of the date of this
Prospectus/Proxy Statement, CMC confirmed the appropriateness of its reliance on
the analyses used to render its May 26, 1998 opinion by performing procedures to
update certain of such analyses and reviewing the assumptions on which its
analyses were based and the factors considered in connection therewith.
Compensation of CMC. Pursuant to an engagement letter dated February
24, 1998, MTB engaged CMC to assist in effecting a transaction similar to the
Merger and to act as its financial advisor in connection with such proposed
transaction. MTB has paid CMC $35,000 to date for its services pursuant to the
terms of the engagement letter. In addition, MTB agreed to pay CMC an investment
banking fee equal to 1.00% of the aggregate consideration received by the
shareholders of MTB. The Investment Banking Fee is payable in cash upon the
consummation of the Merger and will be reduced by the $35,000 previously paid to
CMC. MTB has also agreed to reimburse CMC for its reasonable out-of-pocket
expenses and to indemnify CMC against certain liabilities, including certain
liabilities under the federal securities laws.
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THE EFFECTIVE TIME
The Merger will become effective after the filing of the Articles of
Merger with the TDFI, the Secretary of State of the State of Tennessee and the
OCC on the date and time agreed to with the OCC, but in any event, MTB, FANB and
First American intend that the Effective Time shall be the first business day of
October, 1998 (the "CLOSING DATE"). The Closing Date must occur on or before
December 31, 1998, except to the extent there is a delay in obtaining regulatory
approval and such regulatory approval is being sought actively by the parties to
the Agreement, but in any event, the Effective Time must occur on or before
March 31, 1999.
At the Effective Time, MTB Shareholders (other than those who perfect
dissenters' rights under 12 U.S.C. ss. 215a --see "ADDITIONAL
INFORMATION--Dissenters' Appraisal Rights") will cease to be, and will have no
rights as MTB Shareholders other than to receive (i) any dividend or other
distribution with respect to MTB Common Stock with a record date occurring prior
to the Effective Time and (ii) the Merger Consideration. There will be no
transfers on the stock transfer books of MTB of shares of MTB Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, MTB Certificates (as defined herein) are presented to MTB for
any reason, they will be cancelled and exchanged for certificates representing
shares of First American Common Stock as provided in the Agreement.
EXCHANGE OF CERTIFICATES
As of the Effective Time, First American will deposit with its transfer
agent (the "EXCHANGE AGENT") for the benefit of holders of MTB Common Stock,
certificates representing the shares of First American Common Stock
(collectively, "FIRST AMERICAN CERTIFICATES") and cash to be paid in lieu of
fractional shares to which a holder of certificates formerly representing MTB
Common Stock ("MTB CERTIFICATES") would otherwise be entitled based on the
Exchange Ratio (the First American Certificates, together with any dividends or
distributions with respect thereto, the "EXCHANGE FUND").
MTB shall use its best efforts to cause each MTB Shareholder (who does
not dissent pursuant to the terms of the Agreement and 12 U.S.C. ss. 215a) to
deliveR the MTB Certificates to MTB, and MTB shall keep such Certificates in
escrow for the benefit of each MTB Shareholder until the Closing Date. On the
Closing Date, MTB shall deliver the Certificates to First American. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such documentation as the Exchange Agent may reasonably require to effectuate
the exchange, the Exchange Agent shall, at or after the Effective Time, deliver
to the holder of each such MTB Certificate a certificate representing that
number of whole shares of First American Common Stock which such holder has the
right to receive in respect of the MTB Certificate surrendered pursuant to the
Agreement (after taking into account all shares of MTB Common Stock then held by
such holder), and cash for fractional shares, if any, and the MTB Certificate so
surrendered shall thereupon be canceled. In the event of a transfer of ownership
of MTB Common Stock which is not registered in the transfer records of MTB, a
certificate representing the proper number of shares of First American Common
Stock may be issued to a transferee if the Certificate representing such MTB
Common Stock is presented to the Exchange Agent, accompanied by all documents
required by the Exchange Agent, in its sole discretion, to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered to the Exchange Agent in the manner contemplated by the
Agreement, each MTB Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of First American Common Stock and cash in lieu of any
fractional shares of First American Common Stock, without interest, as
contemplated by the Agreement.
No fractional shares of First American Common Stock and no First
American Certificates or scrip therefor will be issued in the Merger, nor will
any dividend or distribution be payable on or with respect thereto, nor will any
such fractional share entitle the holder thereof to vote or to any other rights
of a First American Shareholder. Instead, First American will pay to each MTB
Shareholder who would otherwise be entitled to a fractional share of First
American Common Stock (after taking into account all MTB Certificates delivered
by such MTB Shareholder) an amount in cash to be paid in lieu of fractional
shares (without interest) determined by multiplying such fraction by the closing
price of First American Common Stock on the NYSE (as reported in The Wall Street
Journal or, if not reported thereby, any other authoritative source) on the
trading day which is three trading days immediately prior, but not including,
the Effective Time.
Any part of the Exchange Fund that remains unclaimed by MTB
Shareholders for 12 months after the Effective Time will be paid to First
American, and after such time MTB Shareholders may look only to First American
for payment of the Merger Consideration and unpaid dividends and distributions,
if any, on First American Common Stock deliverable in respect of each share of
MTB Common Stock held by such holder, in each case, without interest thereon.
Neither First American nor MTB will be liable to any MTB Shareholder or First
American Shareholder, as the case may be, for such shares (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
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In the event that any MTB Certificate is lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming the same,
and if required by First American, the posting of a bond by such person in an
amount that First American may direct as indemnity against any claim that may be
made against it with respect to such MTB Certificate, the Exchange Agent will
issue in exchange for such MTB Certificate the shares of First American Common
Stock and cash in lieu of fractional shares deliverable in respect thereof.
No dividends or other distributions declared or made after the
Effective Time with respect to First American Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered MTB
Certificate with respect to the shares of First American Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder until the holder of such MTB Certificate shall surrender
such Certificate in accordance with the Agreement. Subject to the effect of
applicable laws, following proper surrender of any such MTB Certificate, there
shall be paid to the holder of the certificates representing whole shares of
First American Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of any cash payable with respect to a
fractional share of First American Common Stock to which such holder is entitled
pursuant to the Agreement and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of First American Common Stock, and, if necessary, (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of First
American Common Stock.
CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS
The Agreement contains negative and affirmative covenants that are
customary in transactions of this nature. In addition, the Agreement provides
that, except as specifically contemplated or permitted thereby, MTB shall
operate its business only in the usual, regular and ordinary course and preserve
intact its business organizations and assets and maintain it rights and
franchises and MTB and First American shall take no action which would
materially adversely affect the ability of any party to perform its covenants in
all material respects to consummate the Merger or prevent or impede the
transactions contemplated by the Agreement from qualifying as a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended ("CODE"), or
the Merger qualifying as a pooling of interests; provided, however, that the
foregoing generally does not prevent First American or any of its subsidiaries
from acquiring or disposing of assets or businesses. Further, without the prior
written consent of First American, or as otherwise provided in the Agreement,
MTB generally may not incur new debt other than in the ordinary course of
business; declare or pay dividends other than a regular quarterly cash dividend
of $1.20 per share; increase compensation or benefits of employees, officers or
directors except as specifically permitted in the Agreement; or take certain
other actions, other than in the ordinary course of business or as described in
the Agreement, that might impact the financial condition or business of MTB.
In the Agreement, MTB has agreed that it will not authorize or permit
any officer, director, employee, investment banker, financial consultant,
attorney, accountant or other representative of MTB, directly or indirectly, to
initiate contact with any person or entity in an effort to solicit, initiate or
encourage any Competing Transaction (as defined in "--Termination of Agreement"
below). MTB will not authorize or permit any officer, director, employee,
investment banker, financial consultant, attorney, accountant or other
representative of MTB, directly or indirectly, (a) to cooperate with, or furnish
or cause to be furnished any non-public information concerning its business,
properties or assets to, any person or entity in connection with any Competing
Transaction; (b) to negotiate any Competing Transaction with any person or
entity; or (c) to enter into any agreement, letter of intent or agreement in
principle as to any Competing Transaction. MTB will promptly give written notice
to First American upon becoming aware of any Competing Transaction.
In the event this covenant relating to Competing Transactions is
breached by MTB, or any of its directors, officers, employees or agents, and the
Agreement is terminated as a result, under certain circumstances MTB may be
required to pay to First American liquidated damages of $2,000,000. See
"--Termination Fee."
CONDITIONS TO THE MERGER
The obligations of First American and MTB to consummate the Merger are
subject to the satisfaction (or waiver, where legally allowed), at or prior to
the Effective Time, of a number of conditions set forth in the Agreement,
including: (i) approval and adoption by the affirmative vote of the holders of
not less than two-thirds of the MTB Common Stock entitled to vote thereon; (ii)
approval for listing on the NYSE of the shares of First American Common Stock to
be issued in the Merger; (iii) the receipt of all necessary approvals and
authorizations by, filing and registrations with, and notifications to, all
federal and state authorities required for the consummation of the Merger and
the prevention of the termination of any licenses, permits or authorizations of
MTB, the termination of which would materially impair the conduct of their
business, shall have been duly obtained or made and shall not have been
cancelled or rescinded and all required waiting periods shall have expired; (iv)
the Registration Statement that First American files with the Securities and
Exchange Commission (the "COMMISSION") under the Securities Act of 1933, as
amended (the "SECURITIES ACT") that registers the distribution to MTB
Shareholders of the shares of First American Common Stock to be issued in
connection with the Merger (the "REGISTRATION STATEMENT") shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order; (v) the absence of any order,
injunction or decree issued by any court or agency of
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competent jurisdiction or other legal restraint or prohibition (an "INJUNCTION")
preventing the consummation of the Merger, and the absence of any statute, rule,
regulation, order, injunction or decree having been enacted, entered, enforced
or deemed applicable to the Merger that would render consummation of the Merger
illegal; (vii) the absence of any proceeding initiated by any governmental
entity seeking an Injunction; (viii) the Effective Time must occur on or before
December 31, 1998, except to the extent a delay is caused by a delay in
obtaining regulatory approval and such regulatory approval is being sought
actively by the parties, but in any event, the Effective Time must occur on or
before March 31, 1999; (ix) First American and MTB shall have received the
opinion of the law firm of Baker, Donelson, Bearman & Caldwell, P.C. dated as of
the Closing Date, to the effect that the Merger will have the federal income tax
consequences set forth under "--Certain Federal Income Tax Consequences"; and
(x) the Consulting/Employment Agreements between FANB and each of Edward D.
Green and Beverly Douglas, Jr., substantially in the form attached to the
Agreement, shall been executed and delivered by Messrs. Green and Douglas prior
to the Closing Date.
The obligations of First American and FANB to effect the Merger is
subject to the satisfaction of the following additional conditions unless waived
in writing by First American: (i) the representations and warranties of MTB set
forth in the Agreement shall be true and correct in all material respects as of
the date of the Agreement and as of the Effective Time; (ii) the MTB Board shall
have taken all corporate and/or other action necessary to approve and consummate
the Merger; (iii) MTB shall have performed in all material respects all
obligations required to be performed by it under the Agreement at or prior to
the Closing Date; (iv) the receipt of all authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of waiting
periods imposed by, any Governmental Entity (all the foregoing, "CONSENTS")
which are necessary for the consummation of the Merger, other than Consents the
failure to obtain which would have no material adverse effect on the
consummation of the Merger or on First American and its subsidiaries, taken as a
whole, (all such permits, approvals, filings and consents and the lapse of all
such waiting periods being referred to as the "REQUISITE REGULATORY APPROVALS")
and all such Requisite Regulatory Approvals shall be in full force and effect;
(v) FANB and First American shall have received all state securities or blue sky
permits and authorizations necessary to issue First American Common Stock in
exchange for MTB Common Stock and to consummate the Merger; (vi) First American
also shall have received the opinion of the law firm of Baker, Donelson, Bearman
& Caldwell, P.C., counsel to MTB, dated as of the Closing Date, in form
reasonably satisfactory to First American, which shall cover the matters set
forth in the Agreement; (vii) First American shall have received written
affiliates agreements as provided for in the Agreement; (viii) First American
shall have received a letter from KPMG Peat Marwick LLP, dated as of the Closing
Date, in form and substance satisfactory to First American, addressing certain
matters regarding the financial statements of MTB set forth in the Agreement;
(ix) First American shall have received a certificate of the President of MTB
certifying to First American immediately prior to the Effective Time (a) the
number of shares of MTB Common Stock issued and outstanding; (b) that there were
no options for MTB Common Stock outstanding; (c) that no other shares of capital
stock or securities convertible into or evidencing the right to purchase or
subscribe for any shares of MTB Capital stock are outstanding and that there are
no other outstanding warrants, calls, subscriptions, rights, commitments, stock
appreciation rights, phantom stock or similar rights or any other agreements of
any character obligating MTB to issue any shares of capital stock or securities
convertible into or evidencing the right to purchase such stock; and (d) no
shares of MTB stock are held by MTB in treasury; (x) First American shall have
received the opinion of KPMG Peat Marwick LLP to the effect that the transaction
contemplated hereby shall be accounted for as a "pooling-of-interests"; (xi) at
Closing, MTB shall provide to First American a statement, dated on and as of the
Closing Date, concerning the status and costs associated with MTB's compliance
or non-compliance with its covenants under the Agreement and as to the other
items covered by the monthly status reports as called for by the terms of the
Agreement; and (xii) at Closing, First American shall receive a statement from
the President of MTB certifying that MTB has complied in all material respects
with the standards set forth in the FFIEC Interagency Statement regarding Year
2000 compliance dated May 5, 1997, and as revised on December 17, 1997, and as
may have been amended thereafter.
The obligation of MTB to effect the Merger is subject to the
satisfaction of the following additional conditions unless waived by MTB: (i)
the representations and warranties of First American set forth in the Agreement
shall be true and correct in all material respects as of the date of the
Agreement and Effective Time; (ii) First American shall have performed in all
material respects all obligations required to be performed by it under the
Agreement at or prior to the Closing Date; (iii) MTB shall have received the
opinion of Mary Neil Price, Esq., General Counsel to First American, dated as of
the Closing Date, in form reasonably satisfactory to MTB, which shall cover the
matters set forth in the Agreement; (iv) the First American Board and the FANB
Board and shareholders shall have taken all corporate and/or other actions
necessary to approve and consummate the Merger; (v) MTB shall have received an
opinion from Carson Medlin dated the date of the Agreement to the effect that
the Merger is fair to the shareholders of MTB from a financial viewpoint; (vi)
MTB shall have received a letter from KPMG Peat Marwick LLP, dated as of the
Closing Date, in form and substance satisfactory to MTB, addressing certain
matters regarding the financial statements of First American set forth in the
Agreement; and (vii) at Closing, MTB shall receive a statement from the
President and Chief Executive Officer of First American certifying that First
American has complied in all material respects with the standards set forth in
the FFIEC Interagency Statement regarding Year 2000 compliance dated May 5,
1997, and as revised on December 17, 1997, and as may have been amended
thereafter.
No assurance can be provided as to if or when the Requisite Regulatory
Approvals will be obtained or whether all of the other conditions precedent to
the Merger will be satisfied or, where legally permitted, waived by the party
permitted to do so.
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TERMINATION OF THE AGREEMENT
The Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of MTB: (a) by mutual
written consent of First American, FANB and MTB; or (b) by either FANB or MTB if
(i) the Merger shall not have been consummated on or before March 31, 1999,
provided the terminating party shall not have breached in any material respect
its obligations under the Agreement in a manner that proximately contributed to
the failure to consummate the Merger by such date; (ii) any governmental or
regulatory body, the consent of which is a condition to the obligations of First
American and MTB to consummate the transactions contemplated by the Agreement,
shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful; or (iii) any
court of competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and such order,
judgment or decree shall have become final and nonappealable.
The Agreement may be terminated by First American at any time prior to
the Effective Time, whether before or after approval by the shareholders of MTB:
(i) if any event shall have occurred as a result of which any one condition of
First American's and FANB's obligations to effect the Merger, as set forth in
the Agreement, is no longer capable of being satisfied; (ii) if there has been a
breach by MTB of any representation or warranty contained in the Agreement,
which would or would be reasonably likely to have a material adverse effect on
the assets, liabilities, financial condition, results of operations or prospects
of MTB, taken as a whole, or there has been a material breach of any of the
covenants or agreements set forth in the Agreement on the part of MTB, and in
each case MTB has not cured any such breach within 30 days of receiving actual
knowledge or written notice of any such breach; (iii) if MTB (or its Board of
Directors) shall have authorized, recommended, proposed or publicly announced
its intention to enter into a Competing Transaction (as herein defined); (iv) if
the Board of Directors of MTB shall have withdrawn or materially modified its
authorization, approval or recommendation to the stockholders of MTB with
respect to the Merger or the Agreement or shall have failed to make the
favorable recommendation required by the terms of the Agreement; or (v) if the
cost (if any are determined to exist pursuant to the terms of the Agreement) of
taking all remedial and corrective actions required by applicable laws, health
or safety concerns exceed an amount which would have a material adverse effect
on MTB or if it cannot be reasonably estimated with any reasonable degree of
certainty that such costs would not exceed an amount which would have such an
affect on MTB.
The term "COMPETING TRANSACTION" means any of the following involving
MTB (other than the transactions contemplated by the Agreement): (x) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (y) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the capital stock or assets of MTB in a single
transaction or series of transactions to the same person, entity or group; or
(z) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
The Agreement may also be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of MTB: (i) if any
event shall have occurred as a result of which any one of certain conditions any
one condition of MTB's obligations to effect the Merger, as set forth in the
Agreement is no longer capable of being satisfied; or (ii) if there has been a
breach by First American of any representation or warranty contained in the
Agreement which would have or would be reasonably likely to have a material
adverse effect on the assets, liabilities, financial condition, results of
operations, business or prospects of First American and FANB, taken as a whole,
or there has been a material breach of any of the covenants or agreements set
forth in the Agreement on the part of First American, and in each case First
American has not cured any such breach within 30 days of receiving actual
knowledge or written notice of any such breach; or (iv) if the cost (if any are
determined to exist pursuant to the terms of the Agreement) of taking all
remedial and corrective actions required by applicable laws, health or safety
concerns exceed an amount which would have a material adverse effect on MTB or
if it cannot be reasonably estimated with any reasonable degree of certainty
that such costs would not exceed an amount which would have such an affect on
MTB, and if FANB requests that MTB expend an amount to cover such costs prior to
the Closing Date to prevent FANB from terminating the Agreement.
The Agreement provides that it could have been terminated by MTB at any
time during the five business day period commencing on the date the Registration
Statement is declared effective by the SEC if the average of the last reported
sale prices per share of First American Common Stock as reported on the NYSE (as
reported in The Wall Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source) for the ten (10) consecutive trading
days on the NYSE ending at the close of trading on and including the tenth
trading day immediately preceding the date the Registration Statement is
declared effective by the SEC ("Average Closing Price") had been less than
$39.00. Because the Average Closing Price was in excess of $39.00, MTB may not
terminate the Agreement on this basis.
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TERMINATION FEE
In recognition of the fact that FANB and First American have spent, and
will be required to spend, substantial time and effort in examining the
business, properties, affairs, financial condition and prospects of MTB, have
incurred, and will continue to incur, substantial fees and expenses in
connection with such examination, the preparation of the Agreement and the
accomplishment of the transactions contemplated thereunder, and will be unable
to evaluate and, possibly, make investments in or acquire other entities due to
the limited number of personnel available for such purpose and the constraints
of time, the Agreement provides that MTB shall pay to First American, which
amount is inclusive of the First American expenses, not as a penalty but as full
and complete liquidated damages: (a) if FANB and First American terminate the
Agreement: (i) by reason of the failure of MTB to meet certain conditions set
forth in the Agreement due to MTB's knowing and intentional misrepresentation or
knowing and intentional breach of warranty or breach of any covenant or
agreement, and within twelve (12) months from the date of termination a
Competing Transaction is consummated or MTB shall have directly or indirectly
solicited bids for a Competing Transaction or shall have entered into an
agreement or an agreement in principle which if consummated would constitute a
Competing Transaction; (ii) after the Board of Directors of MTB shall have
withdrawn or materially modified its authorization, approval or recommendation
to the shareholders of MTB with respect to the Merger or the Agreement or shall
have failed to make the favorable recommendation required by the terms of the
Agreement; or (iii) because MTB (or its Board of Directors) shall have
authorized, recommended, proposed or publicly announced its intention to enter
into a Competing Transaction and within twelve (12) months from the date of
termination a Competing Transaction is consummated or MTB shall have entered
into an agreement which if consummated would constitute a Competing Transaction;
or (b) if MTB terminates the Agreement pursuant to its termination right under
the Agreement because the Agreement did not receive the requisite vote of the
MTB shareholders and within twelve (12) months from the date of termination a
Competing Transaction is consummated or MTB shall have entered into an agreement
which if consummated would constitute a Competing Transaction. Any such Fee
required to be paid to First American shall be made no later than two business
days after the date due and shall be made by wire transfer of immediately
available funds to an account designated by First American. In the event that
First American is entitled to the Fee, MTB shall also pay to First American
interest based upon the average Federal Funds rate per year on any amounts that
are not paid when due, plus all costs and expenses in connection with or arising
out of the enforcement of the obligation of MTB to pay the Fee or such interest.
In recognition of the fact that MTB has spent, and will be required to
spend, substantial time and effort in examining the business, properties,
affairs, financial condition and prospects of FANB and First American, has
incurred, and will continue to incur, substantial fees and expenses in
connection with such examination, the preparation of the Agreement, and the
accomplishment of the transactions contemplated hereunder, and will be unable to
negotiate a possible sale to other entities due to the provisions of the
Agreement and the limited number of personnel available for such purpose and the
constraints of time, the Agreement provides that FANB or First American will pay
to MTB the Fee, which amount is inclusive of the MTB expenses, not as a penalty
but as full and complete liquidated damages, if MTB terminates this Agreement by
reason of the failure of FANB or First American to meet certain conditions set
forth in the Agreement due to MTB's knowing and intentional misrepresentation or
knowing and intentional breach of warranty or breach of any covenant or
agreement. Any such Fee required to be paid to MTB shall be made no later than
two business days after the date due and shall be made by wire transfer of
immediately available funds to an account designated by MTB. In the event that
MTB is entitled to the Fee, FANB or First American shall also pay to MTB
interest based upon the average Federal Funds rate per
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year on any amounts that are not paid when due, plus all costs and expenses in
connection with or arising out of the enforcement of the obligation of FANB or
First American to pay the Fee or such interest.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expense.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal
income tax consequences of the Merger to MTB Shareholders who hold MTB Common
Stock as a capital asset. The summary is based on the Code, Treasury regulations
thereunder, and administrative rulings and court decisions in effect as of the
date hereof, all of which are subject to change at any time, possibly with
retroactive effect. This summary is not a complete description of all of the
consequences of the Merger and, in particular, may not address U.S. federal
income tax considerations applicable to stockholders subject to special
treatment under federal income tax law (including, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies,
tax-exempt entities, holders who acquired MTB Common Stock pursuant to the
exercise of an employee stock option or right or otherwise as compensation, and
holders who hold MTB Common Stock as part of a hedge, straddle or conversion
transaction). In addition, no information is provided herein with respect to the
tax consequences of the Merger under applicable foreign, state or local laws.
MTB SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF U.S.
FEDERAL, STATE AND LOCAL, FOREIGN, AND OTHER TAX LAWS.
In connection with the filing of the Registration Statement, First
American has received an opinion of Baker, Donelson, Bearman & Caldwell, P.C. as
of August 12, 1998, addressing the federal income tax consequences of the Merger
described below. Such opinion has been rendered on the basis of facts,
representations and assumptions set forth or referred to in such opinion which
are consistent with the expected state of facts existing at the Effective Time.
In rendering this opinion, Baker, Donelson, Bearman & Caldwell, P.C. has
required and relied upon representations and covenants, including those
contained in certificates of officers of First American and MTB.
First American's obligation to effect the Merger is conditioned upon
its receipt of an opinion of the law firm of Baker, Donelson, Bearman &
Caldwell, P.C., counsel to MTB, dated as of the Closing Date, to the effect that
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that First American and
MTB will each be a party to that reorganization within the meaning of Section
368(b) of the Code. In addition, MTB shall have received an opinion from Baker,
Donelson, Bearman & Caldwell, P.C., to the foregoing effect and to the effect
that (i) the shareholders of MTB will not recognize any gain or loss to the
extent that such shareholders exchange shares of MTB Common Stock solely for
shares of First American Common Stock in the Merger; (ii) the basis of the First
American Common Stock received by an MTB shareholder who exchanges MTB Common
Stock solely for First American Common Stock will be the same as the basis of
the MTB Common Stock surrendered therefor (subject to any adjustments required
as a result of the receipt of cash in lieu of fractional shares); (iii) the
holding period of the First American Common Stock received by an MTB shareholder
receiving First American Common Stock will include the period during which the
MTB Common Stock surrendered in exchange therefor was held (provided that the
MTB Common Stock was held as a capital asset at the Effective Time); and (iv)
cash received by an MTB shareholder in lieu of a fractional First American
Common Stock share will be treated as having been received as a distribution in
full payment in exchange for such fractional share interest.
None of the tax opinions to be delivered to the parties in connection
with the Merger as described herein are binding on the Internal Revenue Service
(the "IRS") or the courts, and the parties do not intend to request a ruling
from the IRS with respect to the Merger. Accordingly, there can be no assurance
that the IRS will not challenge the conclusions reflected in such opinions or
that a court will not sustain such challenge.
Based upon the current ruling position of the IRS, cash received by an
MTB Shareholder in lieu of a fractional share interest in First American Common
Stock will be treated as having been received in redemption of such fractional
share interest, and an MTB Shareholder should generally recognize capital gain
or loss for federal income tax purposes measured by the difference between the
amount of cash received and the portion of the tax basis of the share of MTB
Common Stock allocable to such fractional share interest. Such gain or loss
should be a long-term capital gain or loss if the holding period for such share
of MTB Common Stock is greater than one year at the Effective Time. The holding
period of a share of First American Common Stock received in the Merger
(including a fractional share interest deemed received and redeemed as described
above) will include the holder's holding period in the MTB Common Stock
surrendered in exchange therefor.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of MTB's management and the MTB Board may be deemed to
have certain interests in the Merger that are in addition to their interests as
MTB Shareholders generally. The MTB Board was aware of these interests and
considered them, among other matters, in approving the Agreement and the
transactions contemplated thereby.
Consulting/Employment Agreements. Pursuant to the terms of the
Agreement, First American's obligation to effect the Merger is subject to the
execution and delivery, prior to the Closing Date, by Edward D. (Kelly) Green of
an employment agreement (the "EMPLOYMENT AGREEMENT") between Mr. Green and FANB.
Mr. Green is a director and the President of MTB as well as a principal
shareholder of MTB. Pursuant to the Employment Agreement, Mr. Green will be
employed by FANB. The term of the Employment Agreement commences on the date on
which the Effective Time will occur and continues until December 31, 2000, or
such other date that is two calendar years from the date on which the term of
the Employment Agreement commences (the "TERMINATION DATE"), unless renewed by
mutual agreement of FANB and Mr. Green; provided that (i) Mr. Green's term of
employment pursuant to the Employment Agreement (the "EMPLOYMENT PERIOD") shall
terminate prior to such date upon Mr. Green's resignation, death or permanent
disability or incapacity (as determined by FANB's Board of Directors in its good
faith judgment) and (ii) the Employment Period may be terminated by FANB at any
time prior to such date for cause (as defined in the Employment Agreement) or
without cause.
Mr. Green's base salary will be $140,000 ("PHASE 1 BASE SALARY") for
the first full calendar year of the Employment Period ("PHASE 1"), and $70,000
("PHASE 2 BASE SALARY") for the second calendar year of the Employment Period
("PHASE 2"). Mr. Green will also receive a bonus of $140,000 upon completion of
Phase 1 and a bonus of $70,000 upon completion of Phase 2. In addition, for the
twelve month period following the later of the end of the Employment Period or
the Termination Date, during either of which Mr. Green shall remain subject to
the non-compete and non-solicitation provisions of the Employment Agreement
("PHASE 3"), Mr. Green will receive $150,000 payable in arrears in equal monthly
installments ("PHASE 3 PAYMENT"), unless Mr. Green terminates his employment
with FANB or is terminated by FANB for any reason. During the Employment Period,
Mr. Green will be eligible to participate in all of FANB's benefit programs (but
not incentive programs) for which similarly situated executives of FANB and its
subsidiaries are generally eligible.
If the Employment Period is terminated by FANB without cause prior to
the Termination Date, Mr. Green shall be entitled to receive his Phase 1 Base
Salary and Phase 2 Base Salary, and each of the bonuses referred to in the
preceding paragraph, less any such payments received by Mr. Green pursuant to
the Employment Agreement, so long as Mr. Green has not materially breached the
provisions of the Employment Agreement. Such payments shall be payable in
regular installments in accordance with FANB's general payroll practices. If the
Employment Period is terminated as a result of Mr. Green's death or permanent
disability or incapacity, Mr. Green or his estate shall be entitled to receive
his Phase 1 Base Salary and Phase 2 Base Salary, and each of the bonuses
referred to in the preceding paragraph, less any such payments received by Mr.
Green pursuant to the Employment Agreement. All of Mr. Green's rights to
benefits and bonuses under the Employment Agreement (if any) accruing after the
Termination Date shall cease upon such termination.
The Employment Agreement also provides there are no covenants,
agreements, understandings, representations or warranties, oral or written,
between Mr. Green and FANB relating to the subject matter of the Employment
Agreement other than those set forth in the Employment Agreement.
Pursuant to the terms of the Agreement, First American's obligation to
effect the Merger is also subject to the execution and delivery, prior to the
Closing Date, by Beverly Douglas, Jr. of a consulting agreement (the "CONSULTING
AGREEMENT") between Mr. Douglas and FANB. Mr. Douglas is the Chairman of the
Board of Directors of MTB as well as a principal shareholder of MTB. Pursuant to
the Consulting Agreement, Mr. Douglas will be retained by FANB as an independent
contractor. The term of the Consulting Agreement (the "TERM") commences on the
date on which the Effective Time will occur and continues until December 31,
2000 ("TERMINATION DATE"), unless renewed by mutual agreement of FANB and Mr.
Douglas, or unless the Consulting Agreement is terminated by FANB for cause (as
defined in the Consulting Agreement) or upon the death or total disability of
Mr. Douglas.
Mr. Douglas's salary will be $50,000 throughout the Term. The
Consulting Agreement provides that Mr. Douglas will not be entitled to
participate in or receive benefits under any employee benefits plans available
to employees of FANB. In addition, during the Term of the Consulting Agreement
and for a period of one year thereafter, Mr. Douglas shall remain subject to
certain non-compete provisions as set forth in the Consulting Agreement.
The Consulting Agreement also provides there no covenants, agreements,
understandings, representations or warranties, oral or written, between Mr.
Douglas and FANB relating to the subject matter of the Consulting Agreement
other than those set forth in the Consulting Agreement.
Advisory Boards. Promptly following the Effective Time, FANB shall
cause certain persons who are members of the Board of Directors of MTB to be
appointed or elected as members of FANB's Maury County Advisory Board of
Directors, to be determined by agreement between FANB and MTB. Each such
advisory director shall be paid retainers and
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meeting fees which, in the aggregate, on an annual basis, are no less than the
retainers and meeting fees paid to members of FANB's other advisory boards
(assuming all meetings were attended).
Severance Arrangements. First American and FANB will use its reasonable
efforts to provide employment opportunities in other locations of FANB in Middle
Tennessee to qualified employees of MTB whose services in current MTB positions
after the Effective Time are no longer necessary, and from and for twelve (12)
months after the Effective Time, all employees of MTB who are terminated after
the Merger will be eligible for severance benefits under FANB's severance
policy, a copy of which has previously been provided to MTB.
Indemnification; Insurance. The Agreement generally provides that, in
the event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date of the
Agreement, or who becomes prior to the Effective Time, a director, officer or
employee of MTB (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 (a) the fact that he is or was a director, officer or employee of
MTB or (b) the Agreement or any of the transactions contemplated thereby,
whether in any case asserted or arising before or after the Effective Time, the
parties to the Agreement agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that after the
Effective Time, First American shall indemnify and hold harmless, as and to the
extent permitted by law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonable satisfactory to them after consultation with First
American, provided, however, that: (1) First American shall have the right to
assume the defense thereof and upon such assumption First American shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if First American elects not to assume such
defense or counsel for the Indemnified Parties reasonably advises that there are
issues which raise conflicts of interest between First American and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with First American, and First American
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties; (2) First American shall in all cases be obligated pursuant to the
terms of the Agreement to pay for only one firm of counsel for all Indemnified
Parties; (3) First American shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld); and (4) First American shall have no obligation under the terms of
the Agreement to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated under the terms of the Agreement is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under the
terms of the Agreement, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify First American thereof,
provided that the failure to so notify shall not affect the obligations of First
American under this Section except to the extent such failure to notify
materially prejudices First American. First American's obligations under the
terms of the Agreement shall continue in full force and effect without time
limit from and after the Effective Time.
First American has also agreed that it will cause the persons serving
as officers and directors of MTB immediately prior to the Effective Time to be
covered for a period of three years from the Effective Time by the directors'
and officers' liability insurance policy maintained by MTB (provided that First
American may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not less advantageous than
such policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event shall First American be required to
expend on an annual basis more than 150% of the current amount expended by MTB
(the "INSURANCE AMOUNT") to maintain or procure insurance coverage, and further
provided that if First American is unable to maintain or obtain the insurance
called for by the terms of the Agreement, MTB shall use all reasonable efforts
to obtain as much comparable insurance as is available for the Insurance Amount.
In the event First American or any of its successors or assigns (a)
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 (b) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors or assigns of First
American assume the obligations relating to indemnification as set forth in the
Agreement. The provisions of the Agreement relating to indemnification are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party and his or her heirs and representatives.
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ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles, and the receipt of a
letter from First American's independent certified public accountants to the
effect that the Merger will qualify for such accounting treatment is a condition
to First American's obligations to consummate the Merger.
REGULATORY MATTERS
The Office of the Comptroller of the Currency. The Merger is subject to
prior approval by the OCC under the Bank Merger Act, as amended (the "BMA"). The
BMA requires the OCC, when approving the merger of two banks, to take into
consideration the financial and managerial resources (including the competence,
experience and integrity of officers, directors and principal shareholders) and
future prospects of the existing and proposed institutions and the convenience
and needs of the communities to be served. In considering financial resources
and future prospects, the OCC will, among other things, evaluate the adequacy of
the capital levels of the parties to a proposed transaction.
The BMA prohibits the OCC from approving an acquisition 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 would be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner result in a restraint of trade, unless the OCC finds
that the anti-competitive effects of a 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. In addition, under the
Community Reinvestment Act of 1977, as amended, the OCC must take into account
the record of performance of the existing institutions in meeting the credit
needs of the entire community, including low-and moderate-income neighborhoods,
served by such institutions.
Applicable U.S. federal law provides for the publication of notice and
public comment on applications or notices filed with the OCC and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until 30 days (which may be
shortened to 15 days with the consent of the U.S. Department of Justice)
following the date of OCC approval, during which time the U.S. Department of
Justice may challenge the share exchange on antitrust grounds. The commencement
of an antitrust action by the U.S. Department of Justice, if it occurred, would
stay the effectiveness of the OCC's approval unless a court specifically ordered
otherwise.
Federal Reserve Board. First American has sought approval for its
acquisition of MTB from the Federal Reserve Board under the Bank Holding Company
Act of 1956, as amended ("BHCA"). The BHCA requires the Federal Reserve Board to
make the same determinations regarding financial and managerial resources,
public convenience and needs, antitrust considerations and satisfaction of
community credit needs with respect to the acquisition of MTB by First American
that the OCC is required to make with respect to the merger, as described above.
The OCC's regulations also provide public notice and opportunity for comment and
to request a hearing. In addition, the acquisition of MTB by First American may
not be consummated until 30 days (which may be shortened to 15 days with consent
of the U.S. Department of Justice) following the date of Federal Reserve Board
approval, during which time the U.S. Department of Justice may challenge the
merger on antitrust grounds. The commencement of an antitrust action by the
U.S., if it occurred, would stay the effectiveness of Federal Reserve Board's
approval unless a court specifically ordered otherwise.
Status of Regulatory Approvals and Other Information. The Federal
Reserve Board approved the Merger on August 17, 1998 and the OCC approved the
Merger on August 20, 1998. All required waiting periods in connection with
either of the foregoing approvals will have expired before the Merger is
completed.
The Agreement provides that the obligation of each of First American
and MTB to consummate the Merger is conditioned upon the receipt of all
Requisite Regulatory Approvals. First American and MTB are not aware of any
governmental approvals or actions that may be required for consummation of the
Merger other than as described above. Should any other approval or action be
required, First American and MTB currently contemplate that such approval or
action would be sought.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of First American Common Stock issuable to MTB Shareholders
upon consummation of the Merger have been registered under the Securities Act.
Such securities may be traded freely without restriction by those shareholders
who are not deemed to be "affiliates" of First American or MTB, as that term is
defined in the rules promulgated under the Securities Act.
Shares of First American Common Stock received and beneficially owned
by those MTB Shareholders who are deemed to be affiliates of MTB at the time of
the Special Meeting may be resold without registration under the Securities Act
only as permitted by Rule 145 under the Securities Act or as otherwise permitted
thereunder. Securities and Exchange Commission (the "COMMISSION") guidelines
regarding qualifying for the "pooling of interests" method of accounting also
limit sales of shares of the acquiring and acquired company by affiliates of
either company in a business combination.
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Commission guidelines also indicate that the "pooling of interests" method of
accounting generally will not be challenged on the basis of sales by affiliates
of the acquiring or acquired company if such affiliates do not dispose of any of
the shares of the corporation they own, or shares of a corporation they receive
in connection with a merger, during the period beginning 30 days before the
merger is consummated and ending when financial results covering at least 30
days of post-merger operations of the combined companies have been published.
MTB has agreed in the Agreement to use its reasonable best efforts to
cause each person who is an affiliate (for purposes of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for "pooling of
interests" accounting treatment) of MTB to deliver to First American a written
agreement, in the form attached to the Agreement as Appendix F, intended to
ensure compliance with the Securities Act and to preserve the ability of the
Merger to be accounted for as a "pooling-of-interests."
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INFORMATION ABOUT OUR COMPANIES
INFORMATION ABOUT FIRST AMERICAN
GENERAL
First American was incorporated in Tennessee in 1968 and is registered
as a bank holding company under the BHCA. First American owns all of the capital
stock of FANB, a national banking association headquartered in Nashville,
Tennessee; Deposit Guaranty National Bank, a national banking association
headquartered in Jackson, Mississippi; Deposit Guaranty National Bank, a
national banking association headquartered in Jackson, Mississippi ("DGNB"),
First American Federal Savings Bank, a federal savings bank headquartered in
Roanoke, Virginia; and First American Enterprises, Inc., a Tennessee corporation
headquartered in Nashville, Tennessee. First American anticipates DGNB will be
merged into FANB effective September 1, 1998. First American's subsidiary banks
engage in lending in the following areas: commercial, consumer (amortizing
mortgages and other consumer loans) and real estate (construction, commercial
mortgages and other real estate loans).
FANB owns 98.75% of the issued and outstanding capital stock of IFC
Holdings, Inc. (formerly INVEST Financial Corporation), a Delaware corporation
headquartered in Tampa, Florida, which is engaged in the distribution of
securities, other investment products, and insurance, and 49% of the capital
stock of The SSI Group, Inc., a Florida corporation headquartered in Mobile,
Alabama, which is engaged in health care claims processing.
First American coordinates the financial resources of the consolidated
enterprise and maintains systems of financial, operational and administrative
controls that allow coordination of selected policies and activities. First
American derives its income from interest, dividends and management fees
received from its subsidiaries.
As of June 30, 1998, First American had total assets of approximately
$19.1 billion, total deposits of approximately $13.6 billion and shareholders'
equity of approximately $1.6 billion. The mailing address of the principal
executive offices of First American is First American Center, Nashville,
Tennessee 37237-0700, and the telephone number is (615) 748-2000.
PENDING ACQUISITIONS
In addition to the Merger, First American has pending three other
proposed acquisitions of financial institutions to be accounted for as
poolings-of-interests.
First American has entered into an Agreement and Plan of Merger dated
April 21, 1998 to acquire Peoples Bank, Dickson, Tennessee ("PEOPLES"). As of
June 30, 1998, Peoples operated six branches in Dickson and Houston Counties,
Tennessee, and had approximately $136 million in assets, $118 million in deposit
liabilities and $16.8 million in stockholders' equity. This transaction is
expected to be consummated by the beginning of the fourth quarter of 1998.
First American has entered into an Agreement and Plan of Merger dated
May 28, 1998 to acquire Pioneer Bancshares, Inc ("PIONEER"). As of June 30,
1998, Pioneer operated through its depository institution subsidiaries 34
branches in the Chattanooga, Tennessee metropolitan area and Northern Georgia,
and had approximately $1.0 billion in consolidated assets, $804 million in
consolidated deposit liabilities and $103 million in stockholders' equity. This
transaction is expected to be consummated during the fourth quarter of 1998.
First American has entered into an Agreement and Plan of Merger dated
June 9, 1998 to acquire CSB Financial Corp. ("CSB"). As of June 30, 1998, CSB
operated four branches in Cheatham County, Tennessee, and had approximately $144
million in assets, $132 million in deposit liabilities and $11 million in
stockholders' equity. This transaction is expected to be consummated by the
beginning of the fourth quarter of 1998.
INFORMATION ABOUT MTB
MTB was organized and began business in Columbia, Maury County,
Tennessee in 1930. MTB is a state chartered, nonmember, Federal Deposit
Insurance Corporation ("FDIC") insured commercial bank, offering a wide range of
commercial banking services, including checking, savings, money market deposit
accounts, certificates of deposit, and loans for consumer, commercial,
agricultural and real estate purposes. MTB considers its primary market for its
products and services to be individuals, professionals, and small to medium size
businesses located in Maury County, Tennessee.
MTB has its principal offices in its headquarters building at 700 North
Garden Street, Columbia, Tennessee 38402, which is owned and occupied by MTB.
MTB also operates six additional branches located in Columbia, Mount Pleasant,
and Hampshire, Tennessee. MTB owns all of these branch locations. ATMs are
located at the Shadybrook Branch, Northside Branch, and Mt. Pleasant Branch. MTB
operates two additional ATMs located in the Maury County Regional Hospital and
at the Highway 412/Highway 31 Texaco Station. As of June 30, 1998, MTB's total
assets were about $225 million, deposits
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were about $190 million and shareholders' equity was about $30 million See
"ADDITIONAL INFORMATION CONCERNING MTB."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the consummation of the Merger, the current directors and
executive officers of First American will continue to be the directors and
executive officers of First American and the current directors and executive
officers of FANB will continue to be the directors and executive officers of
FANB.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
First American Common Stock is listed on the NYSE under the symbol
"FAM." Prior to July 1, 1998, First American Stock was authorized for quotation
on the Nasdaq National Market System ("NASDAQ") under the trading symbol "FATN."
As of August 24, 1998, First American Common Stock was held of record by
approximately 15,371 persons. The following table sets forth the high and low
closing sale prices of the First American Common Stock as reported by the NYSE
or Nasdaq.
FIRST AMERICAN CLOSING SALES PRICES
-----------------------------------
HIGH LOW
--------- ---------
YEAR ENDED DECEMBER 31, 1996:
First Quarter $ 24.25 $ 21.19
Second Quarter 22.81 21.06
Third Quarter 24.13 20.38
Fourth Quarter 29.38 23.88
YEAR ENDED DECEMBER 31, 1997:
First Quarter 34.63 28.00
Second Quarter 40.00 29.63
Third Quarter 50.13 38.00
Fourth Quarter 55.38 43.75
YEAR ENDED DECEMBER 31, 1998:
First Quarter 49.00 44.00
Second Quarter 54.31 43.44
Third Quarter (through August 24, 1998) 50.75 40.25
MTB Common Stock is not listed or quoted on any securities exchange or
any quotation system. Due to the lack of an active trading market, MTB does not
have information available regarding specific high and low sale prices for all
transactions in MTB Common Stock or the range of high and low bid quotations for
the MTB Common Stock. For the period from January 1, 1996 to the date of this
Prospectus/Proxy Statement, $175 per share is the lowest price, and $200 per
share is the highest price, at which MTB Common Stock has been transferred of
which management of MTB is aware.
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DIVIDENDS
The following table sets forth dividends declared per share of First
American Common Stock and MTB Common Stock, respectively, for the periods
indicated. The ability of either First American or MTB to pay dividends to its
respective shareholders is subject to certain restrictions. See "--Supervision
and Regulation of First American and MTB."
FIRST AMERICAN
DIVIDENDS(a) MTB DIVIDENDS
----------- -------------
YEAR ENDED DECEMBER 31, 1996:
First Quarter $ .140 $ 1.10
Second Quarter .155 1.10
Third Quarter .155 1.10
Fourth Quarter .155 1.10
YEAR ENDED DECEMBER 31, 1997:
First Quarter .155 1.15
Second Quarter .200 1.15
Third Quarter .200 1.15
Fourth Quarter .200 1.15
YEAR ENDED DECEMBER 31, 1998:
First Quarter .200 1.20
Second Quarter .250 1.20
Third Quarter (through August 24, 1998) .250(b) --
(a) Cash dividends represents the dividends declared by First American
without any effect given to the acquisition of Deposit Guaranty Corp.
(b) First American will pay this dividend on August 31, 1998 to holders of
First American Common Stock on August 14, 1998.
SUPERVISION AND REGULATION OF FIRST AMERICAN AND MTB
GENERAL
As a registered bank holding company, First American is subject to the
supervision of, and to regular inspection by, the Federal Reserve Board. MTB is
a Tennessee state chartered bank subject to regulation, supervision and
examination by the TDFI. The bank subsidiaries of First American are organized
as national banking associations, which are subject to regulation, supervision
and examination by the OCC. First American owns a federal savings bank subject
to supervision, regulation and examination by the Official Thrift Supervision
(the "OTS"). The deposits of each of the banking subsidiaries of First American
are insured, up to applicable limits, by the FDIC, which maintains back-up
enforcement authority over each institution. In addition to banking laws,
regulations and regulatory agencies, First American and its subsidiaries and
affiliates and MTB are subject to various other laws and regulations and
supervision and examination by other regulatory agencies, all of which, directly
or indirectly, affect the operations and management of First American and MTB
and their ability to make distributions. The following discussion summarizes
certain aspects of those laws and regulations that affect First American and
MTB. To the extent statutory or regulatory provisions or proposals are
described, the description is qualified in its entirety by reference to the
particular statutory or regulatory provision or proposal. Supervision and
regulation of bank holding companies and their subsidiaries are intended
primarily for the protection of depositors, the deposit insurance funds of the
FDIC and the banking system as a whole, not for the protection of bank holding
company shareholders or creditors. Further information on the supervision and
regulation of First American and its subsidiaries may be found in First
American's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended. See "ADDITIONAL INFORMATION--Where You Can Find More Information." For
further information on the supervision and regulation of MTB, see "ADDITIONAL
INFORMATION CONCERNING MTB -- Supervision and Regulation."
The activities of First American and those of companies which First
American controls or in which it holds more than 5% of the voting stock are
limited to banking, managing or controlling banks, furnishing services to or
performing services for their subsidiaries or any other activity which the
Federal Reserve Board determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies, such as First American, are required to obtain prior approval
of the Federal Reserve Board to engage in any new activity or to acquire more
than 5% of any class of voting stock of any company. The activities of MTB
generally are limited to the business of banking as defined by Tennessee banking
laws and applicable federal laws and regulations.
Bank holding companies like First American are also required to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5% of
any class of voting stock of any bank that is not already majority-owned by the
bank holding company. Under the Tennessee Bank Structure Act, no bank holding
company, whether incorporated in Tennessee or
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elsewhere, may acquire any bank in Tennessee that has been in operation for less
than five years, or organize a new bank in Tennessee, except in the case of
certain interim bank mergers and acquisitions of banks in financial difficulty.
Under Tennessee law pertaining to bank mergers, banks in separate counties in
Tennessee that have been in operation for at least five years may merge. Banks
with principal offices in the same county may merge without regard to the
five-year aging requirement. Under these provisions, First American could in the
future acquire banks in Tennessee that have been in operation for five years,
but may not form or acquire a new bank in any Tennessee county other than
Davidson County, in which the main office of FANB is located. MTB has been in
existence more than five years.
Pursuant to the Riegle-Neal Banking and Branching Efficiency Act of
1994 (the "INTERSTATE BANKING AND BRANCHING ACT") bank holding companies
generally can acquire banks in states other than their home states without
regard to the permissibility of such acquisitions under state law. The
Interstate Banking and Branching Act also authorizes banks with different home
states to merge across state lines, unless the home state of a participating
institution has passed legislation prior to June 1, 1997 explicitly prohibiting
interstate branching within that state. No states in which First American's
banking subsidiaries are located passed such legislation.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such proposals or bills being enacted and the impact they might have on First
American, its subsidiaries and MTB cannot be determined at this time.
CAPITAL AND OPERATIONAL REQUIREMENTS
The Federal Reserve Board, the OCC, the OTS and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
United States bank holding companies and federally insured depository
institutions. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels,
whether because of its financial condition or actual or anticipated growth. The
Federal Reserve Board risk-based guidelines applicable to bank holding companies
define a two-tier capital framework. Tier 1 capital generally consists of common
and qualifying preferred shareholders' equity, less goodwill, certain
intangibles and other adjustments. Tier 2 capital consists of subordinated and
other qualifying debt, and the allowance for credit losses up to 1.25% of
risk-weighted assets. The sum of Tier 1 and Tier 2 capital less investments in
unconsolidated subsidiaries represents qualifying total capital, at least 50% of
which must consist of Tier 1 capital. Risk-based capital ratios are calculated
by dividing Tier 1 and total capital by risk-weighted assets. For purposes of
calculating risk-weighted assets, assets and off-balance sheet exposures are
assigned to one of four categories of risk weights, based primarily on relative
credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum
total risk-based capital ratio is 8%. First American's Tier 1 and total
risk-based capital ratios under these guidelines at June 30, 1998 were 9.52%
and 11.49% respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. First American's leverage ratio at June 30, 1998 was 7.49%.
First American Federal Savings Bank is subject to similar capital requirements
adopted by the OTS. Under the OTS capital guidelines, a savings association is
required to maintain tangible capital of at least 1.5% of tangible assets, core
(leverage) capital of at least 3% of the association's adjusted total assets and
risk-based capital of at least 8% of risk-weighted assets.
The other U.S. federal banking agencies have established risk-based and
leverage capital guidelines for federally-insured banks and thrifts that are
substantially similar to the Federal Reserve Board's capital guidelines for bank
holding companies. At June 30, 1998, MTB and each of the depository institution
subsidiaries of First American was in compliance with these applicable federal
capital adequacy guidelines.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective U.S. federal regulatory agencies
to implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan in order for
the capitalization plan to be accepted by the appropriate bank regulator. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
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The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized, including, in the most severe cases, placing an institution
into conservatorship or receivership. Under the regulations, a "well
capitalized" institution must have a Tier 1 capital ratio of at least 6%, a
total capital ratio of at least 10% and a leverage ratio of a least 5% and not
be subject to a capital directive order. An "adequately capitalized" institution
must have a Tier 1 capital ratio of at least 4%, a total capital ratio of at
least 8% and a leverage ratio of at least 4%, or 3% in some cases. Under these
guidelines, MTB and each of the banking subsidiaries of First American was
considered well capitalized as of June 30, 1998.
Banking agencies have also adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies have adopted final regulations requiring
regulators to consider interest rate risk (when the interest rate sensitivity of
an institution's assets does not match the sensitivity of its liabilities or its
off-balance sheet position) in the determination of a bank's capital adequacy.
Distributions. First American derives funds for cash distributions to
its shareholders from a variety of sources, including cash and temporary
investments. The primary source of such funds, however, is dividends received
from its banking subsidiaries. Under applicable law, the national banking
subsidiaries of First American may not pay a dividend, without the prior
approval of the OCC, if the total of all dividends declared in any calendar year
exceeds the total of its net profits of the preceding two calendar years, less
any required transfers to surplus or to a fund for the retirement of any
preferred stock. In addition, federal savings associations must provide the OTS
with at least 30 days' notice prior to declaring a dividend and are subject to
other OTS regulations governing capital distributions. As a Tennessee-chartered
bank, MTB's ability to pay dividends is subject to the rules and regulations of
the TDFI governing the amount of dividends which may be paid to shareholders,
the manner in which dividends are paid, and the methods, if any, by which
capital stock and surplus may be retired and reduced. See "ADDITIONAL
INFORMATION CONCERNING MTB -- Description of MTB Capital Stock." Each of First
American's banking subsidiaries and MTB is prohibited from paying a dividend if
thereafter such entity would fail to maintain capital within regulatory
minimums. The appropriate U.S. federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of the
bank or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof.
Federal Reserve Board policy provides that, as a matter of prudent
banking, a bank holding company generally should not maintain a rate of cash
dividends unless its net income available to common shareholders has been
sufficient to fully fund the dividends, and the prospective rate of earnings
retention appears to be consistent with the holding company's capital needs,
asset quality and overall financial condition.
In addition to the foregoing, the ability of MTB, First American, and
First American's banking subsidiaries to pay dividends may be affected by the
various minimum capital requirements and the capital and non-capital standards
established under FDICIA, as described above. The right of First American, its
shareholders and its creditors to participate in any distribution of the assets
or earnings of its subsidiaries is further subject to the prior claims of
creditors of its subsidiaries, and the right of shareholders of MTB to
participate in any distribution of the assets or earnings of MTB is further
subject to the prior claims of creditors of MTB.
"Source of Strength" Policy; Cross-Guarantee Liability. According to
Federal Reserve Board policy, bank holding companies are expected to act as a
source of financial strength to each subsidiary bank and to commit resources to
support each such subsidiary. This support may be required at times when a bank
holding company may not be able to provide such support. Under the
cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of
a loss suffered or anticipated by the FDIC--either as a result of default of a
banking or thrift subsidiary of a bank holding company such as First American or
related to FDIC assistance provided to a subsidiary in danger of default--the
other banking subsidiaries of such bank holding company may be assessed for the
FDIC's loss, subject to certain exceptions.
ENFORCEMENT POWERS OF THE BANKING AGENCIES
The U.S. federal and state banking agencies have broad enforcement
powers over bank holding companies and their subsidiaries, as well as over banks
that are not part of a holding company structure and the subsidiaries of such
banks, including, in the case of the federal agencies, the power to terminate
deposit insurance, impose substantial fines and other civil penalties and, in
the most severe cases, to appoint a conservator or receiver for a depository
institution. Failure to maintain adequate capital or to comply with applicable
laws, regulations and supervisory agreements could subject MTB, First American
or First American's subsidiaries to these enforcement provisions.
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FIRST AMERICAN CAPITAL STOCK
FIRST AMERICAN COMMON STOCK
General. First American is authorized to issue 200,000,000 shares of
First American Common Stock, of which 106,865,039 shares were outstanding as of
August 24, 1998. First American Common Stock is listed on the NYSE under the
symbol "FAM." As of August 24, 1998, 20,026,615 shares of First American Common
Stock were reserved for issuance under various employee benefit plans of First
American or otherwise, pursuant to the First American Dividend Reinvestment and
Stock Purchase Plan and pursuant to that certain agreement (the "CHARTER FEDERAL
AGREEMENT") by and between First American and Charter Federal Savings Bank in
connection with certain litigation with the U.S. Government with respect to the
treatment of supervisory goodwill. After taking into account the shares reserved
as described above and the number of shares expected to be issued in the Merger
and the other Proposed Transactions, the number of authorized shares of First
American Common Stock available for other corporate purposes as of August 24,
1998 was approximately 63,608,346.
Voting and Other Rights. The holders of First American Common Stock are
entitled to one vote per share, and, in general, assuming the presence of a
quorum, a majority of votes cast with respect to a matter is sufficient to
authorize action upon routine matters. Directors are elected by a plurality of
the votes cast, and each First American Shareholder entitled to vote in such
election is entitled to vote each share of stock for as many persons as there
are directors to be elected. In elections for directors, such shareholders do
not have the right to cumulate their votes (unless action is taken to provide
otherwise by charter amendment, which action management does not currently
intend to propose). In general, (i) amendments to the First American Charter
must be approved by each voting group entitled to vote separately thereon by a
majority of the votes entitled to be cast by that voting group, if the amendment
would create dissenter's appraisal rights as to that group, and otherwise by a
majority of the votes cast thereon; (ii) a merger or share exchange required to
be approved by the First American Shareholders must be approved by each voting
group entitled to vote separately thereon by a majority of the votes entitled to
be cast by that voting group; and (iii) the dissolution of First American, or
the sale of all or substantially all of the property of First American other
than in the usual and regular course of business, must be approved by a majority
of all votes entitled to be cast thereon.
In the event of liquidation, holders of First American Common Stock
would be entitled to receive pro rata any assets legally available for
distribution to First American Shareholders with respect to shares held by them,
subject to any prior rights of any First American preferred stock (as described
below) then outstanding.
First American Common Stock does not have any preemptive rights,
redemption privileges, sinking fund privileges or conversion rights. All the
outstanding shares of First American Common Stock are, and upon issuance the
shares of First American Common Stock to be issued to MTB Shareholders will be,
validly issued, fully paid and nonassessable.
First Chicago Trust Company of New York acts as transfer agent and
registrar for First American Common Stock.
Distributions. The holders of First American Common Stock are entitled
to receive such dividends or distributions as the First American Board may
declare out of funds legally available for such payments. The payment of
distributions by First American is subject to the restrictions of Tennessee law
applicable to the declaration of distributions by a business corporation. A
corporation generally may not authorize and make distributions if, after giving
effect thereto, it would be unable to meet its debts as they become due in the
usual course of business or if the corporation's total assets would be less than
the sum of its total liabilities plus the amount that would be needed, if it
were to be dissolved at the time of distribution, to satisfy claims upon
dissolution of shareholders who have preferential rights superior to the rights
of the holders of its common stock. In addition, the payment of distributions to
shareholders is subject to any prior rights of outstanding preferred stock.
Share dividends, if any are declared, may be paid from authorized but unissued
shares.
The ability of First American to pay distributions is affected by the
ability of its banking subsidiaries to pay dividends. The ability of such
banking subsidiaries, as well as of First American, to pay dividends in the
future currently is, and could be further, influenced by bank regulatory
requirements and capital guidelines. See "INFORMATION ABOUT OUR
COMPANIES--Supervision and Regulation of First American and MTB."
FIRST AMERICAN PREFERRED STOCK
First American has authorized 2,500,000 shares of preferred stock,
without par value, and may issue such preferred stock in one or more series,
each with such preferences, limitations, designations, conversion rights, voting
rights (not to exceed one vote per share), distribution rights, voluntary and
involuntary liquidation rights and other rights as it may determine. First
American has designated 300,000 shares of First American $2.375 Cumulative
Preferred Stock and 1,250,000 shares of First American Series A Junior Preferred
Stock. As of the date of this Prospectus/Proxy Statement, no shares of either
such series of First American preferred stock were outstanding.
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COMPARATIVE RIGHTS OF SHAREHOLDERS OF FIRST AMERICAN AND MTB
First American is a Tennessee corporation subject to the provisions of
the Tennessee Business Corporations Act ("TBCA") and the Tennessee Greenmail Act
(the "TGA"). MTB is a Tennessee banking corporation subject to the provisions of
the TBA and the provisions of the TBCA to the extent provided in the TBA. MTB is
not subject to the TGA.
BOARD OF DIRECTORS
Size. The First American Charter and the First American By-Laws provide
that the size of the First American Board shall consist of not fewer than nine
nor more than 27 directors, the exact number to be determined from time to time
by the First American Board pursuant to a resolution adopted by a majority of
the First American Board. The MTB organizational documents provide that the MTB
Board shall consist of not fewer than five nor more than 25 directors, the exact
number to be determined from time to time by the MTB Board pursuant to a
resolution adopted by a majority of the MTB Board.
Cumulative Voting. The TBCA provides that shareholders do not have the
right to cumulate their votes unless the corporation's charter provides
otherwise. Pursuant to the First American By-Laws, First American Shareholders
may not cumulate their votes in the election of directors. Similarly, MTB
shareholders may not cumulate their votes in the election of directors.
Qualification of Directors. The First American By-laws provide that no
person may be elected or re-elected a director after reaching the age of 70
unless the First American Board deems that election or re-election (which may be
for a single additional term only) is in the best interests of First American or
unless the person owns greater than 1% of the issued and outstanding shares of
First American.
Vacancies. The TBCA provides that vacancies on a board of directors may
be filled by shareholders or the board of directors unless the articles of
incorporation provide otherwise.
The First American Charter and the First American By-Laws provide that
any vacancy on the First American Board is to be filled only by a majority vote
of directors then in office, such appointee to serve for the unexpired term of
his or her predecessor or, if there is no predecessor, until the next annual
meeting of shareholders. The MTB organizational documents contain substantially
identical provisions regarding the filling of vacancies on the MTB Board.
Removal. The TBCA provides that a corporation's charter can provide for
removal of directors with cause by a majority of the entire board of directors.
Neither the First American Charter nor the MTB organizational documents so
provide.
The First American Charter and the First American By-Laws provide for
removal of directors only for cause, only at a meeting called for that purpose
and only upon a vote for removal of at least 75% of the votes entitled to be
cast by all holders of voting stock voting together as a single class at a
meeting called for such purpose. The MTB organizational documents provide for
the removal of directors with or without cause by a majority vote of the MTB
Shareholders at a meeting called for such purpose.
Nomination of Directors. Pursuant to the First American By-Laws,
nominations of directors by First American Shareholders must be made in writing
and given to the Secretary of First American generally not later than (i) 90
days in advance of the date on which the last annual meeting of First American
Shareholders was held if the election is to be held at the current year's annual
meeting or (ii) the close of business on the 15th day following the day on which
notice is first given to First American Shareholders of a special meeting held
to elect such directors. Neither the MTB charter or bylaws, or the TBCA,
contain any special provisions for the nomination of directors; therefore,
Roberts Rules of Order will apply where a nomination committee can present a
slate of directors for election and any shareholder can make a motion at the
shareholders' meeting to propose other nominees. Motions are taken in the order
they are made and seconded.
BUSINESS COMBINATION PROVISIONS
The Tennessee Business Combination Act provides that a party
beneficially owning 10% or more of the voting power of any class or series of
then outstanding shares entitled to vote generally in the election of directors
of a corporation (an "INTERESTED SHAREHOLDER") cannot engage in a business
combination with the corporation for a period of five years following such
Interested Shareholder's share acquisition date, and may only engage in such
business combination after the five year period if the transaction either (i) is
approved by at least two-thirds of the voting stock of the corporation not
beneficially owned by such Interested Shareholder at a meeting called for such
purpose no earlier than five years after such Interested Shareholder's share
acquisition date or (ii) satisfies certain fairness criteria specified in the
TBCA. The Tennessee Business Combination Act exempts transactions with
Interested Shareholders if the transaction is approved by the corporation's
board of directors prior to the time when the person became an Interested
Shareholder. The Tennessee Business Combination Act also exempts transactions
with Interested Shareholders if the corporation enacts a charter amendment or
bylaw by a majority vote of shareholders who have held shares for more than one
year prior to the vote removing the corporation from the coverage of the Act, in
which case the business combination can take effect two years after such vote.
First American has not adopted a charter or by-law amendment removing First
American from the coverage of the Tennessee Business Combination Act. MTB is not
subject to the Tennessee Business Combination Act.
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MTB is not subject to the TBCA because it does not have a class of
voting stock registered or traded on a national securities exchange or
registered with the Commission pursuant to Section 12(g) of the Exchange Act.
The First American Charter and the First American By-Laws contain
substantially similar provisions, except that the First American Charter and the
First American By-Laws require the affirmative vote of at least 75% of the votes
entitled to be cast by all holders of capital stock entitled to vote in the
election of directors (including the Interested Shareholder) and a majority of
the votes entitled to be cast by all holders of capital stock entitled to vote
in the election of directors, other than the shares beneficially owned by the
Interested Shareholder.
SHAREHOLDER RIGHTS PLAN
First American has a Rights Agreement between First American and First
American Trust Company, N.A. (the "FIRST AMERICAN RIGHTS AGREEMENT"), under
which holders of First American Common Stock have been and are issued certain
rights (the "FIRST AMERICAN RIGHTS"), the effect of which may be to discourage
certain coercive or abusive takeover tactics. Pursuant to the First American
Rights Agreement, the First American Board authorized and declared a
distribution of one First American Right for each outstanding share of First
American Common Stock to First American Shareholders of record at the close of
business on December 27, 1988 (the "RIGHTS RECORD DATE") and for each share of
First American Common Stock issued by First American after the Rights Record
Date but prior to the Distribution Date (as defined and described below).
Accordingly, a First American Right will attach to each share of First American
Common Stock issued in the Merger. Each First American Right entitles the
registered holder, subject to the terms of the First American Rights Agreement,
to purchase from First American one one-hundredth of a share (a "UNIT") of
Series A Junior Preferred Stock of First American (the "PREFERRED STOCK"), at a
purchase price of $80.00 per Unit, subject to adjustment. The First American
Rights attach to all certificates representing shares of outstanding First
American Common Stock, and no separate First American Rights certificates have
been issued. The First American Rights will separate from the First American
Common Stock, and the distribution date for the First American Rights (the
"DISTRIBUTION DATE") will occur, upon the earlier of: (i) 10 days following
public announcement (the date of the announcement being the "STOCK ACQUISITION
DATE") that a person or group of affiliated or associated persons (other than
First American, any subsidiary of First American or any employee benefit plan of
First American or such subsidiary) has acquired, obtained the right to acquire,
or otherwise obtained the beneficial ownership of 20% or more of the then
outstanding shares of the First American Common Stock, or (ii) 10 days following
the commencement of a tender or exchange offer that would result in a person or
group beneficially owning 20% or more of the then outstanding shares of the
First American Common Stock. As soon as practicable after the Distribution Date,
First American Rights certificates would be mailed to holders of record of the
First American Common Stock as of the close of business on the Distribution Date
and, thereafter, the separate First American Rights certificates alone would
represent the First American Rights.
Until a First American Right is exercised, the holder thereof has no
rights as a shareholder of First American, including the right to vote or to
receive dividends. Once the First American Right is exercised, however, each
Unit of Preferred Stock will have one vote, voting together as a single class
with the First American Common Stock.
The First American Rights Agreement also provides First American
Shareholders certain rights in the following situations. In the event that (i) a
person becomes the beneficial owner of 20% or more of the then outstanding
shares of First American Common Stock or (ii) during the pendency of any tender
or exchange offer for First American Common Stock or prior to the expiration of
20 business days (or such later date as a majority of the independent directors
may determine) after the date such tender or exchange offer is terminated or
expires, a person becomes the beneficial owner of 10% or more of the then
outstanding shares of First American Common Stock (unless the 10% beneficial
ownership results from certain limited circumstances specified in the First
American Rights Agreement), then, in each case, each holder of a First American
Right will thereafter have the right to receive, upon exercise, First American
Common Stock having a value equal to two times the exercise price of the First
American Right.
In addition, in the event that, at any time following the Stock
Acquisition Date, (i) First American is acquired in a merger or other business
combination transaction (with certain limited exceptions specified in the First
American Rights Agreement) and First American is not the surviving corporation;
(ii) any person effects a share exchange or merger of First American and all or
part of the First American Common Stock is converted or exchanged for
securities, cash or property of any other person; or (iii) 50% or more of First
American's assets or earning power is sold or transferred, each holder of a
First American Right (except First American Rights which previously have been
voided pursuant to the "Beneficial Ownership" provision of the First American
Rights Agreement) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring person having a value equal to two times the
exercise price of the First American Right.
The First American Rights are not exercisable until the Distribution
Date and will expire at the close of business on December 27, 1998 (the "FINAL
EXPIRATION DATE") unless earlier redeemed by First American. They may be
redeemed by First American at its option, by action of a majority of the First
American independent directors, at any time prior to the earlier of (i) the
close of business on the Final Expiration Date or (ii) the close of business on
the tenth day following the Stock Acquisition Date. The Rights may only be
redeemed in whole, not in part, at a price of $.01 per First American Right
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(the "REDEMPTION PRICE"), payable, at the election of such majority of
independent directors, in cash or shares of First American Common Stock.
On July 16, 1998, the First American Board of Directors authorized a
new Rights Agreement to provide for new First American Rights (the "NEW FIRST
AMERICAN RIGHTS") pursuant to a new First American Rights Agreement (the "NEW
FIRST AMERICAN RIGHTS AGREEMENT") between First American and First Chicago Trust
Company, as Rights Agent. Under the New First American Rights Agreement, one
right ("NEW RIGHT") will be distributed for each share of First American Common
Stock outstanding to First American stockholders of record on the close of
business on December 28, 1998. One New Right will also be distributed for each
share of First American Common Stock issued after December 28, 1998 until the
distribution date for the New First American Rights ("NEW RIGHTS AGREEMENT
DISTRIBUTION DATE"). The New Rights Agreement Distribution Date will occur upon
the earliest of (i) 10 business days following a public announcement that a
person or group of affiliated or associated persons (an "ACQUIRING PERSON") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of First American Common Stock (the "STOCK ACQUISITION
DATE"), (ii) 10 business days following the commencement of a tender offer or
exchange offer that would if consummated result in a person or group
beneficially owning 20% or more of such outstanding shares of First American
Common Stock, subject to certain limitations (or, if later, the date of receipt
of any required regulatory approvals or approvals of the stockholders of such
person or group for such tender or exchange offer), or (iii) 10 business days
after the Board of Directors of First American shall declare any Person to be an
"ADVERSE PERSON," upon a determination that such person, alone or together with
its affiliates and associates, has or will become the beneficial owner of 10% or
more of the outstanding shares of Common Stock (provided that any such
determination shall not be effective until such Person has become the beneficial
owner of 10% or more of the outstanding shares of First American Common Stock),
including consultation with such persons as such directors shall deem
appropriate, that (a) such beneficial ownership by such person is intended to
cause, is reasonably likely to cause or would cause First American to change its
strategic direction under circumstances where the Board of Directors believes
that such change is not in the best interest of First American and its
stockholders, employees, customers, suppliers or other constituencies of First
American and its subsidiaries, or (b) such beneficial ownership by such person
is intended to cause, is reasonably likely to cause or will cause pressure on
First American to take action or enter into a transaction or series of
transactions including by causing a transaction with such person or other
person, intended to provide such person with short-term financial gain under
circumstances where the Board of Directors determines that the best long-term
interests of First American and its stockholders would not be served by taking
such action or entering into such transactions or series of transactions at that
time or (c) such beneficial ownership is causing or is reasonably likely to
cause a material adverse impact (including, but not limited to, impairment of
relationships with customers or impairment of First American's ability to
maintain its competitive position) on the business or prospects of First
American or (d) such beneficial ownership otherwise is determined to be not in
the best interests of First American and its stockholders, employees, customers,
suppliers, or other constituencies of the Company or its subsidiaries.
Until the New First American Rights Agreement Distribution Date, (i)
the New Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new Common
Stock certificates issued after December 28, 1998 will contain a notation
incorporating the New First American Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The New Rights are not exercisable until the New First American Rights
Agreement Distribution Date and will expire at the close of business on December
31, 2008, subject to extension by the Board of Directors, or unless earlier
redeemed by First American as described below.
As soon as practicable after the New First American Rights Agreement
Distribution Date, Rights Certificates will be mailed to holders of record of
the Common Stock as of the close of business on the New First American Rights
Agreement Distribution Date and, thereafter, the separate Rights Certificates
alone will represent the New Rights. Except for certain issuances in connection
with outstanding options and convertible securities and as otherwise determined
by the Board of Directors, only shares of Common Stock issued prior to the New
First American Rights Agreement Distribution Date will be issued with New
Rights.
In the event that the Board of Directors determines that a person is an
Adverse Person or, at any time following the New First American Rights Agreement
Distribution Date, a person becomes the beneficial owner of 20% or more of the
then-outstanding shares of Common Stock, each holder of a Right will thereafter
have the right to receive at the time specified in the New First American Rights
Agreement, (x) upon exercise and payment of the exercise price, Common Stock
(or, in certain circumstances, cash, property or other securities of First
American) having a value equal to two times the exercise price of the New Right
or (y) at the discretion of the Board of Directors, upon exercise and without
payment of the exercise price, First American Common Stock (or, in certain
circumstances, cash, property or other securities of First American) having a
value equal to the difference between the exercise price of the New Right and
the value of the consideration which would be payable under clause (x).
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in this paragraph, all New Rights that are, or (under certain
circumstances specified in the New First American Rights Agreement) were,
beneficially owned by any Acquiring Person or Adverse Person will be null and
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void. However, Rights are not exercisable following the occurrence of either of
the events set forth above until such time as the New Rights are no longer
redeemable by First American as set forth below.
In the event that, at any time following the Stock Acquisition Date,
(i) First American is acquired in a merger, statutory share exchange or other
business combination transaction in which First American is not the surviving
corporation, or (ii) 50% or more of First American's assets or earning power is
sold or transferred, each holder of a New Right (except New Rights which
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the New Right.
In general, First American may redeem the New Rights in whole, but not
in part, at a price of $0.01 per New Right, at any time until 10 business days
following the Stock Acquisition Date. Moreover, redemption would not be
permitted after 10 business days following the effective date of any declaration
by the Board of Directors that any person is an Adverse Person. After the
redemption period has expired, the First American's right of redemption may be
reinstated if an Acquiring Person or Adverse Person reduces his beneficial
ownership to less than 10% of the outstanding shares of First American Common
Stock in a transaction or series of transactions not involving First American
and there are no other Acquiring Persons or Adverse Persons. Immediately upon
the action of the Board of Directors ordering redemption of the New Rights, the
New Rights will terminate and the only right of the holders of New Rights will
be to receive the $0.01 redemption price.
SHAREHOLDER MEETINGS
Shareholder Action without a Meeting. Under the TBCA, shareholders may
act by written consent if all the shareholders entitled to vote on the action
consent to taking such action without a meeting. Under the TBCA, the affirmative
vote of the number of shares that would be necessary to authorize or take such
action at a meeting is the act of the shareholders.
Special Meetings of Shareholders. The TBCA provides that a special
meeting of shareholders may be called by a corporation's board of directors or
by the persons authorized to call special meetings under the corporation's
articles of incorporation and bylaws or, unless the articles of incorporation
provide otherwise, by written demand of the shareholders having at least 10% of
all the votes entitled to be cast on an issue to be considered at the proposed
special meeting.
Notice of Meeting. The TBCA requires a corporation to notify its
shareholders with respect to each annual or special meeting no fewer than 10 and
no more than 60 days before the meeting date (notice generally need be given
only to shareholders entitled to vote at such meeting). Such notice need not
include a description of the purpose of the annual meeting, but must include
such a description if the meeting is a special meeting.
DISSENTERS' APPRAISAL RIGHTS
Under Chapter 23 of the TBCA, shareholders of Tennessee corporations
have dissenters' rights under certain circumstances. Because First American is
listed on the NYSE, First American Shareholders currently do not have
dissenters' appraisal rights. MTB shareholders, on the other hand, do have
dissenters' rights under the TBCA. However, federal law provides that in a
merger transaction, such as the Merger, involving the merger of a state
chartered bank into a national bank, the shareholders of the state chartered
bank shall have dissenters' rights under 12 U.S.C. ss. 215a.
CONSIDERATION OF NON-SHAREHOLDER INTERESTS BY BOARD OF DIRECTORS
The First American Charter requires the First American Board to
consider all relevant factors when evaluating whether certain proposed business
combinations or certain dispositions of all or substantially all of First
American or of any First American subsidiary, any offer to purchase any or all
of First American's securities, any solicitation of proxies for election of
directors of First American, or any similar transaction is in the best interests
of First American and First American Shareholders, including: the consideration
being offered in the proposed transaction in relation to the then-current market
price, in relation to the then-current value of First American in a freely
negotiated transaction and in relation to the First American Board's
then-current estimate of the future value of First American as an independent
entity; the social and economic effects on the employees, customer, suppliers
and other constituents of First American and its subsidiaries and on the
communities in which First American and its subsidiaries operate or are located;
and the desirability of maintaining First American's independence from other
entities.
CERTAIN PURCHASES OF THE CORPORATION'S SECURITIES
The TGA provides that it is unlawful for any Tennessee corporation
which has a class of voting stock registered or traded on a national securities
exchange or registered with the Commission pursuant to Section 12(g) of the
Exchange Act or any subsidiary of such corporation to purchase, directly or
indirectly, any of its shares at a price above the market value of such shares
from any person who holds more than 3% of the class of the securities to be
purchased if such person has held such shares for less than two years, unless
the purchase has been approved by the affirmative vote of a majority of the
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outstanding shares of each class of voting stock of the corporation, or,
alternatively, unless the corporation makes an offer of at least equal value per
share to all holders of such class. The TGA applies to purchases of First
American Common Stock.
The TGA does not apply to purchases of MTB Common Stock because MTB
Common Stock is not registered or traded on a national securities exchange, nor
is it registered with the Commission pursuant to Section 12(g) of the Exchange
Act.
INDEMNIFICATION
MTB. The TBCA provides in certain situations for mandatory and
permissive indemnification of directors and officers. The TBCA provides that
statutory indemnification is not to be deemed exclusive of any other rights to
which a director seeking indemnification may be entitled; provided, however, no
indemnification may be made if a final adjudication adverse to the director or
officer establishes his liability (i) for any breach of loyalty to the
corporation or its shareholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; or (iii) for
unlawful distributions. The Bylaws of MTB provide for indemnification of
directors and officers to the full extent allowed by the TBCA.
First American. The First American Charter provides that
indemnification to the full extent permitted by law for directors, officers,
employees and agents of First American may be provided either directly or
through insurance, and that no director of First American shall be personally
liable to First American or its shareholders for monetary damages for breach of
any fiduciary duty as a director to the full extent permitted by law.
The First American By-Laws provide that First American will indemnify
any Defendant in any Proceeding (other than a Proceeding by or in the right of
First American) by reason of serving or having served as a director of First
American (or counsel to the First American Board), an advisory director, or an
officer of First American, or serving or having served at the request of the
corporation in such a capacity with another entity against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding, including any appeal, if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interest of First American, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The First American By-Laws provide, however, that no indemnification
shall be made (i) if a judgment or other final disposition adverse to the
Defendant establishes his liability for intentional misconduct or knowing
violation of the law or for an unlawful distribution under Tennessee law, (ii)
if a judgment or other final adjudication adverse to the Defendant for breach of
the Defendant's duty of loyalty to First American is based upon such Defendant
gaining personal benefit or advantage to which he was not entitled, (iii) for
any amounts if the Defendant is adjudged liable to First American or for any
amounts paid to First American in settlement of a proceeding by or in the right
of First American, or (iv) in a proceeding by First American directly (and not
derivatively) for expenses, unless such proceeding is brought after a change in
control of First American.
The First American By-Laws provide that First American shall indemnify
a Defendant pursuant to the By-laws unless a determination is made that the
Defendant did not meet the standard of conduct therein specified. Determination
of the propriety of indemnification shall be made by the First American Board
acting by a quorum consisting of disinterested directors, by independent legal
counsel if such a quorum is not obtainable, or, even if obtainable, if the
majority of a quorum of disinterested directors so directs, or by the First
American Shareholders.
The First American By-Laws provide that, subject to certain procedural
requirements, First American shall pay expenses reasonably incurred in any
Proceeding (other than a Proceeding brought by First American directly unless
that action follows a change in control) in advance of the final disposition of
the matter if the Defendant undertakes to repay such amount in the event that
such Defendant is ultimately determined not to be entitled to indemnification,
unless a quorum of disinterested directors or independent legal counsel directed
by the First American Board (in the event that such a quorum is not obtainable)
reasonably and promptly determines in a written opinion that indemnity is not
proper under the terms of the First American By-Laws.
The First American By-Laws provide that the indemnity provision
contained therein are additional to, and not limitations on, any other rights to
which a Defendant seeking indemnification may be entitled under law, agreement,
insurance policy, or otherwise. The First American By-Laws provide that the
corporation may indemnify and advance expenses to any employee or agent of First
American who is not a director or officer (and his heirs, executors and
administrators) to the same extent as to a director or officer if the First
American Board determines that to do so is in First American's best interests.
The First American By-laws provide that First American may purchase insurance
coverage for the purpose of indemnifying the directors, officers, employees and
agents of First American and its subsidiaries regardless of whether such entity
would have had the power or the obligation to indemnify such person against such
liability under the provisions discussed above.
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AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
The First American Charter provides that altering, amending or
repealing the provisions of the First American Charter relating to (including
changes to provisions that would have the effect of permitting action
inconsistent with or in circumvention of such provisions relating to) the First
American Board (including, with respect to directors, the number, term length,
classification, removal and procedure for filling vacancies) and certain
business combinations with Interested Shareholders requires (i) the affirmative
vote of at least 75% of the votes entitled to be cast by all holders of voting
stock voting as a single class and (ii) a majority of the votes entitled to be
cast by all holders of voting stock, other than shares of voting stock which are
beneficially owned by an Interested Shareholder, if any.
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ADDITIONAL INFORMATION CONCERNING MTB
GENERAL
MTB was organized and began business in Columbia, Maury County,
Tennessee in 1930. MTB is a state chartered, nonmember, FDIC insured commercial
bank, offering a wide range of commercial banking services, including checking,
savings, money market deposit accounts, certificates of deposit, and loans for
consumer, commercial, agricultural and real estate purposes. MTB considers its
primary market for its products and services to be individuals, professionals,
and small to medium size businesses located in Maury County, Tennessee.
PROPERTIES
MTB has its principal offices in its headquarters building at 700 North
Garden Street, Columbia, Tennessee 38402, which is owned and occupied by MTB.
MTB also operates six additional branches located in Columbia, Mount Pleasant,
and Hampshire, Tennessee. MTB owns all of these branch locations. ATMs are
located at the Shadybrook Branch, Northside Branch, and Mt. Pleasant Branch. MTB
operates two additional ATMs located in the Maury County Regional Hospital and
at the Highway 412/Highway 31 Texaco Station.
COMPETITION
All phases of MTB's banking activities are highly competitive. MTB
competes actively with four regional and one community bank, as well as finance
companies, credit unions, brokerage firms and other financial institutions
located in its service area.
Based on information from the Maury County Chamber of Commerce, in
1996, Maury County was the fifth fastest growing county in the state. Based on
population growth from 1990 to 1994, a 16.6% increase, it was the fourth fastest
growing county. The following demographic and economic facts provide a basic
barometer of Maury County growth and business activity here:
- 1996 Population (Maury County): 66,683
- 1995 Labor force 37,011
- 1995 Unemployment rate 5.8%
- Manufacturing Units 91
- Average Annual Manufacturing Employment: 11,463
- Number of Farms (1992): 1506
- Average Size of Farms (1992): 163
- Total Value of Agricultural Products (1992): $25,872,000
- Per Capita Personal Income: $17,275 (17th in the State)
- 1995 Sales Tax Collections (Maury County): $49,960,000
- 1995 Building Permits (Columbia, Mt. Pleasant, Spring Hill): 315
CUSTOMERS
It is the opinion of management that there is no single customer or
affiliated group of customers whose deposits, if withdrawn, would have a
materially adverse effect on the business of MTB.
LOANS AND LOAN REVIEW
MTB offers various types of secured and unsecured commercial, consumer,
agricultural, and real estate loans. Loans are generally made to customers who
also have other relationships with MTB. Most loans made by MTB are secured. MTB
also makes mortgage loans which are funded in the secondary market. This funding
helps MTB compete in the mortgage loan origination business without incurring
significant interest rate risk normally associated with long maturity mortgage
loans funded with traditional bank deposits.
MTB has an established written loan policy for loan officers regarding
the types, maturities, security requirements, pricing, and loan to value ratios
in the case of real estate loans, to which each loan officer is expected to
adhere. In addition, each loan officer is provided a maximum loan limit
authority. Loans for an amount in excess of an officer's authority or those
which would require an exception to MTB's loan policy must be approved by higher
authorities within the bank including other officers and the Board of Directors.
Loans are reviewed periodically by personnel who have no authority
other than loan review. This process is utilized by MTB to grade the bank's
loans and determine the adequacy of MTB's loan loss reserve.
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ASSET/LIABILITY MANAGEMENT
The Asset/Liability management committee is comprised of senior MTB
officers who are charged with managing the bank's assets and liabilities. This
committee is responsible for providing reasonable growth of assets, earnings,
adequate liquidity and return on assets and shareholders' equity as well as
adequacy of capital resources at the level of interest rate risk deemed
acceptable . To meet these objectives, the committee monitors MTB's progress
with the annual budget approved by the Board of Directors. The Committee reports
monthly to the Board explaining variances between budget and actual results and
the reasons therefor as well as management's course of action in light of any
budget variances.
LEGAL PROCEEDINGS
The nature of its business generates a certain amount of litigation
against MTB involving matters arising in the ordinary course of business. No
legal proceedings are currently pending.
"YEAR 2000" INFORMATION SYSTEM ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems such that such systems recognize more than two
digits to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g. 1900 and 2000). This issue affects not only MTB,
but virtually all companies, organizations and governments worldwide that use
computer information systems. The Middle Tennessee Bank is addressing the "Year
2000 issue" with the appointment of a "Year 2000 Review Team". The purpose of
the team is to endeavor to see that the Bank is:
- Aware of Year 2000 concerns
- Addressing internal systems, vendor systems, computer-to
computer interfaces, impact upon customers with related
changes to contracts, forms disclosures, etc.
- Staying abreast of Year 2000 developments.
- Working closely with technology professions and encouraging
vendors to give serious attention to the issue
- Ensuing that all new products, services, applications and
systems are Year 2000 compliant.
- Monitoring, and addressing, potential failures by suppliers,
customers, and vendors.
- Ensuring that procedures are in place on December 31, 1998, to
allow a full year's testing
To address the Year 2000 issue, MTB has adopted broad-based approaches
designed to encompass their total systems and non-systems environments. This
approach includes the development of a conversion time line, costs budget,
resource allocation, and independent verification of each system's capacity to
properly recognize dates following such conversion.
To prepare for this event, Unisys Corporation was engaged by management
of MTB to assess MTB's hardware as it pertained to the date changes for the year
2000. This company physically checked each PC in MTB and ran a "Year 2000"
verification program. Application software residing on each PC was inventoried
where possible. Letters from each software provider indicating compliance with
"Year 2000" rollover were recorded and documented within these findings. As for
the Information Technology Inc. core banking applications, MTB will upgrade to
the latest release provided. In addition a complete testing of the mainframe
core banking applications was performed in June 1998. This testing took the bank
through four updates into the year 2000. Totals were verified and were correct.
All reports generated during the testing have been backed up for storage. Each
new software and hardware acquisition will be tested by a "Year 2000" committee
person. MTB also is implementing a renovation phase and validation phase for
this project in compliance with the Interagency Statement dated May 5, 1997.
MTB expects to be substantially Year 2000 compliant by the end of 1998.
Management anticipates that internally-developed and third-party provided
applications will be tested for compliance by year end 1998. The costs of its
overall Year 2000 initiatives have not yet been finally determined, but are not
expected to exceed the budgeted amount of $100,000.
SUPERVISION AND REGULATION
MTB is subject to extensive regulation under state and federal statutes
and regulations. The discussion in this section, which briefly summarizes
certain of such statutes, does not purport to be complete, and is qualified in
its entirety by reference to such statutes. Other state and federal legislation
and regulations directly and indirectly affecting banks and other
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financial institutions may be enacted or implemented in the future; however,
such legislation and regulations and their effect on the business of MTB cannot
be predicted.
MTB is incorporated under the laws of the State of Tennessee, as
amended, and is subject to the applicable provisions of that law including the
Tennessee Banking Act ("TBA"). As a state banking corporation, MTB is subject to
the supervision of the TDFI and to regular examination by that agency. In
addition, MTB is a member of the FDIC and its deposits are insured by the FDIC.
Therefore, MTB is subject to examination and regulation by the FDIC and is
subject to the applicable provisions of federal law including the Federal
Deposit Insurance Act ("FDIA") .
MTB also is subject to regulation respecting the maintenance of certain
minimum capital levels (see "MTB's Management's Discussion and Analysis--Capital
Resources--Liquidity), and MTB is required to file annual reports and such
additional information as the TBA and FDIC regulations require. MTB is also
subject to certain restrictions on loan amounts, interest rates, "insider" loans
to officers, directors and principal shareholders, tie-in arrangements, and
transactions with affiliates, as well as many other matters (see further
discussions below). Strict compliance at all times with state and federal
banking laws is required.
In December 1991, FDICIA was enacted, which substantially revises the
bank regulatory and funding provisions of the FDIA and makes revisions to
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take "prompt corrective action" in respect of
depository institutions that do not meet minimum capital requirements. In
addition, an institution that is not well capitalized is generally prohibited
from accepting brokered deposits and offering interest rates on deposits higher
than the prevailing rate in its market and also may not be able to "pass
through" insurance coverage for certain employee benefit accounts. FDICIA also
requires the holding company of any undercapitalized depository institution to
guarantee, in part, certain aspects of such depository institution's capital
plan for such plan to be acceptable. FDICIA contains numerous other provisions,
including new accounting, audit and reporting requirements, 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.
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC
regulations, banks have a continuing and affirmative obligation consistent with
their safe and sound operation to help meet the credit needs of their entire
community, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community. The
CRA requires the FDIC, in connection with its examination of banks, to assess
the companies' record of meeting the credit needs of its communities and to take
such record into account in its evaluation of certain applications by such
institution. The FIRREA amended the CRA to require public disclosure of an
institution's CRA rating and to require that the FDIC provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system in lieu of the then existing five-tiered numerical
rating system. MTB is subject to these regulations.
Tennessee law contains limitations on the interest rates that may be
charged on various types of loans. The maximum permissible rates of interest on
most commercial and consumer loans made by MTB are governed by Tennessee's
general usury law and the Tennessee Industrial Loan and Thrift Companies Act
("INDUSTRIAL LOAN ACT"). Certain other usury laws affect limited classes of
loans, but the laws referenced above are by far the most significant.
Tennessee's general usury law authorizes a floating rate of 4% per annum over
the average prime or bases commercial loan rate, as published by the Federal
Reserve Board from time to time, subject to an absolute 24% per annum limit. The
Industrial Loan Act authorizes an interest rate of 24% per annum and also allows
certain loan charges, generally on a more liberal basis than does the general
usury law.
The operations of banks are also affected by various consumer laws and
regulations, including those relating to equal credit opportunity and regulation
of consumer lending practices. All state-chartered banks in Tennessee must
become and remain insured banks under the FDIA.
The U.S. federal and state banking agencies have broad enforcement
powers over banks and their subsidiaries, including, in the case of the federal
agencies, the power to terminate deposit insurance, impose substantial fines and
other civil penalties and, in the most severe cases, to appoint a conservator or
receiver for a depository institution. Failure to maintain adequate capital or
to comply with applicable laws, regulations and supervisory agreements could
subject MTB to these enforcement provisions.
Subject to certain exceptions, the TBA and the federal Change in Bank
Control Act, together with regulations thereunder, require State and FDIC
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank, such as MTB. Control is
conclusively presumed to exist if an individual or company acquires 25% or more
of any class of voting securities of the bank. Control is rebuttably presumed to
exist if a person acquires 10% or more but less than 25% of any class of voting
securities and either the bank has registered securities
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under Section 12 of the Exchange Act or no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure for challenge of the rebuttable control
presumption.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "INTERSTATE BANKING AND BRANCHING ACT"), bank holding companies
may acquire banks in states other than their home states without regard to the
permissibility of such acquisitions under state law, but subject to any state
requirement that the bank has been organized and operating for a minimum period
of time, not to exceed five years, and the requirement that the bank holding
company, prior to or following the proposed acquisition, controls no more than
10% of the total amount of deposits of insured depository institutions in the
United States and less than 30% of such deposits in that state (or such lesser
or greater amount set by state law). The Interstate Banking and Branching Act
also authorizes banks to merge across state lines, thereby creating interstate
branches. This provision, which became effective June 1, 1997, allowed each
state, prior to the effective date, the opportunity to "opt out" of this
provision, thereby prohibiting interstate branching within that state. Tennessee
did not adopt legislation to "opt out" of the interstate branching provisions.
FDIC regulations have adopted certain portions of the Federal Reserve
Act which places restrictions on a bank's loans or extensions of credit to,
purchases of or investments in the securities of, and purchases of assets from
an affiliate, a bank's loans or extensions of credit to third parties
collateralized by the securities or obligations of an affiliate, the issuance of
guarantees, acceptances, and letters of credit on behalf of an affiliate, and
certain bank transactions with an affiliate, or with respect to which an
affiliate acts as agent, participates, or has a financial interest. Furthermore,
a bank 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.
EFFECT OF GOVERNMENTAL POLICIES
MTB is affected by the policies of regulatory authorities, including
the Federal Reserve System. An important function of the Federal Reserve System
is to regulate the national money supply. Among the instruments of monetary
policy used by the Federal Reserve are: purchases and sales of U.S. Government
securities in the marketplace; changes in the discount rate, which is the rate
any depository institution must pay to borrow from the Federal Reserve; and
changes in the reserve requirements of depository institutions. These
instruments are effective in influencing economic and monetary growth, interest
rate levels and inflation.
The monetary policies of the Federal Reserve System and other
governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of changing conditions in the national economy and in the money
market, as well as the result of actions by monetary and fiscal authorities, it
is not possible to predict with certainty future changes in interest rates,
deposit levels, loan demand or the business and earnings of MTB or whether the
changing economic conditions will have a positive or negative effect on
operations and earnings.
Bills are pending before the United States Congress and the Tennessee
Legislature which could affect the business of MTB, and there are indications
that other similar bills may be introduced in the future. It cannot be predicted
whether or in what form any of these proposals will be adopted or the extent to
which the business of MTB may be affected thereby.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The following is a discussion of MTB's financial condition as of June
30, 1998 and the results of its operations for the three and six months ended
June 30, 1998, and 1997, respectively. Management's discussion and analysis is
presented as a review of the major trends affecting the performance of MTB and
to aid in understanding MTB's results of operations and financial condition. The
following should be read in conjunction with the financial statements of MTB
contained in this Prospectus/Proxy Statement and other financial information
contained herein.
To the extent that statements in this discussion relate to the plans,
objectives, or future performance of MTB, these statements may be deemed to be
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's current
expectations and the current economic environment. Actual strategies and results
in future periods may differ materially from those currently expected due to
various risks and uncertainties.
THE MERGER WITH FIRST AMERICAN
On May 26, 1998, MTB entered into a definitive agreement to merge with
and into FANB, a wholly-owned subsidiary of First American, in a stock-for-stock
transaction. The Agreement provides that 7.768 shares of First American Common
Stock will be issued in exchange for each share of MTB Common Stock on a
tax-free basis. The Merger is pending
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regulatory and stockholder approval and is scheduled to be consummated on
October 1, 1998 and will be accounted for as a pooling-of-interests. The effects
of the Merger have not been reflected in the financial statements herein.
RESULTS OF OPERATIONS
Net income was $1,056,282 for the six months ended June 30, 1998, a
decrease of $87,817 or 9% compared to the six months ended June 30, 1997.
Earnings decreased primarily as a result of higher non-interest expenses.
Offsetting the increase in non-interest expense was an 8% increase in net
interest income of $367,679.
Net income was $421,645 for the second quarter of 1998, a decrease of
$126,558 or 23% over the second quarter of 1997. Earnings decreased primarily as
a result of higher non-interest expenses. Offsetting the increase in
non-interest expenses and was an 8% increase in net interest income of $177,399.
For the six months ended June 30, 1998, net interest income increased
$367,679 or 8% compared to the six months ended June 30, 1997. The provision for
loan loss expense decreased $17,727 or 11% from $144,774 for the six months
ended June 30, 1998 from $162,501 for the six months ended June 30, 1997.
Non-interest income increased $118,481 during the six months ended June 30, 1998
compared to the six months ended June 30, 1997 and non-interest expense
increased $481,425 during the six months ended June 30, 1998 compared to the six
months ended June 30, 1997.
For the quarter ended June 30, 1998, net interest income increased
$177,399 or 8% compared to the second quarter of 1997. The provision for loan
loss expense decreased $55,680 or 34% to $108,781 in the second quarter of 1998
from $164,461 in the second quarter of 1997. Non-interest income increased
$35,979 during the second quarter of 1998 compared to the second quarter of 1997
and non-interest expense increased $483,199 or 32% during the second quarter of
1998 compared to the second quarter of 1997.
Assets increased by $8,697,427 or 4% in 1998 and was primarily the
result of deposit growth of $7,130,117 or 4% in 1998. The deposits were used to
fund additional loans and investments in Federal Funds. Net loans increased
$694,525 or 1% in 1998 over December 31, 1997 while Federal Funds sold increased
$9,000,000 in 1998 compared with December 31, 1997.
The following table summarizes the results of operations of MTB, on a
consolidated basis for the six and three months ended June 30, 1998 and 1997.
Three and Six Months Ended June 30,
(Amounts in thousands, except percentages and per share data)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------ ----- ----- -----
Income Statement Data:
Net interest income $2,392 2,215 4,735 4,368
Provision for loan losses 109 164 145 163
Other Income 314 278 640 522
Other expense 2,000 1,517 3,630 3,149
Net income 421 548 1,056 968
Return on average assets .74% 1.01% .95% .90%
Return on average equity 5.63% 7.90% 7.12% 6.99%
NET INTEREST INCOME
Net interest income for the six months ended June 30, 1998 increased 8%
or $367,679 over the six months ended June 30, 1997. Interest income increased
$482,909 or 6% during six months ended June 30, 1998 while interest expense
increased 3% or $115,230. Interest income increased due to a growing loan
portfolio and interest expense increased due growth is deposits of $7,130,117
during 1998. Net interest income was also aided by the continued repricing of
both the loan and investment portfolios at a slower rate than deposit repricing.
Net interest income in the second quarter of 1998 increased 8% or
$177,399 over the second quarter of 1997. Interest income increased $264,131 or
7% during the second quarter of 1998 while interest expense increased 5% or
$86,732. Interest income increased due to a growing loan portfolio and interest
expense increased due growth in deposits of $7,130,117 during 1998. Net interest
income was also aided by the continued repricing of both the loan and investment
portfolios at a slower rate than deposit repricing as interest rates declined.
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NON-INTEREST INCOME
Non-interest income of $640,146 increased $118,481 or 23% for the six
months ended June 30, 1998 compared with the six months ended June 30, 1997.
This increase is primarily the result of $350,306 in service charges on deposit
accounts in 1998 compared to $292,061 in service charges on deposit accounts in
1997.
Other income of $314,070 increased $35,979 or 13% in the second quarter
of 1998 from the second quarter of 1997. This increase is primarily the result
of $203,453 in service charges on deposit accounts in second quarter of 1998
compared to $146,807 in service charges on deposit accounts in the second
quarter of 1997.
NON-INTEREST EXPENSES
Other expenses of $2,000,466 in the second quarter of 1998 increased
$483,199 or 32% over the second quarter of 1997. The increase is the result of
increased salary and employee benefits expense of $322,599 and increased
occupancy expense of $39,810. The increase in salary and employee benefits
expense was due to normal salary increases and the addition of new employees,
and an increase in employee bonuses.
In 1997, MTB developed a plan to deal with the Year 2000 problem and
began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to be completed by the end of 1998, with a
full year of testing performed by that date. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. The total cost of the project is not expected to be
significant to MTB's financial position or earnings, and is being funded through
operating cash flows. MTB will expense all costs associated with these system
changes as the costs are incurred.
INCOME TAXES
During the second quarter of 1998 income tax expense was $175,341
compared to $262,924 in the second quarter of 1997. MTB's provision for income
taxes differs from the amounts computed by applying the statutory rates because
of tax-exempt interest income, state income taxes, and other miscellaneous
items.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses approximated 1.38% of outstanding loans
at June 30, 1998 compared to 1.50% at December 31, 1997 due to provisions in
excess of charge-offs as well as loan growth. The allowance decreased to
$1,335,201 at June 30, 1998 from $1,441,077 at December 31, 1997. MTB
experienced net charge-offs on loans of approximately $311,000 for the six
months ended June 30, 1998.
Management believes that the allowance for loan losses is adequate to
provide for potential loan losses, based on information available and conditions
prevailing at the date of determination of the allowance. However, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required.
Specific reserves have been established for specifically identified
problem loans where management considers losses to be likely. A general reserve
has been established by management to provide for loans considered to be
potential problems as well as for future problem loans which are currently
unidentified.
ASSET QUALITY
The following table summarizes nonperforming assets and allowance for
loan losses data as of June 30, 1998, December 31, 1997 and June 30, 1997:
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June 30, 1998 December 31, 1997 June 30, 1997
------------------- -------------------- --------------------
Amount % of Loans Amount % of Loans Amount % of Loans
------ ---------- ------ ---------- ------ ----------
(Amount in thousands, except percentages)
Non-accrual loans $1,821 1.88% $ 2,309 2.39% $1,909 1.97%
Restructured loans-not in compliance with modified
terms -- -- -- -- -- --
Other real estate owned 22 .02 -- -- 82 .08
------ ---- --------- ---- ------ ----
Total nonperforming assets $1,843 1.90% $ 2,309 2.39% $1,991 2.06%
====== ==== ========= ==== ====== ====
Loans past due 90 days or more and
still accruing interest $ 24 .02% $ 14 .01% $ 30 .03%
====== ==== ========= ==== ====== ====
Allowance for loan losses to period end loans .38% . 50% 1.49%
====== ========= ======
The following table summarizes loan balances at June 30, 1998 and June
30, 1997 and changes in the allowance for loan losses arising from loans charged
off by loan category, recoveries on loans previously charged off by loan
category, and additions to the allowance which have been charged to operating
expense.
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1998 1997 1998 1997
-------- -------- -------- --------
(dollar amounts are presented in thousands)
Amount of net loans outstanding at end of period $ 96,775 $ 89,176 $ 96,775 $ 89,176
Allowance for loan loses at beginning of period 1,404 1,249 1,441 1,215
Loans charged off 248 162 345 173
Recoveries of loans previously charged off (70) (23) (94) (129)
-------- -------- -------- --------
Net loans charged off (recovered) 178 79 251 44
Provision for loan losses 109 164 145 163
-------- -------- -------- --------
Allowance for loan losses, end of period $ 1,335 $ 1,334 $ 1,335 $ 1,334
======== ======== ======== ========
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs and the ability to fund these commitments. Interest rate
sensitivity management seeks to maintain consistent and acceptable net interest
spreads and to enhance growth of net interest income through periods of changing
interest rates.
MTB seeks to meet day-to-day liquidity needs through management of the
cash and federal funds accounts. Short-term liquidity is maintained by the
management of funds invested in short-term instruments such as federal funds
sold. Long-term liquidity is maintained through the management of investment
securities and the loan portfolio in conjunction with adding to the core deposit
base through the procurement of additional funds from depositors or through
money market instruments.
CAPITAL RESOURCES AND ADEQUACY
There are various measures of capital adequacy for banks and bank
holding companies such as risk-based capital guidelines and the leverage ratio.
At June 30, 1998, MTB's regulatory capital and the required minimums under
existing regulations are as follows:
Actual Required
Capital Minimum Amount
------- --------------
Tier 1 risk-based 28.6% 4.00%
Total risk-based 29.8% 8.00%
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
The following is a discussion of MTB's financial condition as of
December 31, 1997 and December 31, 1996 and the results of its operations for
the years ended December 31, 1997, 1996, and 1995 respectfully. Management's
discussion and analysis is presented as a review of the major trends affecting
the performance of MTB and to aid in understanding
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MTB's results of operations and financial condition. The following should be
read in conjunction with the financial statements of MTB contained in this
Prospectus/Proxy Statement and other financial information contained herein.
To the extent that statements in this discussion relate to the plans,
objectives, or future performance of MTB, these statements may be deemed to be
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's current
expectations and the current economic environment. Actual strategies and results
in future periods may differ materially from those currently expected due to
various risks and uncertainties.
RESULTS OF OPERATIONS
MTB reported net income of $2,058,107 for the year ended December 31,
1997, a decrease of $20,144 or 1% from 1996. Earnings decreased primarily as a
result of higher non-interest expenses. Offsetting the 10% increase in
non-interest expenses was a 7% increase in net interest income of $574,084.
For the year ended 1997, net interest income increased $574,084 or 7%
compared to 1996. The provision for loan loss expense increased $214,686 or 67%
to $537,049 in 1997 from $322,363 in 1996. Non-interest income increased $33,394
during 1997 compared to 1996 and non-interest expense increased $574,533 during
1997 compared to 1996.
Assets declined by $549,064 or .25% in 1997 and was primarily the
result of deposit run-off of $2,250,632 or 1% in 1997. Due to economic
conditions and the interest rate environment, deposits were funneled into higher
yielding investment products. Net loans increased $13,841,529 or 17% in 1997
over 1996 while investments decreased $14,539,317 or 12% in 1997 over 1996.
The following table summarizes the results of operations of MTB, on a
consolidated basis for the years ended December 31, 1997, 1996, and 1995.
Years Ended December 31
------------------------------------------
1997 1996 1995
------ ------ ------
(Amounts in thousands, except percentages and per share data)
Income Statement Data:
Net interest income $8,997 $8,423 $8,546
Provision for loan losses 537 322 170
Non-interest income 1,077 1,044 943
Non-interest expense 6,481 5,906 5,353
Net income 2,058 2,078 2,643
Return on average assets 1.21% .95% .95%
Return on average equity 9.25% 7.72% 8.28%
NET INTEREST INCOME
Net interest income in 1997 increased 7% or $574,084 over 1996.
Interest income increased $401,228 or 3% during 1997 while interest expense
decreased 2% or $172,856. Interest income increased due to a growing loan
portfolio and interest expense decreased due to the declining interest rate
environment and due to the continued maturity of high priced fixed rate
deposits. Net interest income was also aided by the continued repricing of both
the loan and investment portfolios at a slower rate than deposit repricing.
NON-INTEREST INCOME
Non-interest income of $1,077,339 increased $33,394 or 3% in 1997 from
1996. This increase is primarily the result of $586,782 in service charges on
deposit accounts in 1997 compared to $532,032 in service charges on deposit
accounts in 1996.
NON-INTEREST EXPENSES
Non-interest expenses of $6,480,677 in 1997 increased $574,533 or 10%
over 1996. The increase is the result of increased salary and employee benefits
expense of $123,695 and increased occupancy expense of $547,824 relating to
depreciation of newly acquired equipment. The increase in salary and employee
benefits expense was due to normal salary increases and the addition of new
employees. These increases were offset by decreases of $33,027 in professional
fees, $27,476 in supplies expenses, $33,760 in postage and $51,065 in
advertising costs.
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INCOME TAXES
During 1997 income tax expense was $998,341 compared to $1,159,938 in
1996. MTB's provision for income taxes differs from the amounts computed by
applying the statutory rates because of tax-exempt interest income, state income
taxes, and other miscellaneous items. The effective income tax rates for 1997
and 1996 were 32.7% and 35.8% respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses approximated 1.50% of outstanding loans
at December 31, 1997 compared to 1.48% at December 31, 1996 due to provisions in
excess of charge-offs. The allowance increased to $1,441,077 at December 31,
1997 from $1,214,813 at December, 1996. MTB experienced net charge-offs on loans
of approximately $311,000 for the year ended December 31, 1997.
Management believes that the allowance for loan losses is adequate to
provide for potential loan losses, based on information available and conditions
prevailing at the date of determination of the allowance. However, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required.
Specific reserves have been established for specifically identified
problem loans where management considers losses to be likely. A general reserve
has been established by management to provide for loans considered to be
potential problems as well as for future problem loans which are currently
unidentified.
ASSET QUALITY
The following table summarizes nonperforming assets and allowances for
loan losses data as of December 31, 1997 and December 31, 1996:
December 31, 1997 December 31, 1996
---------- ---------- --------------------
Amount % of Loans Amount % of Loans
------ ---------- ------ ----------
(Amounts in thousands, except percentages)
Non-accrual loans $2,309 2.39% $1,795 1.85%
Restructured loans--not in
compliance with modified terms -- -- -- --
Other real estate owned -- -- 81 .08
------ ---- ------ ----
Total nonperforming assets $2,309 2.39% $1,876 1.94%
====== ==== ====== ====
Loans past due 90 days or more and
still accruing interest $ 24 .02% $ 19 .02%
====== ==== ====== ====
Allowance for loan losses to period
end loans 1.50% 1.48%
====== ====
The following table summarizes loan balances at the end of 1997 and
1996 and changes in the allowance for loan losses arising from loans charged off
by loan category, recoveries on loans previously charged off by loan category,
and additions to the allowance which have been charged to operating expense.
Years ended December 31,
--------------------------------
1997 1996
-------- --------
(dollar amounts are presented in thousands)
Amount of net loans outstanding at end of year $ 96,200 $ 82,132
======== ========
Allowance for loan loses at beginning of year 1,215 $ 1,080
Loans charged off 550 366
Recoveries of loans previously charged off: (239) (179)
-------- --------
Net loans charged off 311 187
Provision for loan losses 537 322
Allowance for loan losses, end of year $ 1,441 1,215
======== ========
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LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs and the ability to fund these commitments. Interest rate
sensitivity management seeks to maintain consistent and acceptable net interest
spreads and to enhance growth of net interest income through periods of changing
interest rates.
MTB seeks to meet day-to-day liquidity needs through management of the
cash and federal funds accounts. Short-term liquidity is maintained by the
management of funds invested in short-term instruments such as federal funds
sold. Long-term liquidity is maintained through the management of investment
securities and the loan portfolio in conjunction with adding to the core deposit
base through the procurement of additional funds from depositors or through
money market instruments.
CAPITAL RESOURCES AND ADEQUACY
There are various measures of capital adequacy for banks and bank
holding companies such as risk-based capital guidelines and the leverage ratio.
At December 31, 1997, MTB's regulatory capital and the required minimums under
existing regulations are as follows:
Actual Capital Required Minimum Amount
-------------- -----------------------
Tier 1 risk-based 28.20% 4.00%
Total risk-based 29.40% 8.00%
INFLATION
Inflation impacts the growth in total assets in the banking industry
and causes a need to increase equity capital at higher than normal rates to meet
capital adequacy requirements. MTB copes with the effects of inflation through
effectively managing its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through retainage of net income.
EARNINGS PERFORMANCE FOR 1996 VERSUS 1995
The previous discussion concentrated on MTB's 1997 results of
operations and financial condition. The following discussion recaps MTB's
results of operations for 1996 compared to 1995.
MTB reported net income of $2,078,251 for the year ended December 31,
1996, a decrease of $564,972 or 21% over 1995. Earnings decreased primarily as a
result of decreased net interest income and higher non-interest expenses.
Offsetting the decrease in non-interest expense and net interest income was an
11% increase in non-interest income of $100,533.
For the year ended 1996, net interest income decreased $122,948 or 1%
compared to 1995. The provision for loan loss expense increased $152,384 or 90%
to $322,363 in 1996 from $169,979 in 1995. Non-interest income increased
$100,533 during 1996 compared to 1995 and non-interest expense increased
$553,520 during 1996 compared to 1995.
NET INTEREST INCOME
Net interest income in 1996 decreased 1% or $122,948 over 1995.
Interest income increased $114,761 or 1% during 1996 while interest expense
increased 3% or $237,709. Interest income increased due to a growing loan
portfolio and interest expense increased due to the interest rate environment.
NON-INTEREST INCOME
Other income of $1,043,945 increased $100,533 or 11% in 1996 from 1995.
This increase is primarily the result of $532,032 in service charges on deposit
accounts in 1996 compared to $499,217 in service charges on deposit accounts in
1995.
NON-INTEREST EXPENSES
Other expenses of $5,906,144 in 1996 increased $553,520 or 10% over
1995. The increase is the result of increased salary and employee benefits
expense of $225,007 and increased occupancy expense of $395,812 relating to
depreciation of newly acquired equipment. The increase in salary and employee
benefits expense was due to normal salary increases and the addition of new
employees. These increases were offset by decreases of $95,397 in FDIC insurance
costs and $60,159 in professional fees.
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During 1996 income tax expense was $1,159,938 compared to $1,323,285 in
1995. MTB's provision for income taxes differs from the amounts computed by
applying the statutory rates because of tax-exempt interest income, state income
taxes, and other miscellaneous items. The effective income tax rates for 1996
and 1995 were 35.8% and 33.4% respectively.
MANAGEMENT OF MTB
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding Directors
and Executive Officers of MTB.
PRINCIPAL OCCUPATION FOR
NAME AGE POSITIONS SINCE PREVIOUS 5 YEARS
---- --- --------- ----- ----------------
Norman Harris 62 Director, Exec VP 1956 Banker
Gail Ervin 39 Sr. VP 1983 Banker
Beverly Douglas, Jr. 71 Chairman 1959 Banker
Edward D. Green 48 Director, President, CEO 1976 Banker
H. Allen Harlan 39 Sr. VP 1984 Banker
Mark W. Hines 36 CFO, Sr. VP 1984 Banker
Betty H. Lala 58 Sr. VP 1990 Banker
Georgia Wilburn 58 Sr. VP 1959 Banker
James W. Burt 75 Director 1941 Retired Banker
Joe Gilliam 73 Director 1979 Farmer
Andy Hunter 68 Director 1964 Farmer
James H. Jones, Jr. 75 Director 1976 Retired Banker
W. H. Pigg 75 Director 1968 Retired Businessman
John C. Porter 59 Director 1997 Owner Porter/Walker
James M. Rippey, Jr. 36 Director 1991 Owner Rippey Auto Parts
James F. Russell, Jr. 67 Director 1964 Farmer
Dr. Paul Sands 67 Director 1985 Ret. Pres. CSCC
Larry Vining 52 Director 1991 Owner Turner Osborne
Frank Walker 76 Director 1971 Real Estate Dev.
H. P. Woody 73 Director 1971 Ret. Maury Farmer Coop
No director of MTB is related to any other director except Mr. Beverly
Douglas, Jr. who is the first-cousin of the wife of Mr. Edward D. Green. No
director of MTB is a director or executive officer of another bank holding
company, bank, savings and loan association, or credit union. The following is a
brief description of the business experience of the executive officers of MTB.
Beverly Douglas, Jr., is the Chairman of the Board of MTB. He was
elected Chairman of the Board in 1988, and was previously elected president in
1970. He graduated from Princeton University and Vanderbilt Law School. He
served in the U.S. Naval Reserve during the Korean War and practiced law in
Nashville and Columbia until joining MTB in 1959.
Edward D. Green, is the President, Chief Executive Officer and a
Director of MTB. He joined the bank in 1976 as a Vice President, was appointed
to the Board of Directors in 1978, and became President in 1988. He graduated
from the Georgetown University School of Foreign Service and LSU School of
Banking of the South.
Norman Harris is the Executive Vice President and a Director of MTB. He
joined the bank in January 1956. His present position is Executive Vice
President, and he served as Vice President-Cashier prior to his current
position. He graduated from Santa Fe High School and LSU Banking School of the
South, and his other education included American Institute of Banking courses.
He assumed the position of Secretary to the Board of Directors, October 1970 and
was elected to the Board of Directors in January 1975.
Mark W. Hines is the Senior Vice President and Chief Financial Officer
of MTB. He joined the bank in September 1984. He served as Vice
President/Director of Marketing prior to his current position. He graduated from
Middle Tennessee State University with a Bachelors Degree in Business
Administration, and obtained a Masters in Business Administration from Belmont
University and LSU Graduate School of Banking of the South.
Gail Ervin is a Senior Vice President of MTB. She joined the bank in
May 1979. Her present position is Senior Vice President of Operations and
Technology, and she served as Vice President prior to her current position. She
graduated from Columbia State Community College with an Associates Degree of
Applied Science. Her other education includes LSU Graduate School of Banking of
the South.
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H. Allen Harlan is a Senior Vice President of MTB. He joined the bank
in June 1984. His present position is Senior Vice President/Chief Lending
Officer, and he served as Vice President prior to his current position. He
graduated from University of Tennessee, Knoxville with a Bachelors Degree in
Agriculture Economics and LSU Graduate School of Banking of the South.
Betty H. Lala is a Senior Vice President of MTB. She joined MTB in
1990. Her present position is Senior Vice President/Retail Administration
Officer, and she served as Assistant Vice President prior to her current
position. She graduated from Lewis County High School. Her other education
includes Austin Peay University, University of New Orleans and American
Institute of Banking courses
Georgia Wilburn is a Senior Vice President of MTB. She joined the bank
in September 1959. Her present position is Senior Vice President/Compliance
Officer, and she served as Vice President prior to her current position. She
graduated from Central High School, LSU Graduate School of Banking of the South
and Tennessee Banking School. Her other education includes Columbia State
Community College, Columbia Business College, and American Institute of Banking
courses.
TRANSACTIONS WITH MANAGEMENT
MTB has and expects to have in the future banking and other business
transactions in the ordinary course of its banking business with directors,
officers, and 10% beneficial owners of MTB and their affiliates, including
members of their families or corporations, partnerships, or other organizations
in which such officers or directors have a controlling interest, on
substantially the same terms (including price, or interest rates and collateral)
as those prevailing at the time for comparable transactions with unrelated
parties. Any such banking transactions will not involve more than the normal
risk of collectibility nor present other unfavorable features to MTB.
SECURITIES LAW LIMITATIONS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of MTB, MTB
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
THE MTB BOARD AND ITS COMMITTEES
Directors of MTB and MTB are elected annually and each director holds
office until his or her successor is elected and qualified. Committees of the
board of MTB, their duties, and their members include:
Loan Review Committee:
----------------------
Reviews all loans and lines greater than $50,000. Also reviews all
letters of credit. Members:
James W. Burt
James H. Jones
Georgia Wilburn (Senior Vice President/Loan Review Officer)
Finance Committee:
------------------
Reviews all new loans weekly. Members:
James H. Jones, Jr.
Andy Hunter
H. P. Woody
Audit Committee:
----------------
Reviews the internal audit function and examinations of the bank.
Members:
James W. Burt
James H Jones, Jr.
James M. Rippey, Jr.
Larry Vining
Frank Walker
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EXECUTIVE COMPENSATION
The Summary Compensation Table provides information for the years
indicated about the Chief Executive Officer ("CEO") and the other four most
highly compensated officers of MTB. No other officers of MTB received
compensation in excess of $100,000 for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------
ANNUAL COMPENSATION ($)
--------------------------------- OTHER ANNUAL INCENTIVE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION PLAN PAYOUTS COMPENSATION
- --------------------------- ---- ------ ----- ------------ ------------ ------------
Edward D. Green 1997 $100,993.23 -0- -0- -0- -0-
Edward D. Green 1996 $ 96,926.30 -0- -0- -0- -0-
Edward D. Green 1995 $ 95,319.54 -0- -0- -0- -0-
COMPENSATION OF DIRECTORS
During 1997, each non-officer director received $400 per board meeting
attended. Directors are also compensated for committee meetings at the rate of
$50 per meeting attended.
OWNERSHIP OF MTB COMMON STOCK
As of the MTB Record Date, MTB's records indicated the following
number of shares were beneficially owned by:
(I) ALL PERSONS WHO OWN BENEFICIALLY 5% OR MORE OF THE MTB COMMON STOCK:
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER (NUMBER OF SHARES) PERCENT OF CLASS
------------------------------------ ---------------- ----------------
Beverly Douglas, Jr. 21,150(1)(2) 14.1667%
Columbia, Tennessee
Perre C. MacFarland Magness 14,956 9.9706%
Memphis, Tennessee
Coleman Douglas Helme 10,337(2) 6.4180%
Nashville, Tennessee
Lonsdale M. Green 22,220(3) 14.8133%
Columbia, Tennessee
Frances F. Douglas Corzine 9,558(4) 6.3720%
Nashville, Tennessee
(1) Beverly Douglas, Jr. owns 14,064 shares directly, 3,266 shares as
Trustee under the Will of Beverly Douglas, 2,710 shares through his
wife, Zara P. Douglas, 182 shares as custodian for Josephine Tatayama,
53 shares as custodian for Franklin Tatayama, 53 shares as custodian
for Anna Bruestle, 53 shares as custodian for Stephen Bruestle, 53
shares as custodian for Thomas Bruestle, 53 shares as custodian for
Rachel Brewer, and 53 shares as custodian for William Brewer.
(2) Beverly Douglas, Jr. and Coleman Douglas Helme are Co-Executors of the
Estate of Josephine Hutton Douglas, which owns 710 shares.
(3) Lonsdale MacFarland Green owns 15,443 shares directly, 41 shares
through her husband Edward D. Green (President, CEO and a director of
MTB), 75 shares as custodian for Lonsdale M. Green (her daughter),
3,368 shares as trustee of the Andrew Green Trust (her son), and 3,293
shares as trustee of Lonsdale M. Green Trust, for a total of 22,220
shares.
(4) Frances F. Douglas Corzine owns 7,448 shares directly, 1,055 shares as
custodian for Douglas Brooks Corzine and 1,055 shares as custodian for
Zara Frierson Corzine.
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(II) EACH PERSON WHO IS A DIRECTOR OR A NAMED EXECUTIVE OFFICER OF MTB:
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER (NUMBER OF SHARES) PERCENT OF CLASS
------------------------------------ ---------------- ----------------
Norman Harris 147 .0980%
Columbia, Tennessee
Gail Ervin 5 .0033%
Columbia, Tennessee
Mark W. Hines 33 .0220%
Columbia, Tennessee
Bevery Douglas, Jr.(1)(2) 21,250 14.1667%
Columbia, Tennessee
Edward D. Green(3) 22,220 14.8133%
Columbia, Tennessee
H. Allen Harlan 152 .1013%
Columbia, Tennessee
Betty H. Lala 20 .0133%
Columbia, Tennessee
Georgia Wilburn 170 .1133%
Columbia, Tennessee
James W. Burt 1,150 .7666%
Columbia, Tennessee
Joe Gilliam 400 .2666%
Mt. Pleasant, Tennessee
Andy Hunter 362 .2413%
Columbia, Tennessee
James H. Jones, Jr. 175 .1166%
Mt. Pleasant, Tennessee
W. H. Pigg 111 .0740%
Columbia, Tennessee
John C. Porter 0 0%
Columbia, Tennessee
James M. Rippey, Jr. 1,734 1.156%
Columbia, Tennessee
James F. Russell, Jr. 201 .13%
Williamsport, Tennessee
Dr. Paul Sands 15 .01%
Mt. Pleasant, Tennessee
Larry Vining 10 .01%
Columbia, Tennessee
Frank Walker 1,155 .7700%
Columbia, Tennessee
H. P. Woody 350 .2333%
Columbia, Tennessee
(III) OFFICERS AND DIRECTORS AS A GROUP: 49,660 33.1070%
(1) Beverly Douglas, Jr. owns 14,064 shares directly, 3,266 shares as
Trustee under the Will of Beverly Douglas, 2,710 shares through his
wife, Zara P. Douglas, 182 shares as custodian for Josephine Tatayama,
53 shares as custodian for Franklin Tatayama, 53 shares as custodian
for Anna Bruestle, 53 shares as custodian for Stephen Bruestle, 53
shares as custodian for Thomas Bruestle, 53 shares as custodian for
Rachel Brewer, and 53 shares as custodian for William Brewer.
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(2) Beverly Douglas, Jr. and Coleman Douglas Helme are Co-Executors of the
Estate of Josephine Hutton Douglas, which owns 710 shares.
(3) Edward D. Green owns 41 shares directly, 15,443 through his wife
Lonsdale Macfarland Green, 75 shares where his wife is custodian for
Lonsdale M. Green (his daughter), 3,368 shares where his wife is
trustee of the Andrew Green Trust (his son), and 3,293 shares where his
wife is trustee of the Lonsdale M. Green Trust, for a total of 22,220
shares.
DESCRIPTION OF MTB CAPITAL STOCK
MTB is authorized by its charter (the "CHARTER") to issue a maximum of
150,000 shares of MTB Common Stock, of which 150,000 were outstanding at June
25, 1998.
The holders of MTB Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Cumulative
voting is not allowed. Holders of MTB Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the MTB Board out of funds
legally available therefore and, in the event of liquidation, dissolution or
winding up of MTB, will be entitled to share ratably in all assets remaining
after payment of liabilities. However, the declaration and payment of dividends
by the MTB Board shall be subject to the rules and regulations of the TDFI
governing the amount of dividends which may be paid to shareholders, the manner
in which dividends are paid, and the methods, if any, by which capital stock and
surplus may be retired and reduced. Holders of MTB Common Stock have preemptive
rights with respect to issuance of additional shares of MTB Common Stock.
Holders of MTB Common Stock have no right to convert their MTB Common Stock into
any other securities. All outstanding shares of MTB Common Stock are fully paid
and nonassessable.
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ADDITIONAL INFORMATION
DISSENTERS' APPRAISAL RIGHTS
MTB shareholders are entitled to dissenters' rights under the National
Bank Act. Section 215a of the National Bank Act provides that an MTB shareholder
wishing to perfect his or her right to dissent from the Merger must either vote
against the Merger or give notice in writing, to the presiding officer, at or
prior to the meeting of MTB shareholders to vote on the transaction, that the
shareholder dissents from the Merger. Such a dissenting shareholder shall be
entitled to receive the value of the shares so held when such Merger shall be
approved, upon written request made to the receiving national association at any
time before 30 days after the date of consummation of the Merger, accompanied by
the surrender of stock certificates representing the dissenting shares.
The value of the shares of any dissenting shareholder shall be
ascertained, as of the Effective Time of the Merger, by an appraisal made by a
committee of three persons composed of (1) one selected by the vote of the
holders of a majority of the stock, the owners of which are entitled to payment
in cash; (2) one selected by the directors of the receiving association; and (3)
one selected by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the OCC who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellate.
If, within 90 days from the date of consummation of the Merger, for any
reason one or more of the appraisers is not selected as provided in the statute,
or the appraisers fail to determine the value of such shares, the OCC shall,
upon written request of any interested party, cause an appraisal to be made that
shall be final and binding on all the parties. The expenses of the OCC in making
the reappraisal or the appraisal, as the case may be, shall be paid by the
receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders, had they not requested payment, shall be sold by the
receiving association at an advertised public auction and the receiving
association shall have the right to purchase any of such shares at such public
auction if it is the highest bidder therefor, for the purpose of reselling such
shares within 30 days thereafter to such person or persons at such price not
less than par as its Board of Directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such a sale price shall be paid to such
dissenting shareholders.
The foregoing summary of the applicable provisions of the National Bank
Act 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 hereto
as Appendix C.
LEGAL OPINION
The legality of the First American Common Stock to be issued in
connection with the Merger will be passed upon by Mary Neil Price, Esq., General
Counsel of First American. As of August 24, 1998, Ms. Price beneficially owned
16,646.995 shares of First American Common Stock.
EXPERTS
The consolidated financial statements of First American Corporation and
subsidiaries as of December 31, 1997 and December 31, 1996, and for each of the
years in the three-year period ended December 31, 1997, have been incorporated
by reference herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The supplemental consolidated financial statements give retroactive
effect to the merger of First American Corporation and Deposit Guaranty Corp. on
May 1, 1998 which has been accounted for as a pooling of interests. Generally
accepted accounting principles proscribe giving effect to a consummated business
transaction accounted for by the pooling of interest method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they became
the historical financial statements of First American Corporation and
subsidiaries after financial statements covering the date of consummation of the
business combination were issued.
With respect to the unaudited interim financial information for the
periods ended June 30, 1998 and 1997 and March 31, 1998 and 1997, incorporated
by reference herein, the independent certified public accountants have reported
that they applied limited procedures in accordance with professional standards
for review of such information. However, their separate reports included in
First American's quarterly reports on Form 10-Q for the quarters ended June 30,
1998 and March 31, 1998 and incorporated by reference herein, state that KPMG
Peat Marwick LLP did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on KPMG Peat
Marwick LLP's reports on such information should be restricted in light of the
limited nature of the review procedures applied. The accountants are not subject
to the liability provisions of Section 11 of the Securities Act for their
reports on the unaudited interim financial information because those reports are
not "reports" or a "part" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
The financial statements of MTB as of December 31, 1997 and December
31, 1996, and for each of the years in the three-year period ended December 31,
1997, have been included herein and in the Registration Statement in reliance
upon the
62
70
report of KPMG Peat Marwick LLP, independent certified public accountants, also
included herein, and upon the authority of said firm as experts in accounting
and auditing.
The same partner of KPMG Peat Marwick LLP is the engagement partner for
both First American and MTB. First American and MTB were aware of this
circumstance prior to the execution of the Agreement, and both First American
and MTB have consented to KPMG Peat Marwick LLP continuing both engagements in
connection with the Merger and the preparation of this Prospectus/Proxy
Statement.
OTHER MATTERS
As of the date of this Prospectus/Proxy Statement, the MTB Board knows
of no matters that will be presented for consideration at the Special Meeting,
other than as described in this Prospectus/Proxy Statement. If any other matters
should properly come before the meeting or any adjournments or postponements
thereof and be voted upon, the enclosed proxies will be deemed to confer
discretionary authority on the individuals named as proxies therein to vote the
shares represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the management of MTB.
WHERE YOU CAN FIND MORE INFORMATION
First American has filed with the Commission a Registration Statement
under the Securities Act that registers the distribution to MTB Shareholders of
the shares of First American Common Stock to be issued in connection with the
Merger. The Registration Statement, including the attached exhibits and
schedules, contain additional relevant information about First American and the
First American Common Stock. The rules and regulations of the Commission allow
us to omit certain information included in the Registration Statement from this
Prospectus/Proxy Statement.
In addition, First American files reports, proxy statements and other
information with the Commission under the Exchange Act. You may read and copy
this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like
First American, who file electronically with the Commission. The address of that
site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information
about First American at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, NY 10005.
The Commission allows First American to "incorporate by reference"
information into this Prospectus/Proxy Statement. This means that First American
can disclose important information to you by referring you to another document
filed separately with the Commission. The information incorporated by reference
is considered to be a part of this Prospectus/Proxy Statement, except for any
information that is superseded by other information that is set forth directly
in this document.
63
71
This Prospectus/Proxy Statement incorporates by reference the documents
set forth below that First American has previously filed with the Commission.
They contain important information about First American and its financial
condition.
FIRST AMERICAN SEC FILINGS PERIOD
- -------------------------- ------
Annual Report on Form 10-K Year ended December 31, 1997, as filed March 27, 1998
Quarterly Reports on Form 10-Q Quarters ended:
- March 31, 1998, as filed April 30, 1998
- June 30, 1998, as filed August 11, 1998
The description of the First American
Common Stock and the First American
Rights contained in registration
statements filed pursuant to
Section 12 of the Exchange Act,
including any amendment or reports
filed for the purpose of updating
that description
Current Reports on Form 8-K Filed:
- May 11, 1998
- July 14, 1998
Annual Report on Form 11-K Year ended December 31, 1997, as filed June 30, 1998
First American incorporates by reference additional documents that it
may file with the Commission between the date of this Prospectus/Proxy Statement
and the date of the Special Meeting. These documents include periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
First American has supplied all information contained or incorporated
by reference in this Prospectus/Proxy Statement relating to First American. MTB
has supplied all information contained in this Prospectus/Proxy Statement
relating to MTB.
You can obtain any of the documents incorporated by reference in this
document through First American, or from the Commission through the Commission's
Internet world wide web site at the address described above. Documents
incorporated by reference are available from the companies without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this Prospectus/Proxy Statement. You
can obtain documents incorporated by reference in this Prospectus/Proxy
Statement by requesting them in writing or by telephone from First American at
the following address:
Joe Powell
Director of Investor Relations
First American Corporation
First American Center
Nashville, Tennessee 37237-0700
Telephone (615) 748-2455
If you would like to request documents from First American, please do
so by September 17, 1998 to receive them before the Special Meeting. If you
request any incorporated documents from us, we will mail them to you by first
class mail, or another equally prompt means, within one business day after we
receive your request.
You should rely only on the information contained in or incorporated by
reference in this Prospectus/Proxy Statement in considering how to vote your
shares at the Special Meeting. Neither First American nor MTB has authorized
anyone to provide you with information that is different from the information in
this document. This Prospectus/Proxy Statement is dated August 25, 1998. You
should not assume that the information contained in this document is accurate as
of any date other than that date. Neither the mailing of this Prospectus/Proxy
Statement nor the issuance of First American Common Stock in the Merger shall
create any implication to the contrary.
If you live in a jurisdiction where it is unlawful for First American
to offer its securities to you, this Prospectus/Proxy Statement does not
constitute an offer for you to purchase or receive First American Common Stock.
THE SHARES OF FIRST AMERICAN COMMON STOCK THAT YOU WOULD RECEIVE IN THE
MERGER ARE NOT DEPOSITS OF ANY BANK AND THEY ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION.
64
72
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus/Proxy Statement and documents incorporated herein by
reference contain certain forward-looking statements about the financial
condition, results of operations and business of First American and MTB. The
words "believes," "expects," "anticipates," "intends," "estimates," "plans" or
similar expressions, indicate we are making forward-looking statements.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The future results and
shareholder value of First American may differ materially from those expressed
in these forward-looking statements. Many of the factors that could influence or
determine actual results are unpredictable and not within the control of First
American. In addition, First American and MTB do not intend to, and are not
obligated to, update these forward-looking statements after we distribute this
Prospectus/Proxy Statement, even if new information, future events or other
circumstances have made them incorrect or misleading as of any future date. For
all of these statements, First American and MTB claim the protection of the safe
harbor for forward-looking statements provided in the Private Securities
Litigation Reform Act of 1995.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) competitive pressure among financial services
providers in the mid-south region of the United States or in the financial
services industry generally increases significantly; (ii) interest rates change
in such a way as to reduce First American's margins; (iii) general economic or
monetary conditions, either nationally or regionally, are less favorable than
expected, resulting in a deterioration in credit quality or a diminished demand
for First American's services and products; (iv) changes in laws or government
rules, or the way in which courts interpret these laws or rules, adversely
affect First American's business; (v) business conditions, inflation or
securities markets undergo significant change; and (vi) disruptions occur in the
operations of First American or any of its subsidiaries or any other
governmental or private entity as a result of the "Year 2000 Problem."
65
73
INDEX TO FINANCIAL STATEMENTS OF THE MIDDLE TENNESSEE BANK
PAGE
----
CONDENSED FINANCIAL STATEMENTS FOR THREE AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997............................................................................................ F-2
Condensed Balance Sheets - Unaudited.............................................................................. F-2
Condensed Statements of Earnings - Unaudited...................................................................... F-3
Condensed Statements of Cash Flows - Unaudited.................................................................... F-4
Notes to Condensed Financial Statements........................................................................... F-5
INDEPENDENT AUDITORS' REPORT.......................................................................................... F-7
FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Balance Sheets.................................................................................................... F-8
Statements of Earnings............................................................................................ F-9
Statements of Changes in Stockholders' Equity..................................................................... F-10
Statements of Cash Flows.......................................................................................... F-11
Notes to Financial Statements..................................................................................... F-12
F-1
74
THE MIDDLE TENNESSEE BANK
Condensed Balance Sheets
June 30, 1998 and December 31, 1997
JUNE 30 DECEMBER 31
1998 1997
------------ -----------
(unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 10,808,713 9,271,369
Federal funds sold 10,500,000 1,500,000
------------ -----------
Total cash and cash equivalents 21,308,713 10,771,369
Investment securities available for sale 101,223,978 103,878,188
Loans receivable 96,868,377 96,307,737
Less: unearned discounts and net deferred loan fees 93,373 107,382
allowance for loan losses 1,335,201 1,441,077
------------ -----------
Loans receivable, net 95,439,803 94,759,278
Accrued interest receivable 1,908,384 2,030,532
Income taxes receivable 212,484 59,492
Premises and equipment, net 4,603,197 4,910,540
Other assets 630,858 220,591
------------ -----------
Total assets $225,327,417 216,629,990
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $189,522,746 182,392,629
Notes payable 3,188,252 2,303,323
Accrued interest payable 1,297,171 966,092
Accrued expenses and other liabilities 547,612 238,503
Deferred income taxes, net 220,139 517,613
------------ -----------
Total liabilities 194,775,920 186,418,160
------------ -----------
Stockholders' equity:
Common stock 1,500,000 1,500,000
Additional paid in capital 1,500,000 1,500,000
Retained earnings 26,799,699 26,103,417
Unrealized gain on securities available for sale 751,798 1,108,413
------------ -----------
Total stockholders' equity 30,551,497 30,211,830
------------ -----------
Total liabilities and stockholders' equity $225,327,417 216,629,990
============ ===========
See accompanying notes to condensed financial statements.
F-2
75
THE MIDDLE TENNESSEE BANK
Condensed Statements of Earnings
Three and Six months ended June 30, 1998 and 1997
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -----------------------
1998 1997 1998 1997
----------- --------- --------- ---------
Interest income:
Loans, including fees $ 2,340,082 2,030,834 4,601,110 3,950,957
Investment securities:
Taxable 1,656,747 1,813,173 3,309,064 3,708,005
Nontaxable 80,944 117,907 225,383 183,998
Federal funds sold 202,053 53,781 285,649 95,337
----------- --------- --------- ---------
Total interest income 4,279,826 4,015,695 8,421,206 7,938,297
Interest expense:
Deposits 1,841,168 1,763,568 3,603,745 3,495,439
Notes payable 46,495 37,363 82,036 75,112
----------- --------- --------- ---------
Total interest expense 1,887,663 1,800,931 3,685,781 3,570,551
----------- --------- --------- ---------
Net interest income 2,392,163 2,214,764 4,735,425 4,367,746
Provision for loan losses 108,781 164,461 144,774 162,501
----------- --------- --------- ---------
Net interest income after provision for
loan losses 2,283,382 2,050,303 4,590,651 4,205,245
----------- --------- --------- ---------
Non-interest income:
Service charges on deposit accounts 203,453 146,807 350,306 292,061
Commissions (2,133) 31,882 65,905 65,462
Gains on sales of investment securities -- -- -- --
Other income 112,750 99,402 223,935 164,142
----------- --------- --------- ---------
Total non-interest income 314,070 278,091 640,146 521,665
----------- --------- --------- ---------
Non-interest expenses:
Compensation and benefits 1,084,332 761,733 1,895,113 1,581,182
Occupancy and equipment 489,719 449,909 908,257 931,918
Professional fees 19,500 19,500 39,000 39,000
Supplies 37,602 46,750 101,788 81,225
Postage 49,615 29,178 99,827 68,566
Advertising 51,161 37,912 96,872 83,838
FDIC insurance 33,976 27,743 61,566 62,177
Other 234,561 144,542 427,932 301,024
----------- --------- --------- ---------
Total non-interest expenses 2,000,466 1,517,267 3,630,355 3,148,930
----------- --------- --------- ---------
Earnings before income taxes 596,986 811,127 1,600,442 1,577,980
Income tax expense 175,341 262,924 544,160 609,515
----------- --------- --------- ---------
Net earnings $ 421,645 548,203 1,056,282 968,465
=========== ========= ========= =========
Basic earnings per share $ 2.81 3.65 7.04 6.46
=========== ========= ========= =========
Diluted earnings per share $ 2.81 3.65 7.04 6.46
=========== ========= ========= =========
Dividends per share
Weighted average shares outstanding - basic 150,000 150,000 150,000 150,000
=========== ========= ========= =========
Weighted average shares outstanding - fully diluted 150,000 150,000 150,000 150,000
=========== ========= ========= =========
See accompanying notes to condensed financial statements.
F-3
76
THE MIDDLE TENNESSEE BANK
Condensed Statements of Cash Flows
Six months ended June 30, 1998
(Unaudited)
1998 1997
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,056,282 968,465
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 480,000 503,364
Accretion of deferred loan origination fees 65,949 54,380
Accretion of discounts, net of amortization of premiums (325,836) (55,624)
Provision for loan losses 144,774 (162,501)
Deferred income tax benefit (78,903) 17,515
Stock dividends on Federal Home Loan Bank stock (30,900) (27,800)
Decrease in other assets (410,267) (39,059)
Increase in accrued interest receivable 122,148 (35,560)
Decrease in accrued interest payable 331,079 313,445
Decrease in income taxes payable (152,992) (40,956)
Increase in accrued expenses and other liabilities 309,109 248,293
------------ ------------
Net cash provided by operating activities 1,510,443 1,743,962
------------ ------------
Cash flows from investing activities:
Purchases of investment securities available for sale (25,231,736) (12,151,927)
Proceeds from maturities of investment securities available for sale 10,880,000 11,000,000
Proceeds from calls of investment securities available for sale 9,715,801 4,582,230
Principal repayments on investment securities available for sale 7,071,797 3,906,941
Net increase in loans (891,248) (6,815,677)
Purchases of premises and equipment, net (172,759) (229,394)
------------ ------------
Net cash provided by investing activities 1,371,855 292,173
------------ ------------
Cash flows from financing activities:
Net increase in deposits 7,130,117 1,229,630
Repayments on notes payable 884,929 (69,062)
Cash dividends paid (360,000) (345,000)
------------ ------------
Net cash used by financing activities 7,655,046 815,568
------------ ------------
Net increase in cash and cash equivalents 10,537,344 2,851,703
Cash and cash equivalents at beginning of year 10,771,369 10,646,043
------------ ------------
Cash and cash equivalents at end of year $ 21,308,713 $ 13,497,746
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 3,354,702 3,257,106
Income taxes $ 697,192 650,471
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Change in unrealized gain on securities available for sale 218,571 33,610
Foreclosure of loans $ -- $ --
============ ============
See accompanying notes to condensed financial statements.
F-4
77
THE MIDDLE TENNESSEE BANK
Notes to Condensed Financial Statements
(1) BASIS OF PRESENTATION
The financial statements of The Middle Tennessee Bank (the "Bank") have
been prepared in conformity with generally accepted accounting
principles and to general practices within the banking industry.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto presented in the Bank's 1997
financial statements. The quarterly financial statements reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for interim periods. All such
adjustments are of a normal recurring nature. The results of interim
periods are not necessarily indicative of results to be expected for
the complete fiscal year.
(2) AGREEMENT TO MERGE WITH FIRST AMERICAN CORPORATION
On May 26, 1998, the Bank entered into a definitive agreement to merge
with and into First American National Bank, a wholly-owned subsidiary
of First American Corporation in a stock-for-stock transaction. The
merger agreement provides that 7.768 shares of the First American
Corporation's stock will be issued in exchange for each share of Bank
common stock on a tax-free basis. The merger is pending regulatory and
stockholder approval and is scheduled to be consummated on October 1,
1998 and will be accounted for as a pooling-of-interests. The effects
of the merger have not been reflected in the financial statements
herein.
(3) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
SIX MONTHS ENDED JUNE 30
----------------------------
(in thousands) 1998 1997
------ ------
Balance, January 1 $1,441 1,215
Provision charged to operating expenses 145 163
Loans charged-off (345) (173)
Recoveries of loans previously charged-off 94 129
------ ------
Balance, June 30 (311) (44)
$1,335 $1,334
====== ======
Allowance ratios were as follows:
SIX MONTHS ENDED JUNE 30
----------------------------
(in thousands) 1998 1997
------ ------
Allowance end of period to net loans outstanding 1.38% 1.50%
===== =====
(4) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of general-purpose financial statements and requires that all
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. SFAS No. 130 is effective for fiscal periods beginning
after December 15, 1997 and the Bank adopted SFAS No. 130 on January 1,
1998. Reclassification of financial statements for earlier periods is
provided for comparative purposes.
F-5
78
THE MIDDLE TENNESSEE BANK
Notes to Condensed Financial Statements
The following table sets forth the amounts of other comprehensive
income included in equity along with the related tax effect for the six
months ended June 30, 1998:
SIX MONTHS ENDED JUNE 30
(pre-tax amounts in thousands) 1998 1997
Net unrealized gains on securities available for sale arising during 1998 $356,615 54,832
Less: Reclassification adjustment for net gains realized in net income -- --
-------- ------
Other comprehensive income $356,615 54,832
======== ======
(5) ACCOUNTING MATTERS
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial reports to shareholders. Operating segments are
components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Bank adopted SFAS No. 131 on January 1, 1998 and is
evaluating its operations to determine appropriate disclosures.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, revises and standardizes the disclosure
requirements for employers' pensions and other postretirement benefit
plans. This standard does not change the measurement or recognition of
such plans. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for earlier periods
presented is required.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Gains or losses resulting from changes in
the values of derivatives will be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting with
the key criterion for hedge accounting being that the hedging
relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999, and shall not be applied
retroactively to financial statements of prior periods. At this time,
the Bank is evaluating when and how it will adopt SFAS No. 133 as well
as the possible impact of the statement on the Bank's financial
statements.
(6) EARNINGS PER COMMON SHARE
Basic earnings per common share amounts are computed by dividing income
available to common shareholders (numerator) by the weighted average
number of common shares outstanding (denominator). Diluted earnings per
common share is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding adjusted to reflect the potential dilution that could occur
if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common
stock that then shared in earnings of the entity.
(7) LEGAL MATTERS
There are from time to time legal proceedings pending against the Bank.
In the opinion of management and counsel, liabilities, if any arising
from such proceedings presently pending would not have a material
adverse effect on the financial statements of the Bank.
F-6
79
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Middle Tennessee Bank:
We have audited the accompanying balance sheets of The Middle Tennessee
Bank (the Bank) as of December 31, 1997 and 1996, and the related
statements of earnings, changes in stockholders' equity, and cash flows
for the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Middle
Tennessee Bank as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years in the three-year period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Nashville, Tennessee
February 20, 1998, except for note 12
which is as of March 4, 1998
F-7
80
THE MIDDLE TENNESSEE BANK
Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
------------ ------------
Cash and cash equivalents:
Cash and due from banks $ 9,271,369 10,046,043
Federal funds sold 1,500,000 600,000
------------ ------------
Total cash and cash equivalents 10,771,369 10,646,043
Investment securities available for sale (amortized cost of $201,090,425
and $117,261,803 in 1997 and 1996, respectively) (note 2) 103,878,188 118,417,505
Loans receivable (notes 3, 6, and 9 96,307,737 82,220,157
Less: unearned discounts and net deferred loan fees 107,382 87,595
allowance for loan losses 1,441,077 1,214,813
------------ ------------
Loans receivable, net 94,759,278 80,917,749
Accrued interest receivable 2,030,532 2,065,799
Income taxes receivable (note 7) 59,492 --
Premises and equipment, net (notes 4 and 6) 4,910,540 4,834,900
Other assets 220,591 297,058
------------ ------------
Total assets 216,629,990 $217,179,054
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (notes 2 and 5) $182,392,629 184,643,261
Notes payable (note 6) 2,303,323 2,443,510
Accrued interest payable 966,092 983,727
Income taxes payable (note 7) -- 114,464
Accrued expenses and other liabilities 238,503 208,159
Deferred income taxes, net (note 7) 517,613 334,088
------------ ------------
Total liabilities 186,418,160 188,727,209
------------ ------------
Stockholders' equity (notes 8 and 11):
Common stock, par value $10, authorized and issued 150,000 shares 1,500,000 1,500,000
Additional paid in capital 1,500,000 1,500,000
Retained earnings 26,103,417 24,735,310
Unrealized gain on securities available for sale, net of tax 1,108,413 716,535
------------ ------------
Total stockholders' equity 30,211,830 28,451,845
------------ ------------
Commitments and contingencies (notes 6, 9 and 10)
Total liabilities and stockholders' equity $216,629,990 217,179,054
============ ============
See accompanying notes to financial statements.
F-8
81
THE MIDDLE TENNESSEE BANK
Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ---------- ----------
Interest income:
Loans, including fees $ 8,466,448 7,445,417 7,224,351
Investment securities:
Taxable 7,178,204 7,664,594 7,721,751
Nontaxable 360,579 399,489 368,679
Federal funds sold 226,418 320,921 400,879
----------- ---------- ----------
Total interest income 16,231,649 15,830,421 15,715,660
Interest expense:
Deposits (note 5) 7,086,497 7,249,190 7,005,745
Notes payable 148,317 158,480 164,216
----------- ---------- ----------
Total interest expense 7,234,814 7,407,670 7,169,961
----------- ---------- ----------
Net interest income 8,996,835 8,422,751 8,545,699
Provision for loan losses (note 3) 537,049 322,363 169,979
----------- ---------- ----------
Net interest income after provision for loan losses 8,459,786 8,100,388 8,375,720
----------- ---------- ----------
Non-interest income:
Service charges on deposit accounts 586,782 532,032 499,217
Commissions 130,727 125,820 136,818
Gains on sales of investment securities -- -- --
Other income (note 9) 359,830 386,093 307,377
----------- ---------- ----------
Total non-interest income 1,077,339 1,043,945 943,412
----------- ---------- ----------
Non-interest expenses:
Compensation and benefits (note 10) 3,185,507 3,061,542 2,836,535
Occupancy and equipment 1,838,456 1,290,632 894,820
Professional fees 123,227 156,254 216,413
Supplies 162,805 190,281 159,293
Postage 164,207 197,967 145,127
Advertising 112,205 163,270 140,363
FDIC insurance 71,551 10,603 106,000
Other 822,719 835,595 854,011
----------- ---------- ----------
Total non-interest expenses 6,480,677 5,906,144 5,352,562
----------- ---------- ----------
Earnings before income taxes 3,056,448 3,238,189 3,966,570
Income tax expense (note 7) 998,341 1,159,938 1,323,285
----------- ---------- ----------
Net earnings $ 2,058,107 2,078,251 2,643,285
=========== ========== ==========
Basic earnings per share $ 13.72 13.85 17.62
=========== ========== ==========
Diluted earnings per share $ 4.60 4.40 17.62
=========== ========== ==========
Dividends per share $ 4.60 4.40 4.30
=========== ========== ==========
Weighted average shares outstanding - basic 150,000 150,000 150,000
=========== ========== ==========
Weighted average shares outstanding - fully diluted 150,000 150,000 150,000
=========== ========== ==========
See accompanying notes to financial statements.
F-9
82
THE MIDDLE TENNESSEE BANK
Statements of Changes in Stockholders' Equity
Years ended December 31, 1997 and 1996
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL SECURITIES TOTAL
COMMON STOCK PAID IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE, NET EQUITY
------- ---------- --------- ----------- ------------- -----------
Balances, December 31, 1994 150,000 $1,500,000 1,500,000 21,318,736 (1,444,452) 22,874,284
Net earnings -- -- -- 2,643,323 -- 2,643,323
Dividends -- -- -- (645,000) -- (645,000)
Change in unrealized
gain on securities
available for sale,
net of tax -- -- -- -- 2,573,971 --
------- ---------- --------- ----------- ---------- -----------
Balances, December 31, 1995 150,000 1,500,000 1,500,000 23,317,059 1,129,519 27,446,578
Net earnings -- -- -- 2,078,251 -- 2,078,251
Dividends -- -- -- (660,000) -- (660,000)
Change in unrealized
gain on securities
available for sale,
net of tax -- -- -- -- (412,984) (412,984)
------- ---------- --------- ----------- ---------- -----------
Balances, December 31, 1996 150,000 1,500,000 1,500,000 24,735,310 716,535 28,451,845
Net earnings -- -- -- 2,058,107 -- 2,058,107
Dividends -- -- -- (690,000) -- (690,000)
Change in unrealized
gain on securities
available for sale,
net of tax -- -- -- -- 391,878 391,878
------- ---------- --------- ----------- ---------- -----------
Balances, December 31, 1997 150,000 $1,500,000 1,500,000 26,103,417 1,108,413 30,211,830
======= ========== ========= =========== ========== ===========
See accompanying notes to financial statements.
F-10
83
THE MIDDLE TENNESSEE BANK
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ----------- -----------
Cash flows from operating activities:
Net earnings $ 2,058,107 2,078,251 2,643,323
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of premises and equipment 1,046,731 540,000 246,292
Accretion of deferred loan origination fees (102,543) (85,254) (50,304)
Accretion of discounts, net of amortization of premiums (198,072) (82,223) (350,389)
Provision for loan losses 537,049 322,363 169,979
Deferred income tax benefit (56,658) (41,646) (10,572)
Stock dividends on Federal Home Loan Bank stock (57,800) (53,200) (54,300)
Increase (decrease) in other assets 76,467 (93,019) 813
Increase in accrued interest receivable 35,267 361,022 (283,697)
Decrease in accrued interest payable (17,635) (24,625) 238,644
(Decrease) increase in income taxes payable (173,956) 37,069 (6,653)
Increase (decrease) in accrued expenses and other liabilities 30,344 (239,487) 31,056
------------ ----------- -----------
Net cash provided by operating activities 3,177,301 2,719,251 2,574,192
------------ ----------- -----------
Cash flows from investing activities:
Purchases of investment securities available for sale (21,226,202) (36,027,674) (54,892,530)
Proceeds from maturities of investment securities available for sale 18,600,000 24,987,000 30,850,000
Proceeds from calls of investment securities available for sale 10,028,243 9,757,556 14,197,126
Proceeds from sales of investment securities available for sale -- 5,000 240,400
Principal repayments on investment securities available for sale 8,025,209 8,052,525 7,073,013
Net increase in loans (14,276,035) (6,187,774) (1,074,965)
Purchases of premises and equipment, net (1,122,371) (2,556,509) (1,121,295)
------------ ----------- -----------
Net cash provided (used) by investing activities 28,844 (1,969,876) (4,728,251)
------------ ----------- -----------
Cash flows from financing activities:
Net decrease in deposits (2,250,632) (2,766,532) (1,429,731)
Repayments on notes payable (140,187) (131,839) (124,131)
Cash dividends paid (690,000) (660,000) (645,000)
Net cash used by financing activities (3,080,819) (3,558,371) (2,198,862)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 125,326 (2,808,996) (4,352,921)
Cash and cash equivalents at beginning of year 10,646,043 13,455,039 17,807,960
------------ ----------- -----------
Cash and cash equivalents at end of year $ 10,771,369 10,646,043 13,455,039
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,252,449 7,432,295 6,931,316
Income taxes 1,228,955 1,164,515 1,408,653
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Change in unrealized gain on securities available for sale $ (632,061) (666,101) 4,151,568
Foreclosure of loans -- 80,958 --
============ =========== ===========
See accompanying notes to financial statements.
F-11
84
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Middle Tennessee Bank (the "Bank"), a state chartered bank, was
organized in 1930. The accounting and reporting policies of the Bank
conform to generally accepted accounting principles and to general
practices within the banking industry. The following is a description
of the more significant of those policies which the Bank follows in
preparing its financial statements.
(A) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash and federal funds sold. Generally, federal funds
are sold for one-day periods.
The Bank is required to maintain reserves, in the form of cash
and balances with the Federal Reserve Bank, against its deposit
liabilities. Balances required at December 31, 1997 and 1996,
were approximately $1,836,000 and $1,736,000, respectively.
(B) SECURITIES
Investments in equity securities that have a readily
determinable fair value and investments in debt securities are
classified as follows: held to maturity securities, trading
securities, and securities available for sale. The Bank has
designated all investment securities as available for sale.
The classification of an investment security as held to maturity
is based on management's positive intent and the Bank's ability
to hold such security to maturity. Investment securities held to
maturity would be stated at cost adjusted for amortization of
premiums and accretion of discounts, unless there is a decline
in fair value which is considered to be other than temporary, in
which case the cost basis of the security is written down to
fair value and the amount of the writedown is included in
earnings.
Securities designated as trading securities would be recorded at
estimated fair value with unrealized gains and losses included
in earnings. Trading securities include securities that are
bought and held principally for the purpose of selling them in
the near term. The Bank does not have any securities classified
as trading.
Securities classified as available for sale, which are reported
at fair value with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders'
equity (net of tax), include all securities not classified as
trading account securities or securities held to maturity. These
include securities used as part of the Bank's asset/liability
strategy which may be sold in response to changes in interest
rates, prepayment risks, the need or desire to increase capital,
and other similar factors. Gains or losses on the sale of
securities available for sale are recognized at the time of sale
based upon specific identification of the security sold, and are
included in the statements of earnings, on their trade date. In
the event that there is a decline in fair value which is
considered other than temporary, the security is recorded at
estimated fair value with the writedown included in earnings.
Premiums and discounts are amortized using the interest method
over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
(C) LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding.
Deferred loan fees net of loan origination costs, unearned
interest and the allowance for loan losses are shown as
reductions of loans. Unearned income on consumer loans is
recognized over the lives of the loans using the straight-line
method, which approximates the interest method. Interest income
on all other loans is recorded on the accrual method based on
the principal amounts outstanding.
Management, considering current information and events regarding
the borrowers ability to repay their obligations, considers a
loan to be impaired when it is probable that the Bank will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is based on the estimated
present value of the expected future cash flows discounted at
the loan's effective interest rate, at the loan's market price,
or fair value of the collateral if
F-12
85
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
the loan is collateral-dependent. Impairment losses are included
in the allowance for loan losses through a charge to provision
for loan losses.
Loans which are greater than 90 days past due are placed on
nonaccrual status. Interest payments received on nonaccrual
loans are recognized in interest only to the extent a payment is
received and future collection of principal is not in doubt. If
the collectibility of outstanding principal is doubtful, such
interest received is applied as a reduction of principal.
Payments on impaired loans are applied to reduce the principal
amount of such loans until the principal has been recovered and
are recognized as interest income, thereafter.
The allowance for loan losses is maintained at a level which
management believes is adequate to absorb estimated loan losses
related to loans currently outstanding and unfunded loan
commitments, and is based on historical loan loss experience,
delinquencies in the outstanding loan portfolio, specific
problem loans, appraisal of collateral, current and future
economic factors, and other valuation criteria established by
management. The allowance is increased and decreased by
provisions charged against or credited to income and reduced by
net loan chargeoffs. Subsequent recoveries are added to the
allowance for loan losses.
While management believes the allowance for loan losses is
adequate and uses available information to estimate losses on
loans, future increases and decreases to the allowance may be
necessary based on changes in economic conditions, among other
things. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the
Bank's allowance for loan losses and may require the Bank to
adjust the allowance based on their judgments about information
available to them at the time of their examination.
(D) LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
Loan fees and certain direct loan origination costs are deferred
and, subsequently, are recognized in income using the interest
method over the contractual lives of the loans, adjusted for
prepayments. Commitment fees and costs relating to commitments
whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
Net deferred fees on loans which have been placed on nonaccrual
are also placed on nonamortizing status.
(E) INCOME TAXES
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(F) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated
depreciation and amortization. These assets are depreciated
using accelerated methods over their estimated useful lives
which range from 3 to 40 years.
(G) COMMISSION INCOME
Commissions from the sale of credit life insurance and other
services are reflected in commission income in the accompanying
statements of earnings. Such amounts are recognized in income
when earned.
(H) ESTIMATED FAIR VALUES
SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, requires the Bank to disclose the estimated fair
value of its financial instruments. Estimates of the fair value
of financial instruments are presented within the notes to the
financial statements. Fair value estimates are made at a point
in time, based on relevant market information and information
about the financial instrument. Accordingly, such estimates
F-13
86
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
involve uncertainties and matters of judgment and therefore
cannot be determined with precision. Because of the high degree
of subjectivity inherent in these estimates, readers are
cautioned not to place undue reliance on the amounts disclosed.
The more significant assumptions used in determining the Bank's
fair value estimates are set forth as follows: (see notes 2, 3,
5, 6 and 9).
For cash and due from banks and federal funds sold, fair value
is estimated to approximate their carrying amount since such
instruments mature within 90 days or less and do not present
unanticipated credit concerns. Fair values for securities are
based on quoted market prices or dealer quotes, if available;
however, if a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
For most loans, fair value is estimated by discounting estimated
future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit risk and for
similar remaining maturities.
The fair value of deposits with no stated maturity, such as
demand deposits, NOW accounts, money market accounts, and
regular savings accounts, is estimated to approximate the amount
payable on demand at the reporting date. The fair value of
certificates of deposit and other fixed maturity time deposits
is estimated using the rates currently offered for deposits of
similar remaining maturities and discounting their future cash
flows. Rates for long-term debt with similar terms and remaining
maturities are used to estimate their discounted future cash
flows to determine the fair value of the Bank's notes payable.
(I) EARNINGS PER SHARE
The Bank adopted Statement of Financial Accounting Standard
(SFAS) No. 128, Earnings Per Share, at December 31, 1997. All
prior period earnings per share (EPS) data have been restated to
reflect the implementation of SFAS No. 128. SFAS No. 128
establishes standards for both computing and presenting EPS. It
replaces the presentation of primary EPS with basic EPS and
requires dual presentation of basic and diluted EPS on the face
of the statement of earnings for all entities with complex
capital structures. The Bank does not have a complex capital
structure within the meaning of SFAS No. 128. Basic earnings per
share amounts are computed by dividing net earnings by the
weighted average number of common shares outstanding during the
year.
SFAS No. 129, Disclosure of Information About Capital Structure,
was adopted in 1997 and requires disclosure of information about
an entity's capital structure. The Bank has made all disclosures
required by the statement.
(J) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(K) YEAR 2000
In 1997, the Bank developed a plan to deal with the Year 2000
problem and began converting its computer systems to be Year
2000 compliant. The plan provides for the conversion efforts to
be completed by the end of 1998 with a full year testing being
performed by that date. The Year 2000 problem is the result of
computer programs being written using two digits rather than
four to define the applicable year. The total cost of the
project is not expected to be significant to the Bank's
financial position or earnings, and is being funded through
operating cash flows. The Bank will expense all costs associated
with these system changes as the costs are incurred. As of
December 31, 1997, no such expenses have been incurred.
(L) TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
Effective January 1, 1997, the Bank adopted Statement of
Financial Accounting Standard (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application
of a financial-components approach that focuses
F-14
87
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
on control. It distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. There was
no material effect on 1997 net earnings as a result of applying
the new standard.
(M) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
with the current year presentation.
(2) INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains, gross unrealized losses,
and estimated fair value of investment securities available for sale at
December 31, 1997, are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ --------- ----------- -----------
U.S. Treasury securities $ 20,758,307 335,928 203 21,094,032
U.S. Government agencies' securities 24,157,701 376,808 27,373 24,507,136
Mortgage-backed securities - GNMA's 24,427,576 364,673 33,246 24,759,003
Municipal securities 7,183,122 242,582 19,493 7,406,211
Other debt securities - U.S. Government guaranteed 2,534,644 118,288 -- 2,652,932
Collateralized mortgage obligations 22,105,567 429,812 13 22,535,366
------------ --------- ----------- -----------
Total debt securities 101,166,917 1,868,091 80,328 102,954,680
------------ --------- ----------- -----------
Equity securities - principally Federal Home
Loan Bank stock 923,508 -- -- 923,508
------------ --------- ----------- -----------
$102,090,425 1,868,091 80,328 103,878,188
============ ========= =========== ===========
Included in securities available for sale at December 31, 1997, are
structured note securities issued by U.S. Government agencies. The
aggregate amortized cost and estimated fair value of such securities at
that date are $21,969,596 and $22,395,439, respectively. Such
securities mature at various times from November 1998 to December 2027.
The amortized cost, gross unrealized gains, gross unrealized losses,
and estimated fair value of investment securities available for sale at
December 31, 1996, are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ --------- ----------- -----------
U.S. Treasury securities $ 32,604,335 324,897 12,675 32,916,557
U.S. Government agencies' securities 28,021,913 275,615 84,133 28,213,395
Mortgage-backed securities - GNMA's 31,543,877 578,587 167,470 31,954,994
Municipal securities 6,132,325 182,244 30,209 6,284,360
Other debt securities - U.S. Government guaranteed 1,916,423 18,337 -- 1,934,760
Collateralized mortgage obligations 16,177,222 102,395 31,886 16,247,731
------------ --------- ----------- -----------
Total debt securities 116,396,095 1,482,075 326,373 117,551,797
------------ --------- ----------- -----------
Equity securities - principally Federal Home
Loan Bank stock 865,708 -- -- 865,708
------------ --------- ----------- -----------
$117,261,803 1,482,075 326,373 118,417,505
============ ========= =========== ===========
Included in securities available for sale at December 31, 1996, are
structured note securities issued by U.S. Government agencies. The
aggregate amortized cost and estimated fair value of such securities at
that date are $21,807,912 and $21,919,257, respectively.
F-15
88
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
The amortized cost and estimated fair value of debt securities by
contractual maturity at December 31, 1997 are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ -----------
Due in one year or less $ 11,789,698 11,855,568
Due after one year through five years 20,710,021 21,087,033
Due after five years through ten years 14,222,968 14,452,900
Due after ten years 7,911,087 8,264,810
------------ -----------
54,633,774 55,660,311
Mortgage-backed securities and collateralized mortgage obligations 46,533,143 47,294,369
------------ -----------
$101,166,917 102,954,680
============ ===========
Debt securities with an amortized cost of approximately $22,500,000 at
December 31, 1997, were pledged to secure certain deposits.
There were no sales of securities during 1997. There were sales of
securities available for sale of $5,000 and $240,400 in 1996 and 1995,
respectively. There were no gains or losses in 1996 or 1995.
At December 31, 1997 and 1996, the Bank had no off-balance sheet
financial derivatives.
(3) LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996, are summarized as
follows:
1997 1996
----------- ----------
Real estate mortgages - consumer and commercial $66,371,253 57,117,396
Consumer 23,475,662 18,249,629
Commercial 6,460,822 6,853,132
----------- ----------
$96,307,737 82,220,157
=========== ==========
The estimated fair value of total gross loans outstanding at December
31, 1997 and 1996, was $95,051,073 and $81,718,000, respectively.
Activity in the allowance for loan losses for the years ended December
31, 1997, 1996 and 1995, is summarized as follows:
1997 1996 1995
----------- ---------- ----------
Balance, January 1 $ 1,214,813 1,080,163 974,029
Provision charged to operations 537,049 322,363 169,979
Less loans charged off, net of recoveries of $238,594,
$178,984, and $166,167 in 1997, 1996 and 1995,
respectively (310,785) (187,713) (63,845)
----------- ---------- ----------
Balance, December 31 $ 1,441,077 1,214,813 1,083,163
=========== ========== ==========
At December 31, 1997, the Bank's recorded investment in impaired loans
was $2,154,842. At December 31, 1996, the Bank's recorded investment in
impaired loans was $1,794,592. The average balance of impaired loans
was
F-16
89
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
$1,987,163 and $1,164,300 for the years ended December 31, 1997 and
1996, respectively. At December 31, 1997 and 1996, there were no
impaired loans with an accompanying valuation reserve.
At December 31, 1997 and 1996, loans on nonaccrual status totaled
$2,154,842 and $1,794,592, respectively. During the years ended
December 31, 1997 and 1996, gross interest income that would have been
recorded on loans on nonaccrual status if the loans had been current
throughout the period was not material. The amount of interest income
that was recorded for such loans during these periods was not material.
In the ordinary course of business, the Bank makes loans to directors
and executive officers and their related interests. Management believes
that such loans were made on substantially the same terms, including
interest and collateral, as those prevailing at the time for comparable
transactions with other borrowers and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Loans to directors and executive officers and their related interests
are as follows:
Balance, January 1, 1997 $191,488
Net additions to new directors 82,943
Advances 249,513
Repayments 103,470
--------
Balance, December 31, 1997 $420,474
========
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, are summarized as
follows:
1997 1996
------------ -----------
Land and buildings $ 4,381,343 4,309,345
Furniture, fixtures, and equipment 3,808,395 3,683,439
Computer systems 2,528,114 1,605,146
------------ -----------
10,717,852 9,597,930
Less accumulated depreciation and amortization 5,807,312 4,763,030
------------ -----------
$ 4,910,540 4,834,900
============ ===========
(5) DEPOSITS
Deposits at December 31, 1997 and 1996, are summarized as follows:
1997 1996
------------ -----------
Noninterest bearing demand $ 20,518,789 19,792,331
NOW accounts 34,938,424 36,299,250
Money market accounts 18,171,453 19,235,803
Regular savings 25,983,732 26,295,647
Certificates of deposit of $100,000 or more 20,962,107 19,671,287
Other certificates of deposit 61,818,124 63,348,943
------------ -----------
$182,392,629 184,643,261
============ ===========
F-17
90
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
Interest expense on deposits for the year ended December 31, 1997 and
1996, is summarized as follows:
1997 1996
------------ -----------
NOW accounts $ 930,515 1,015,149
Money market accounts 855,780 916,519
Regular savings 1,064,637 1,012,290
Certificates of deposit of $100,000 or more 1,037,723 993,142
Other certificates of deposit 3,197,842 3,312,090
------------ -----------
$ 7,086,497 7,249,190
============ ===========
As the Bank's average contractual rates on its outstanding time
deposits are slightly lower than rates currently offered for comparable
new time deposits, the Bank's estimated fair value of total deposits of
$182,300,000 is less than the carrying amount of total deposits of
$182,392,629 by $92,629 at December 31, 1997. At December 31, 1996, the
estimated fair value of total deposits was $184,599,000 which was less
than the carrying amount of total deposits of $184,643,261 by $44,261.
(6) NOTES PAYABLE
The Bank maintains an arrangement with the Federal Home Loan Bank of
Cincinnati to provide for certain borrowing needs of the Bank. Under
the arrangement the Bank has an available line of credit of $5,000,000.
The arrangement requires the Bank to hold stock in the Federal Home
Loan Bank and also requires the Bank to maintain as collateral its
mortgage loan portfolio at a minimum of 150% of outstanding borrowings.
During 1993, $2,500,000 was advanced to the Bank under this
arrangement. The advance is being amortized monthly over 15 years at an
effective interest rate of 5.95%. At December 31, 1997 and 1996,
indebtedness under the arrangement totaled $1,989,328 and $2,119,090,
respectively.
As consideration for the purchase of certain real property in 1992, the
Bank entered into a note payable to an individual in the amount of
$358,663. The note is secured by the acquired property, carries an
interest rate of 8% and requires monthly principal payments of $3,000
plus interest, with a final payment of $3,519 in 2012. The amount
payable at December 31, 1997 and 1996, totaled $313,995 and $324,420,
respectively.
Maturities of notes payable are as follows:
1998 $ 140,831
1999 159,069
2000 168,996
2001 179,686
2002 190,987
Thereafter 1,463,754
----------
$2,303,323
==========
The estimated fair values of the notes payable at December 31, 1997 is
approximately $2,389,000, which exceeds the carrying value of
$2,303,323. The estimated fair value of the notes payable at December
31, 1996 approximates $2,534,000, which exceeds the carrying value of
$2,443,510.
The Bank maintains an arrangement with two correspondent banks for the
purchase of federal funds. Under the arrangement the Bank may borrow up
to a maximum of $5,000,000 from each bank at the federal funds rate
effective at the time of borrowing. At December 31, 1997 and 1996, no
amounts were advanced under this arrangement.
F-18
91
THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(7) INCOME TAXES
Income tax expense for 1997, 1996 and 1995 is as follows:
1997 1996 1995
----------- ---------- ----------
Current income tax expense:
Federal $ 869,999 1,008,584 1,125,000
State 185,000 193,000 208,857
----------- ---------- ----------
Total current income tax expense 1,054,999 1,201,584 1,333,857
----------- ---------- ----------
Deferred income tax benefit:
Federal (50,694) (37,259) (9,459)
State (5,964) (4,387) (1,113)
----------- ---------- ----------
Total deferred income tax benefit (56,658) (41,646) (10,572)
----------- ---------- ----------
Total income tax expense $ 998,341 1,159,938 1,323,285
=========== ========== ==========
Actual income tax expense from operations for the years ended December
31, 1997, 1996 and 1995, differed from an "expected" tax expense
(computed by applying the U.S. Federal corporate tax rate of 34% to
earnings before income taxes) as follows:
1997 1996 1995
----------- ---------- ----------
Computed "expected" income tax expense $ 1,039,192 1,100,984 1,348,647
Increases (reductions) in taxes resulting from:
State income tax, net of Federal income tax effect 118,163 124,485 137,111
Tax-exempt income (122,597) (135,826) (125,351)
Other, net (36,417) 70,295 (37,122)
----------- ---------- ----------
Total income tax expense from operations $ 998,341 1,159,938 1,323,285
=========== ========= =========
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THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, are presented below:
1997 1996
--------- --------
Deferred tax assets:
Allowance for loan losses $ 410,787 324,808
--------- --------
Total deferred tax assets 410,787 324,808
Deferred tax liabilities:
Net discount accretion on securities deferred for tax purposes (249,050) (219,729)
Unrealized gain on securities available for sale (679,350) (439,167)
--------- --------
Total deferred tax liabilities (928,400) (658,896)
--------- --------
Net deferred tax liability $(517,613) (334,088)
========= ========
Tax benefits of deductible temporary differences are recorded as an
asset to the extent that management assesses the realization of such
temporary differences to be "more likely than not." The realization of
tax benefits of deductible temporary differences depends on whether the
Bank has sufficient taxable income within the carryback and
carryforward period permitted by tax law to allow for utilization of
the deductible amounts. Management believes that it is more likely than
not that such deferred tax assets will be realized. As such, no
valuation allowance has been established.
(8) RESTRICTIONS ON DIVIDENDS
The extent to which dividends may be paid by a bank is limited by
applicable laws and regulations. Under the most restrictive of the laws
and regulations, the Bank could declare without regulatory approval
dividends up to approximately $4,784,681 at December 31, 1997.
(9) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed to perform as contracted.
Concentrations of credit risk (whether on or off-balance sheet) that
arise from financial instruments, exist for groups of customers when
they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions.
Most of the Bank's business activity is with customers located within
the Middle Tennessee area. A majority of the loans are secured by
residential or commercial real estate or other personal property. The
loans are expected to be repaid from cash flow or proceeds from the
sale of selected assets of the borrowers. Adverse changes in economic
conditions in Middle Tennessee could have a direct impact on the timing
and amount of payment by borrowers. The Bank does not have a
significant exposure to an individual customer or counterparty.
The Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized in the Bank's balance sheet. The contractual
amounts of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
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 and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in
making these commitments and conditional obligations as it does for
on-balance-sheet instruments.
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THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
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 payment of a fee. Since some
commitments are expected to expire without being drawn upon, the total
commitment 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 of the borrower. Collateral held varies
but may include property, plant, and equipment and income-producing
commercial properties.
Outstanding standby letters of credit at December 31, 1997 and 1996
amounted to $1,759,880 and $1,057,284, respectively. Undisbursed
advances on customer lines of credit were $10,147,594 and $8,374,214 at
December 31, 1997 and 1996, respectively. The outstanding standby
letters of credit and customer lines of credit generally have terms of
one year or less. These off-balance sheet commitments have been
considered by management in establishing the level of the allowance for
loan losses. Estimated fair value of such letters of credit and loan
commitments at December 31, 1997 and 1996 are not material.
In the normal course of business, first mortgage loans originated for
certain investors may need to be repurchased should they become
delinquent or require foreclosure within a predefined period. These
periods vary from investor to investor pursuant to the respective
agreements, and are short-term. Although the loans are insured through
governmental agencies or, in the case of a conventional loan that
exceeds 80% loan-to-value, private mortgage insurance, there exists
loss potential to the Bank on each loan sold under these repurchase
clauses. Total loans originated for others during 1997 and 1996,
subject to such repurchase agreements, totaled $7,645,035 and
$7,970,300, respectively. Fees earned during 1997 and 1996 from such
loans totaled $109,404 and $115,138, respectively. Loans originated for
others subject to repurchase clauses at December 31, 1997 and 1996, are
not considered material.
(10) PROFIT SHARING PLAN
The Bank maintains a profit sharing plan for all employees with at
least one year of service. Funding consists of contributions made
solely by the Bank at a level which is based solely on the discretion
of the Bank's Board of Directors. Contributions associated with the
plan totaled $236,000, $216,000 and $252,000 for 1997, 1996 and 1995,
respectively. Employees become fully vested in the contributions made
on their behalf after completing seven years of covered service.
(11) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, action by the regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt, corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by the regulators to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes the Bank meets all capital adequacy requirements to which it
is subject as of December 31, 1997.
As of February 28, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized,
the Bank must exceed the minimum total risk-based, Tier I based, and
Tier I leverage ratios as set forth in the following table. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
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THE MIDDLE TENNESSEE BANK
Notes to Financial Statements
December 31, 1997, 1996 and 1995
The Bank's actual capital amounts and ratios are presented in the
following table.
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS:
-------------------- ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- --------- ----- ---------- -----
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) $29,501,000 29.4% 8,024,080 8.0% 10,030,100 10.0%
Tier I Capital
(to Risk Weighted Assets) $28,245,000 28.2% 4,012,040 4.0% 6,018,060 6.0%
Tier I Capital
(to Average Assets) $28,245,000 12.9% 8,746,520 4.0% 10,933,150 5.0%
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) $28,809,000 33.6% 6,862,400 8.0% 8,578,000 10.0%
Tier I Capital
(to Risk Weighed Assets) $27,735,000 32.3% 3,431,200 4.0% 5,146,800 6.0%
Tier I Capital
(to Average Assets) $27,735,000 12.8% 8,696,120 4.0% 10,870,150 5.0%
(12) SUBSEQUENT EVENT
On March 4, 1998, the Bank completed its acquisition of a branch in Mt.
Pleasant, Tennessee. The Bank received approximately $8.5 million in
cash at closing and acquired deposits of approximately $9.2 million.
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APPENDIX A
BANK MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and entered
into this 26th day of May, 1998 among First American National Bank, a national
banking association ("Buyer"); The Middle Tennessee Bank, a Tennessee banking
corporation ("Seller"); and First American Corporation, a Tennessee corporation
("Buyer's BHC").
W I T N E S S E T H:
WHEREAS, the principal offices of Seller are located at 700
North Garden Street, Columbia, Tennessee 38402; and
WHEREAS, the principal offices of Buyer and Buyer's BHC are
located at 300 Union Street, Nashville, Tennessee 37237; and
WHEREAS, the authorized capital stock of Seller consists of
150,000 shares of Common Stock ("Seller Stock"), $10.00 par value, of which
150,000 shares are issued and outstanding; and
WHEREAS, as of May 15, 1998, the authorized common stock of
Buyer's BHC consists of 200,000,000 shares ("Buyer's BHC Stock"), $2.50 par
value, of which 106,649,658 shares are issued and outstanding; and
WHEREAS, the respective Boards of Directors of Seller, Buyer,
and Buyer's BHC deem it advisable and in the best interest of Seller and Buyer
and their respective shareholders that Seller be merged with and into Buyer (the
"Merger"), and, by resolutions duly adopted, have approved and adopted this
Agreement and directed that it be submitted to the respective shareholders of
Seller and Buyer for their approval; and
WHEREAS, the Board of Directors of Buyer's BHC, as sole
shareholder of Buyer, has approved and adopted this Agreement, and Buyer's BHC
has agreed to join in and be bound hereby to vote its Buyer Stock in favor of
the Merger as herein provided;
WHEREAS, it is intended that the Merger shall qualify for
pooling of interests accounting treatment; and
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises, mutual
covenants and agreements herein contained, and for the purpose of stating the
method, terms and conditions of the Merger provided for herein, the mode of
carrying the same into effect, the manner and basis of converting and exchanging
the shares of Seller Stock as hereinafter provided, and such other
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96
provisions relating to the Merger as the parties deem necessary or desirable,
the parties hereto agree as follows:
Section 1. MERGER.
Subject to the satisfaction or waiver of all of the conditions
to the obligations of each of the parties to this Agreement, at the Effective
Time (as defined in the Plan of Merger attached as Appendix A) unless waived by
the other party, Seller shall be merged with and into Buyer (the "Merger"),
which latter bank (the "Surviving Bank") shall survive the Merger, pursuant to
the Plan of Merger which shall be substantially in the form of Appendix A hereto
(the "Plan").
Section 2. DESCRIPTION OF TRANSACTION.
(a) SATISFACTION OF CONDITIONS TO CLOSING. After the
transactions contemplated hereby have been approved by the shareholders of
Seller and Buyer, and each other condition to the obligations of the parties
hereto has been satisfied or waived by the party or parties entitled to the
benefits thereof, other than those conditions which are to be satisfied by
delivery of documents by any party to any other party, a closing (the "Closing")
will be held on the date (the "Closing Date") and at the time of day and place
referred to in Section 13(a). At the Closing, the parties will use their
respective best efforts to deliver the certificates, letters, and opinions which
constitute conditions to the Merger and each party will provide the other
parties with such proof or indication of satisfaction of the conditions of such
parties to consummate the Merger as such other parties may reasonably require.
If all conditions to the obligations of each of the parties have been satisfied
or waived by the party entitled to the benefits thereof, the parties shall, at
the Closing, duly execute Articles of Merger substantially in the form attached
as Appendix B for filing with the Tennessee Department of Financial Institutions
("TDFI") and the Office of the Comptroller of the Currency ("OCC") and promptly
thereafter, Seller and Buyer shall take all steps necessary or desirable to
consummate the Merger in accordance with all applicable laws, rules, and
regulations and the Plan. The parties shall thereupon take such other and
further actions as Buyer shall direct as may be required by law or this
Agreement to consummate the transactions contemplated herein.
(b) EFFECTIVE TIME OF THE MERGER. Upon the satisfaction of all
conditions to closing, the Merger shall become effective on the date and at the
time of filing of the Articles of Merger with the TDFI and OCC or at such later
date and/or time as may be agreed upon by the parties and set forth in the Plan
(the "Effective Time").
(c) SHARES OF BUYER SHALL REMAIN OUTSTANDING. Subsequent to
the Effective Time of the Merger, each share of Buyer Stock then issued and
outstanding shall remain as the issued and outstanding common stock of Buyer as
the Surviving Bank.
(d) SHARES OF SELLER STOCK SHALL BE CONVERTED TO BUYER'S BHC
STOCK. Each issued and outstanding share of Seller Stock shall, by virtue of
this Agreement and without any action on the part of the holder thereof, be
converted into and exchangeable for the right to receive 7.768 shares of fully
paid and nonassessable Buyer's BHC Stock (the "Exchange Ratio"). All such shares
of Seller Stock shall no longer be outstanding and shall automatically be
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canceled and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the shares of Buyer's
BHC Stock into which Seller Stock has been converted and the right to cash
payment for fractional shares, if any. Certificates previously representing
shares of Seller Stock shall be exchanged for certificates representing whole
shares of Buyer's BHC Stock issued in consideration therefor and cash for
fractional shares, if any, upon the surrender of such certificates in accordance
with Section 2(d) hereof. In the event that prior to the Effective Time the
outstanding shares of Buyer's BHC Stock have been increased, decreased, changed
into or exchanged for a different number or kind of shares through a
reorganization (except a merger), reclassification, stock dividend, stock split,
reverse stock split, or other similar change, applicable adjustments shall be
made to the Exchange Ratio and the number of shares to be exchanged.
Certificates for Seller Stock shall be exchanged as follows:
(i) Exchange Agent. As of the Effective Time,
Buyer's BHC shall deposit with its transfer agent (the "Exchange Agent"), for
the benefit of the holders of shares of Seller Stock certificates representing
the shares of Buyer's BHC Stock (such certificates for shares of Buyer's BHC
Stock together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to this
Section in exchange for outstanding shares of Seller Stock and cash for
fractional shares.
(ii) Exchange Procedures. Seller shall use its best
efforts to cause each holder of record of Seller Stock, whose shares are to be
converted into shares of Buyer's BHC Stock pursuant to this Section and who does
not dissent pursuant to the Tennessee Business Corporation Act and Section 2(i)
below, to deliver the certificates representing shares of Seller Stock
("Certificate" or "Certificates") to Seller; and Seller shall keep such
Certificates in escrow for the benefit of each holder until the Closing Date. At
Closing, Seller shall deliver to Buyer's BHC the Certificates. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such
documentation as the Exchange Agent may reasonably require to effectuate the
exchange, the Exchange Agent shall, at or after the Effective Time, deliver to
the holder of each such Certificate a certificate representing that number of
whole shares of Buyer's BHC Stock which such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions of this
Section (after taking into account all shares of Seller Stock then held by such
holder), and cash for fractional shares, if any, and the Certificate so
surrendered shall thereupon be canceled. In the event of a transfer of ownership
of Seller Stock which is not registered in the transfer records of Seller, a
certificate representing the proper number of shares of Buyer's BHC Stock may be
issued to a transferee if the Certificate representing such Seller Stock is
presented to the Exchange Agent, accompanied by all documents required by the
Exchange Agent, in its sole discretion, to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered to the Exchange Agent in the manner contemplated by this Section,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Buyer's BHC Stock and cash in lieu of any fractional
shares of Buyer's BHC Stock, without interest, as contemplated by this Section.
(iii) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions declared or made after the Effective
Time with respect to Buyer's BHC
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Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Buyer's BHC Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to this Section until the holder of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following proper surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of Buyer's
BHC Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the amount of any cash payable with respect to a fractional share of
Buyer's BHC Stock to which such holder is entitled pursuant to this Section and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Buyer's BHC
Stock, and, if necessary, (B) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Buyer's BHC Stock.
(iv) No Further Ownership Rights in Seller Stock.
All shares of Buyer's BHC Stock issued upon conversion of shares of Seller Stock
in accordance with the terms hereof (including any cash paid pursuant to this
Section) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Seller Stock, subject, however, to the Surviving
Bank's obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made by
Seller on such shares of Seller Stock in accordance with the terms of this
Agreement on or prior to the Effective Time and which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Bank of the shares of Seller Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Bank for any reason,
they shall be canceled and exchanged as provided in this Section.
(v) No Fractional Shares. No certificates or scrip
representing fractional shares of Buyer's BHC Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a shareholder of
Buyer's BHC including, without limitation, the right to receive dividends. Each
holder of Seller Stock who would otherwise have been entitled to receive a
fraction of a share of Buyer's BHC Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Buyer's BHC Stock multiplied by the Buyer's BHC's closing price three trading
days immediately prior, but not including, the Effective Time. As soon as
practicable after the determination of the amount of cash, if any, to be paid to
holders of Seller Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts to such holders of Seller Stock
subject to and in accordance with the terms of this Section.
(e) STOCK TRANSFER BOOKS. At the Effective Time of the Merger,
the stock transfer books of Seller shall be closed and no transfer of Seller
Stock shall be made thereafter.
(f) EFFECTS OF THE MERGER. As of the Effective Time of the
Merger, the separate existence of Seller shall cease, and Seller shall be merged
with and into Buyer which, as
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the Surviving Bank, shall thereupon and thereafter possess all of the assets,
rights, privileges, appointments, powers, licenses, permits and franchises of
the two merged banks, whether of a public or a private nature, and shall be
subject to all of the liabilities, restrictions, disabilities and duties of both
Seller and Buyer.
(g) TRANSFER OF ASSETS. At the Effective Time, all rights,
assets, licenses, permits, franchises and interests of Seller and Buyer in and
to every type of property, whether real, personal, or mixed, whether tangible or
intangible, and to choses in action shall be deemed to be vested in Buyer as the
Surviving Bank by virtue of the Merger and without any deed or other instrument
or act of transfer whatsoever.
(h) ASSUMPTION OF LIABILITIES. At the Effective Time, the
Surviving Bank shall become and be liable for all debts, liabilities,
obligations and contracts of Seller as well as those of the Surviving Bank,
whether the same shall be matured or unmatured; whether accrued, absolute,
contingent or otherwise; and whether or not reflected or reserved against in the
balance sheets, other financial statements, books of account or records of
Seller or the Surviving Bank.
(i) DISSENTING SHAREHOLDERS' RIGHTS. Notwithstanding anything
in this Agreement to the contrary, and only to the extent required by Tennessee
Code Annotated Section 48-23-101 et seq. ("Tennessee Dissenters' Provisions"),
shares of Seller Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who shall not have voted such
shares in favor of the Merger and the transactions related thereto and who shall
have delivered to Seller a written demand for appraisal of such shares of Seller
Stock (collectively, "Dissenting Shares") in the manner provided by the
Tennessee Dissenters' Provisions shall not be entitled to the right to receive
Buyer's BHC Stock in accordance with Section 2(d) hereof, but the holders of the
Dissenting Shares shall be entitled to the appraised value of such shares in
accordance with the Tennessee Dissenters' Provisions; provided, however, that
(a) if any holder of Dissenting Shares shall subsequently deliver a written
withdrawal of his or her demand for appraisal of such shares or (b) if any
holder fails to establish his or her entitlement to appraisal rights as provided
in the Tennessee Dissenters' Provisions or (c) if any holder of Dissenting
Shares has filed a petition demanding a determination of the value of all
Dissenting Shares within the time provided in the Tennessee Dissenters'
Provisions, such holder or holders shall forfeit the right to appraisal of such
shares and such shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, as of the Effective Time, the right to receive
Buyer's BHC shares solely in accordance with Section 2(d) hereof. Seller shall
give Buyer's BHC prompt written notice of any demand received by Seller from
holders of Dissenting Shares, and Buyer's BHC shall have the right to
participate in all negotiations and proceeding with respect to such dissent.
Seller shall not purport to make any determination of fair value, make any
payment with respect to, or settle or offer to settle any matter arising out of
such dissent.
(j) EXPENSES. Each party to the Merger shall pay its own
expenses in connection with the transactions contemplated by this Agreement.
(k) NO LIABILITY. Neither Buyer's BHC nor Seller shall be
liable to any holder of shares of Seller Common Stock, or Buyer's BHC's Common
Stock, as the case may be, for
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such shares (or dividends or distributions with respect thereto) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 3. REPRESENTATIONS AND WARRANTIES OF SELLER.
As an inducement to Buyer and Buyer's BHC to enter into this Agreement,
Seller hereby represents and warrants to Buyer and Buyer's BHC that:
(a) CORPORATE ORGANIZATION, STANDING, AND AUTHORITY OF SELLER.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee as a banking corporation. Seller has no
subsidiaries. Seller has the corporate power and possesses all licenses and
authorizations necessary for it to conduct its business as presently conducted
(excepting any licenses and authorizations, the absence of which in the
aggregate would not have a material adverse effect upon the financial condition
or operations of Seller). The execution and delivery of this Agreement by Seller
have been duly and validly authorized and approved by all necessary corporate
actions on its part; Seller has the corporate power and authority to execute and
deliver this Agreement and, upon obtaining the requisite shareholder and
regulatory approvals, will have the power and authority to consummate its
obligations as specified in this Agreement. The Board of Directors of Seller, at
a lawfully convened meeting, has authorized the execution and delivery of this
Merger Agreement by Seller and will recommend approval of same by Seller's
shareholders.
(b) BINDING EFFECT OF AGREEMENT. This Agreement constitutes
the valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect which affect creditors' rights generally and by
legal and equitable limitations on the availability of injunctive relief,
specific performance and other equitable remedies which are available only in
the discretion of a court).
(c) NO BREACH. Neither the execution and delivery of this
Agreement nor, assuming the approval of the appropriate regulatory agencies, the
consummation of the transactions contemplated hereby will: (i) violate any
provision of the Charter or Bylaws of Seller; (ii) violate or cause a default or
termination of any rights or obligations existing by virtue of any provision of
any material contract or agreement; or (iii) require the consent or approval of
any third party other than (a) the shareholders of Seller and (b) the
appropriate regulatory authorities and agencies such as the Federal Deposit
Insurance Corporation ("FDIC"), OCC, and the TDFI.
(d) CAPITALIZATION. The authorized capital stock of Seller
consists of 150,000 shares of common stock having a par value $10.00 per share
(the "Seller Stock"). Seller has issued and outstanding 150,000 shares of Seller
Stock. All of the issued outstanding Seller Stock are validly issued,
fully-paid, and nonassessable and have not been issued in violation of any
preemptive rights of any shareholder. As of the date hereof, there are no other
outstanding securities or other obligations which are convertible into Seller
Stock or into any other equity security of Seller, and there are no outstanding
options, warrants, rights, calls or other commitments of any nature which would
entitle the holder, upon exercise thereof, to be issued Seller Stock or any
other equity security of Seller.
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(e) RESERVED.
(f) FINANCIAL STATEMENTS AND REPORTING DOCUMENTS. Seller has
delivered and, to the extent reference is made to financial statements not yet
available or capable of development, will deliver to Buyer true and complete
copies of: (i) its audited consolidated annual financial statements and related
notes thereto, for the years ended December 31, 1997, 1996 and 1995 and (ii) its
unaudited consolidated financial statements for each of the calendar quarters in
1998 as well as for all quarters ending thereafter prior to the Effective Date.
Such financial statements and the notes thereto present fairly, or will present
fairly when issued, in all material respects, the consolidated financial
position of Seller at the respective dates thereof, and its consolidated results
of operations and consolidated changes in financial position or cash flow, for
the periods indicated, in each such case in conformity with generally accepted
accounting principles, consistently applied subject in the case of unaudited
statements to normal year-end adjustments and full footnote disclosure. Included
in the Seller Schedule of Exceptions, Section 3(f), is a list of each report,
schedule, registration statement and definitive proxy statement filed by Seller
with any regulatory agency since December 31, 1996 (as such documents have since
the time of their filing been amended, the "Seller Reporting Documents"), which
are all the documents that Seller was required to file with any regulatory
agency since such date. As of their respective dates, the Seller Reporting
Documents complied in all material respects with the requirements of the rules
and regulations applicable to such Seller Reporting Documents, and none of the
Seller Reporting Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All material agreements, contracts, and other documents
required to be filed as exhibits to any of the Seller Reporting Documents have
been so filed.
(g) ABSENCE OF CHANGES. Since December 31, 1997: (i) Seller
has continued actively in the conduct of its business in the ordinary course;
(ii) there has been no material adverse change in the consolidated financial
condition of Seller; (iii) there has been no transfer, sale, pledge or mortgage
of any properties or assets of Seller except in the ordinary course of business
or except as previously authorized in writing by Buyer; and (iv) Seller has not
incurred, assumed or guaranteed any borrowing or issued any letters of credit,
except in each case in the ordinary course of business.
(h) REGULATORY FILINGS. As of the date of this Agreement, (i)
Seller has filed and will continue to file all required reports with applicable
financial institution regulatory agencies, (ii) Seller has not received oral or
written notification from any regulatory agency that any such required filings
were deficient in any material respect as to form or content, and Seller has no
knowledge of the existence of any fact or circumstance which might be expected
to cause any regulatory agency to so regard such filings, and (iii) Seller will
promptly notify Buyer of any oral or written notification from any regulatory
agency that any required filings are deficient in any material respect as to
form or content.
(i) REGULATORY COMPLIANCE. Seller is in compliance with law
and the regulations of all appropriate regulatory agencies (excepting any minor
violations the effect of which in the aggregate would not have a material
adverse effect upon the financial condition or operations of Seller). No
reports, letters, orders or other communications have been received by Seller
from the TDFI, the FDIC, or any other federal or state financial institution
regulatory
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authority, or the designated representatives of any of them, which has
questioned or criticized in any material respect compliance with such laws or
regulations; and Seller will take no actions which will cause Seller not to be
in compliance with the laws and regulations of any appropriate regulatory
agency. Seller will promptly notify Buyer of any report, letter, order or other
communication from any appropriate regulatory agency which questions or
criticizes in any material respect compliance with such laws or regulations.
(j) LITIGATION AND CLAIMS. Except as specifically described in
its financial statements or related notes delivered to Buyer or in Section 3(j)
of the Seller Schedule of Exceptions: (i) there is no material litigation,
proceeding, or governmental investigation pending or, to the knowledge of Seller
threatened against, or relating to, Seller, or to its material properties or
businesses, or to the transactions contemplated by this Agreement, which would
have a material impact on, or act to materially inhibit, the transactions
contemplated by this Agreement; (ii) there is no reasonable basis for any such
material litigation, proceeding or governmental investigation (including,
without limitation, violations of federal or state banking, antitrust,
environmental or securities laws, RICO laws or probate laws); and (iii) neither
Seller nor any shareholder or affiliate is a party to, or subject to the
provisions of any judicial decree, judgment or order of any governmental agency
the performance or enforcement of which would materially adversely affect its
business or financial condition or the ability of Seller to consummate the
transaction described in this Agreement.
(k) TAX RETURNS. Except for liabilities with respect to taxes,
interest, and penalties thereon, to which reference is made in Seller's
consolidated financial statements and the related notes thereto, as referred to
in Section 3(f), the provision for taxes therein is sufficient for the payment
of all accrued and unpaid federal, state, county and local taxes of Seller
(including any penalties or interest payable in respect of such taxes), whether
or not disputed, for the period ended December 31, 1997, and for all taxable
years prior thereto, and Seller has, or will have prior to the Effective Date,
fully reserved for all taxes on gains and income of Seller has or will have
recognized from the sale of securities and assets occurring after December 31,
1997, and prior to the Effective Time of the Merger. Seller's federal income tax
returns, its Tennessee franchise and excise tax returns, and all other tax
returns required to be filed by Seller have been duly filed for all years open
for assessment to and including the year ended December 31, 1997, income or loss
has been properly reflected therein in all material respects, and all taxes that
have become due and payable have been paid or are reflected as a liability on
said financial statements. Except as described in Section 3(k) of the Seller
Schedule of Exceptions, Seller has verified that each tax identification number
relating to an interest-bearing account at Seller is the customer's number, and
where such tax identification number is missing, Seller has taken all necessary
steps to obtain the relevant information.
(l) BROKERS. Except for The Carson Medlin Company, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on by Seller or by the shareholders of Seller without the
intervention of any broker or other person representing Seller in such manner as
to give rise to any valid claim against Buyer for a finder's fee, brokerage
commission, or other similar payment.
(m) STOCK RECORDS. The stock transfer books and stock ledgers
of Seller are in good order, complete, accurate and up to date, and with all
necessary signatures on the
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assignments of certificates representing shares previously transferred, and set
forth all stock and securities issued, transferred and surrendered. Except where
an affidavit of lost certificate or bond has been obtained from a shareholder,
no duplicate certificate has been issued at any time, no transfer has been made
without surrender of the proper certificate, duly endorsed, and all certificates
so surrendered have been duly canceled and are attached thereto.
(n) BENEFIT PLANS.
(i) Seller has disclosed to Buyer and Buyer's BHC in
Section 3(n) of the Seller's Schedules of Exceptions and has delivered or made
available to Buyer and Buyer's BHC prior to the execution of this Agreement
correct and complete copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plans, all other written
employee programs or agreements, all medical, vision, dental or other health
plans, all life insurance plans, and all other employee benefit plans or fringe
benefit plans, including, without limitation, "employee benefit plans" as that
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), currently or previously adopted, maintained by,
sponsored in whole or in part by, or contributed to by Seller for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries are eligible to participate (collectively, the "Seller
Benefit Plans"). Any of the Seller Benefit Plans which is an "employee welfare
benefit plan," as that term is defined in Section 3(1) of ERISA, or an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "Seller ERISA Plan."
(ii) Seller has delivered or made available to Buyer
and Buyer's BHC prior to the execution of this Agreement correct and complete
copies of the following documents: (a) all trust agreements or other funding
arrangements for such Seller Benefit Plans (including insurance contracts), and
all amendments thereto, (b) with respect to any such Seller Benefit Plans or
amendments, all determination letters, rulings, opinion letters, information
letters, or advisory opinions issued by the IRS, the United States Department of
Labor, or the Pension Benefit Guaranty Corporation after December 31, 1974, (c)
annual reports or returns, audited or unaudited financial statements, actuarial
valuations and reports, and summary annual reports prepared for any Seller
Benefit Plan with respect to the most recent three plan years, and (d) the most
recent summary plan descriptions and any modifications thereto.
(iii) The form of all Seller Benefit Plans is in
substantial compliance with the applicable terms of ERISA, the Code, and any
other applicable laws and such plans have been operated in substantial
compliance with such laws and the written Seller Benefit Plan documents. Each
Seller ERISA Plan which is intended to be qualified under Section 401(a) of the
Code has received a current favorable determination letter from the IRS
evidencing compliance with the tax Reform Act of 1986, and Seller is not aware
of any circumstances which will or could result in revocation of any such
favorable determination letter. Each trust created under any Seller ERISA Plan
has been determined to be exempt from taxation under Section 501(a) of the Code
and Seller is not aware of any circumstance which will or could result in a
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revocation of such exemption. With respect to each Seller Benefit Plan, no event
has occurred which will or could give rise to a loss of any intended tax
consequence or to any tax under Section 511 of the Code. There is no material
pending or threatened litigation or administrative proceeding relating to any
Seller Benefit Plan. Neither Seller nor any fiduciary of a Seller Benefit Plan
has engaged in a transaction with respect to any Seller Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject Seller to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA. The transaction contemplated hereunder will not
result in the assessment of a tax or penalty under Section 4975 of the Code or
Section 502(i) of ERISA.
(iv) Neither Seller nor any of its affiliates have
ever sponsored or been liable for contributions to a plan subject to Title IV of
ERISA or to the funding requirements of Section 302 of ERISA or Section 412 of
the Code.
(v) Seller and its affiliates have complied with the
continuation coverage provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") with respect to all current employees and
former employees. Seller's procedures and sample notice documents for compliance
with COBRA have been provided to Buyer.
(vi) Except as required by law, the consummation of
the transactions contemplated by this Agreement will not accelerate the time of
vesting, of payment, or increase the amount, of compensation due to any
employee, officer, former employee or former officer of Seller. There are no
contracts or arrangements providing for payments that could subject any person
to liability for tax under Section 4999 of the Code.
(vii) Full payment has been made of all amounts which
are required under the terms of each Seller Benefit Plan to have been paid as
contributions as of the last day of the most recent fiscal year of such Seller
Benefit Plan ended on or before the date of this Agreement. The assets of each
Seller Benefit Plan are sufficient to provide the benefits under such plan and
are also sufficient to provide all other benefits, vested (including benefits
that become vested due to the transactions contemplated under this Agreement)
and nonvested, accrued under such Seller Benefit Plan.
(viii) Except for the continuation coverage
requirements under COBRA, Seller has no obligations or potential liability for
benefits to employees or other persons following termination of employment or
retirement under any of the Seller Benefit Plans that are "welfare benefit
plans" described in Section 3(2) of ERISA.
(ix) Except as required to comply with ERISA or to
maintain qualification under Section 401(a) of the Code, Seller will not amend,
modify or terminate any of the Seller Benefit Plans without the express written
consent of Buyer and Buyer's BHC. None of the transactions contemplated under
this Agreement will result in an amendment, modification or termination of any
of the Seller Benefit Plans. Except as required under the provisions of any
Seller Benefit Plan and except as necessary to provide funding that is required
to timely service any contractual or loan obligations of a Seller Benefit Plan,
Seller will make no contributions to or with respect to any Seller Benefit Plan
that is inconsistent with past practice of the Seller without the express
written consent of Buyer and Buyer's BHC.
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(x) Except as disclosed in Section 3(n) of the
Seller's Schedule of Exceptions, no oral or written representation or
communication with respect to any aspect of the Seller Benefit Plans has been
made to current or former employees of Seller prior to the date hereof which is
not in accordance with the written or otherwise preexisting terms and provisions
of such plans. All Seller Benefit Plan documents and annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary annual
reports, and summary plan descriptions issued with respect to the Seller Benefit
Plans are correct and complete and there have been no changes in the information
set forth therein.
(xi) There are no issues or disputes with respect to
any Seller Benefit Plans, or the administration thereof, currently between any
trustee or other fiduciary thereunder, Seller and any governmental agency or
employee.
(o) FRANCHISES, PATENTS, TRADEMARKS, AND OTHER RIGHTS. Seller
has all licenses and all other material franchises, permits, licenses, patents,
trademarks, etc. and other authority as are necessary to enable it to conduct
its businesses as now being conducted and as proposed to be conducted, and it is
not in default under any of such franchises, permits, licenses or other
authority.
(p) CONTRACTS OF SELLER IN FULL FORCE. All contracts to which
Seller is a party and which are in the aggregate material to its operations or
business, are in full force and effect; are not subject to defenses arising from
improper performance thereof; and the Seller is not in default thereunder.
Except as described in Section 3(p) of Seller's Schedule of Exceptions and
except for this Agreement, as of the date hereof, the Seller is not a party to
any oral or written agreement (other than loans made in the ordinary course of
business) not terminable on 60 days' or less notice or involving the payment of
more than $50,000 per annum.
(q) ENVIRONMENTAL MATTERS.
(i) Seller is not using or has used any real property
owned by it, (the "Real Property") which is used for the handling, treatment,
storage or disposal of any Hazardous Substance (as hereinafter defined), and the
Real Property is free from all contamination of any Hazardous Substance;
(ii) no release, discharge, spillage or disposal of
any Hazardous Substance and no soil or water contamination by any Hazardous
Substance has occurred or is occurring in or on the Real Property;
(iii) Seller has complied with all reporting
requirements under any applicable federal, state or local environmental laws and
permits, and there are no existing violations by Seller;
(iv) there are no claims, actions, suits, proceedings
or investigations related to the presence, release, discharge, spillage or
disposal of any Hazardous Substance or contamination of soil or water by any
Hazardous Substance pending or threatened with respect to the Real Property or
otherwise against Seller in any court or before any state, federal or other
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governmental agency or private arbitration tribunal, and to the best of its
knowledge with a reasonable exercise of due diligence, there is no basis for any
such claim, action, suit, proceeding or investigation;
(v) there are no underground storage tanks on the
Real Property.
For the purpose of this Agreement, "Hazardous Substance" shall mean any
hazardous or toxic substance or wastes as those terms are defined by any
applicable federal or state law or regulation including, without limitation, the
Comprehensive Environmental Recovery Compensation and Liability Act, 42 U.S.C.
9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. 9601 et
seq.) and petroleum, petroleum products, and oil.
(r) CERTAIN INTERESTS. Except in arm's length transactions
pursuant to standard commercial terms and conditions, no officer or director of
Seller has any material interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of Seller. Except for the
normal rights of a shareholder of Seller, no such person is indebted to Seller
except for normal business advances; Seller is not indebted to any such person
except for amounts due under normal salary or reimbursement of ordinary business
expenses.
(s) INFORMATION SUPPLIED. None of the information supplied
pursuant to this Agreement or to be supplied by Seller for inclusion or
incorporation by reference in (i) the registration statement on Form S-3, Form
S-4 or other applicable form to be filed, as appropriate, with the SEC and any
applicable state securities regulatory agencies by Buyer's BHC in connection
with the issuance of shares of Buyer's BHC Stock in the Merger (the
"Registration Statement") will, at the time the Registration Statement is filed
with the appropriate regulatory agencies, and at the time it becomes effective
under the Securities Act of 1933 (the "Securities Act") or any applicable state
law, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the proxy statement/prospectus which is
included in the Registration Statement will, at the date of mailing to
shareholders and at the time of the meeting of shareholders to be held in
connection with the Merger, 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 were made, not misleading.
(t) EFFECTIVE DATES OF WARRANTIES, REPRESENTATIONS, AND
COVENANTS. Each warranty, representation, and covenant of Seller set forth in
this Agreement shall be deemed to be made on the date hereof and on the
Effective Date. All of the Seller's Schedules of Exceptions hereto will be
updated as necessary to make them true and correct as of the Effective Time.
(u) VOTE REQUIRED. The affirmative vote of the holders of not
less than two-thirds (2/3rds) of the issued and outstanding shares of Seller's
Common Stock are the only votes of the holders of any class or series of
Seller's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
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(v) PROPERTIES. Except as set forth in Seller's Schedules of
Exceptions as Schedule 3(v), Seller (i) has good, clear and marketable title to
all the properties and assets which are reflected in the latest audited
consolidated balance sheet of Seller as being owned by Seller, or acquired after
the date thereof, free and clear of all claims, liens, charges, security
interests or encumbrances of any nature whatsoever except statutory liens
securing payments not yet due and such imperfections or irregularities of title
or encumbrances as do not affect the use of the properties or assets subject
thereto or affected thereby or otherwise impair business operations at such
properties, and (ii) is the lessee of all leasehold estates which are reflected
in the latest audited consolidated financial statements of Seller or acquired
after the date thereof and is in possession of the properties purported to be
leased thereunder, and each such lease is valid without default thereunder by
the lessee or, to Seller's knowledge, the lessor.
(w) OWNERSHIP OF BUYER'S BHC COMMON STOCK. As of the date
hereof, neither Seller nor its affiliates or associates (as such terms are
defined under the Securities Exchange Act of 1934 (the "Exchange Act"), (i)
beneficially owns, directly or indirectly, or (ii) are parties to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Buyer's BHC, which in the
aggregate, represent ten percent (10%) or more of the outstanding shares of
capital stock of Buyer's BHC entitled to vote generally in the election of
directors (other than trust account shares).
(x) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the statement of financial condition of Seller as
of December 31, 1997, was, in the opinion of management of Seller, consistent
with applicable regulations and adequate in all material respects to provide for
all known and reasonably anticipated possible losses, on loans and leases
outstanding and accrued interest receivable on nonperforming loans as of
December 31, 1997, and as of the Effective Time will be in the opinion of
management of Seller, consistent with applicable regulations and adequate in all
material respects to provide for all known and reasonably anticipated possible
losses, on loans and leases outstanding and accrued interest receivable on
nonperforming loans as of the Effective Time.
(y) CERTAIN TRANSACTIONS WITH AFFILIATED PERSONS. Except for
loans made in the ordinary course of business, there are no transactions to
which Seller was a party in which any officer or director of Seller or any other
entity controlled by, under common control with, or in control of Seller had a
direct or indirect interest.
(z) PERMISSIBLE ACTIVITIES. All of the business activities
conducted by Seller as of the date hereof are business activities in which a
bank is permitted to engage under Tennessee state law.
(aa) CHARTER PROVISIONS AND STATE ANTI-TAKEOVER LAWS. Seller
has taken or will take all actions necessary so that the entering into this
Agreement and the consummation of the transactions contemplated hereby (i) are
exempt from any applicable state takeover law and (ii) do not and will not
result in the grant of any rights to any person under the charter, bylaws or
other governing instrument of Seller or restrict or impair the right of Buyer's
BHC to vote or otherwise to exercise the rights of a shareholder with respect to
shares of Seller that may be
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acquired or controlled by Buyer or Buyer's BHC pursuant to this Agreement or the
consummation of the transactions contemplated hereby.
For purposes of this Section 3, with respect to Seller, the term
"knowledge" as used with respect to any person shall mean the knowledge after
due inquiry of the chairman, president, chief or principal financial officer,
and any executive or senior vice-president of the Seller. The term "person"
shall mean a natural person or any legal, commercial, or governmental entity,
such as, but not limited to, a corporation, general partnership, joint venture,
limited partnership, limited liability company or partnership, trust, business
association, group acting in concert, or any person acting in a representative
capacity.
Section 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER'S BHC
As an inducement to Seller to enter into this Agreement, Buyer and
Buyer's BHC represent and warrant to Seller that:
(a) CORPORATE ORGANIZATION, STANDING, AND AUTHORITY OF BUYER'S
BHC. Buyer's BHC is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended, and is duly organized, validly existing and in
good standing under the laws of the State of Tennessee as are all other direct
or indirect subsidiaries of Buyer's BHC, and they all have the corporate power
and possess all licenses and authorizations necessary for each of them to
conduct their businesses as presently conducted (excepting any licenses and
authorizations the absence of which in the aggregate would not have a material
adverse effect upon the financial condition or operations of Buyer's BHC and its
subsidiaries considered as a single enterprise). Buyer's BHC and its
subsidiaries are each qualified to do business in the State of Tennessee and in
all other states where they are required to be so qualified. Buyer's BHC has the
corporate power and authority to execute and deliver this Agreement and, upon
obtaining the requisite regulatory approval, will have the corporate power and
authority to consummate the transactions and perform its obligations as
specified in this Agreement. The Board of Directors of Buyer's BHC, at a
lawfully convened meeting, has unanimously approved the Merger and the execution
and delivery of this Agreement and will have taken all other such action as may
be required by law or by Buyer's BHC's Charter and Bylaws in approving and
adopting this Agreement, and consummating the transactions contemplated herein
and therein.
(b) CORPORATE ORGANIZATION, STANDING, AND AUTHORITY OF BUYER.
Buyer is a national banking association duly organized, validly existing and in
good standing under the laws of the United States and has all corporate powers
and possesses all licenses and authorizations necessary to conduct its
businesses as presently conducted (excepting any licenses and authorizations the
absence of which would not have a material adverse effect upon the financial
condition or operations of Buyer). Buyer is qualified to do business in the
State of Tennessee and in all other states where the nature of its operations
requires it to be so qualified. The Articles of Association and Bylaws of Buyer
will not be amended hereafter, and are complete and correct as of the date
hereof. Buyer has the corporate power and authority to execute and deliver this
Agreement and has the corporate power and authority to perform its obligations
specified and undertaken in this Agreement. The Board of Directors of Buyer, at
a
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lawfully convened meeting, has authorized the execution and delivery of this
Merger Agreement by Buyer.
(c) BINDING EFFECT OF AGREEMENT. This Agreement constitutes
the valid and binding obligation of Buyer and Buyer's BHC and is enforceable in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect which affect creditors' rights generally, and by
legal and equitable limitations on the availability of injunctive relief,
specific performance and other equitable remedies which are available only in
the discretion of a court).
(d) NO BREACH. Neither the execution and delivery of this
Agreement, assuming regulatory approval, nor the consummation of the
transactions contemplated hereby will: (i) violate any provision of the
Certificate of Incorporation or Bylaws of Buyer, or of any subsidiary of Buyer
or Buyer's BHC; (ii) violate or cause a default or termination of any rights or
any obligations under any material contracts or agreements; or (iii) require the
consent or approval of any third party other than (a) the shareholder of Buyer
and (b) the appropriate regulatory authorities and agencies such as the FDIC,
OCC, and TDFI.
(e) CAPITALIZATION OF BUYER'S BHC. The authorized capital
stock of Buyer's BHC consists of 200,000,000 shares of common stock having a par
value of $2.50 per share (the "Buyer's BHC Stock") and 2,500,000 shares of
preferred stock with no par value, none of which are outstanding. As of May 15,
1998, 106,649,658 shares of Buyer's BHC Stock were issued and outstanding, and
no Buyer's BHC Stock was held by it as treasury stock. All of the outstanding
Buyer's BHC Stock is validly issued, fully paid, and nonassessable and has not
been issued in violation of any preemptive rights of any Buyer's BHC
shareholder. Except as disclosed in Buyer's BHC's SEC Documents, as of the date
hereof, there are no other outstanding securities or other obligations which are
convertible into Buyer's BHC Stock or into any other equity security of Buyer's
BHC or any of its subsidiaries, and there are no outstanding options, warrants,
rights, calls or other commitments of any nature which would entitle the holder,
upon exercise thereof, to be issued Buyer's BHC Stock or any other equity
security of Buyer's BHC or any of its direct or indirect subsidiaries.
(f) SEC DOCUMENTS. Buyer's BHC has made available to Seller a
true and complete copy of each report, schedule, registration statement, and
definitive proxy statement filed by Buyer's BHC with the SEC (other than reports
filed pursuant to Section 13(d) or 13(g) of the Exchange Act) since December 31,
1996 (the "Buyer's BHC SEC Documents"), which are all the documents (other than
preliminary material and reports required pursuant to Section 13(d) or 13(g) of
the Exchange Act) that Buyer's BHC was required to file with the SEC since such
date and which contain true and accurate information as required to be filed by
the SEC regarding the operations of Buyer's BHC and its consolidated
subsidiaries. As of their respective dates, the Buyer's BHC SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Buyer's BHC SEC Documents. The consolidated
financial statements of Buyer's BHC included in the Buyer's BHC SEC Documents
comply as to form in all material respects with applicable accounting
requirements
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and with the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC or normal recurring year-end adjustments) and fairly present the
consolidated financial position of Buyer's BHC and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
Section 5. MUTUAL COVENANTS.
(a) CONSENTS AND APPROVALS. All parties covenant with each
other that prior to the Effective Time they will take such steps or cause such
steps to be taken as may be necessary, and use their respective best efforts to
obtain any consents, approvals, permits or authorizations which are required to
be obtained in order to complete the Merger under any applicable federal or
state laws or regulations, or otherwise, and they each will perform such other
acts and execute and deliver such other documents necessary to consummate the
Merger as contemplated under this Agreement at the earliest practicable time and
without any unnecessary delay; provided, however, that the obligation to use
best efforts, whether in regard to this Section 5(a) or any other Section of
this Agreement, shall not require any party to engage in any conduct which, in
its, his or her reasonable judgment or in the reasonable judgment of its, his or
her legal counsel, may be in violation of any applicable law, regulation, rule
or regulatory guideline, or of any material contract, indenture or lease to
which such party may be obligated. Buyer will prepare and make, and the other
parties will cooperate in the making of, all regulatory and other filings
required to be made to effect the Merger. Provided, however, that nothing
contained in this Agreement shall be deemed to require any party to waive any
condition to its obligation to consummate the Merger.
(b) CONFIDENTIALITY. All parties covenant with each other
that, prior to the Effective Time, because of the confidential nature of the
negotiations surrounding the Merger, without first obtaining the written consent
of the others, there will be no public disclosure as to the terms and conditions
of this Agreement, or the transactions reflected herein, except for such public
announcements as may be jointly approved by them, such disclosures as may be
required incidental to obtaining the prior approval of any regulatory agency or
official or third person to the consummation of the transactions described
herein, and such disclosures as may be required in order to comply with
applicable federal and state laws and regulations and the orders of courts of
competent jurisdiction. Except for such disclosures as counsel for Seller,
Buyer's BHC, or Buyer deem necessary to comply with applicable federal and state
securities laws, if any, and to which notification to the other parties has been
given of such disclosure, all matters pertaining to the parties, their
investments and operations, agreements with regulators, employees, loans,
earnings and operating ratios or similar information will be held and maintained
in the strictest confidence. It is intended that this Section 5(b) will survive
regardless of whether the Merger is consummated.
(c) INVESTIGATION; ACCESS TO RECORDS. All parties shall have
the right to conduct any reasonable investigation of the business, records or
properties of the other parties and their (and their subsidiaries') financial
and legal condition as they may deem necessary or advisable to familiarize
itself and its advisers with such business, properties, and other matters. Any
such investigation shall be conducted so as not to interfere with the business
of the parties
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(or their subsidiaries) being investigated. The parties shall, and shall use its
best efforts to cause their accountants, counsel, and other representatives to
maintain the confidentiality of all information furnished to them by the other
parties hereto concerning their business, operations, and financial condition,
and shall not use such information for any purpose except as necessary to effect
the transactions contemplated by this Agreement. If this Agreement should be
terminated prior to the Effective Time, the parties shall, upon request,
promptly return all documents, work papers and other materials (including copies
made thereof) received in connection with this Agreement or the transactions
contemplated herein, and will return or destroy any such materials containing
any confidential information supplied in connection therewith, and the parties
will maintain the confidentiality of all information delivered in connection
with such transactions except for any such information that is readily
ascertainable from public or published information or trade sources; provided,
however, that one set of such materials may be retained for each parties' legal
files.
(d) PREPARATION OF OFFERING STATEMENT AND/OR REGISTRATION
STATEMENT.
(i) For purposes of (i) holding the Seller
shareholders' meeting to vote on the Merger and other matters contemplated
herein, and (ii) registering the Buyer's BHC Stock in connection with the Merger
with the SEC and with applicable state securities regulatory agencies, the
parties hereto shall cooperate in the preparation of an offering statement
and/or registration statement, satisfying all applicable requirements of
applicable state laws, and of the Securities Act and the Exchange Act and the
rules and regulations thereunder (the "Registration Statement").
(ii) Buyer's BHC shall furnish such information
concerning Buyer's BHC as is necessary in order to cause the Registration
Statement, insofar as it relates to Buyer's BHC, to comply with this Section.
Buyer's BHC agrees promptly to advise Seller if at any time prior to the
Effective Time any information provided by Buyer's BHC in the Registration
Statement becomes incorrect or incomplete in any material respect and to provide
the information needed to correct such inaccuracy or omission. Buyer's BHC shall
furnish Seller with such supplemental information as may be necessary in order
to cause the Registration Statement, insofar as it relates to Buyer's BHC, to
comply with this Section.
(iii) Seller shall furnish Buyer's BHC with such
information concerning Seller as is necessary in order to cause the Registration
Statement, insofar as it relates to the Seller, to comply with this Section,
including, without limitation, all required audited financial statements for
Seller, consolidated or otherwise, prepared by an independent accountant who
shall be satisfactory to Buyer's BHC. Seller agrees promptly to advise Buyer's
BHC if at any time prior to the Effective Time any information provided by
Seller in the Registration Statement becomes incorrect or incomplete in any
material respect and to provide Buyer's BHC with the information needed to
correct such inaccuracy or omission. Seller shall furnish Buyer's BHC with such
supplemental information as may be necessary in order to cause the Registration
Statement, insofar as it relates to Seller, to comply with this Section.
(iv) Buyer's BHC and Seller, as the case may be,
shall file the Statement with all required regulatory authorities. Buyer's BHC
shall use all reasonable efforts
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to have the Registration Statement declared effective under any applicable
securities laws as promptly as practicable after such filing. Buyer's BHC shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Buyer's BHC Stock in
the Merger, and Seller shall furnish all information concerning Seller and the
holders of Seller Stock as may be reasonably requested in connection with any
such action. Buyer's BHC shall advise Seller promptly when the Registration
Statement has become effective and of any supplements or amendments thereto, and
Buyer's BHC shall furnish Seller with copies of all such documents.
(v) Seller shall use its best efforts to cause to be
delivered to Buyer's BHC a consent letter of an independent accountant (such
accountant being satisfactory to Buyer's BHC), dated a date within two business
days before the date on which the Registration Statement shall become effective,
in form and substance reasonably satisfactory to Buyer's BHC, and in scope and
substance consistent with applicable professional standards for letters
delivered by independent public accountants in connection with registration
statements similar to Form S-3 or Form S-4.
(e) COVENANTS RELATING TO CONDUCT OF BUSINESS. Each of Seller
and Buyer shall take no action which would materially (i) adversely affect the
ability of any party to obtain any consents required for the transactions
contemplated hereby; (ii) adversely affect the ability of any party to perform
its covenants and agreements under this Agreement in all material respects and
to consummate the Merger; or (iii) prevent or impede the transactions
contemplated herein from qualifying as a reorganization under Section 368 of the
Code; provided, that the foregoing shall not prevent Buyer, Buyer's BHC or any
of their subsidiaries from acquiring additional assets or businesses or
discontinuing or disposing of any of its assets or businesses if such action is,
in the judgment of Buyer's BHC, desirable in the conduct of the business of
Buyer's BHC and its subsidiaries. Neither Buyer nor Seller shall intentionally
take or cause to be taken any action, that would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code or prevent or
inhibit the Merger from qualifying from accounting treatment as a
"pooling-of-interests".
(f) MERGER. The parties hereto agree to use their reasonable
efforts between the date of this Agreement and the Closing Date to take all
actions necessary or desirable, including the filing of any regulatory
applications, so that, the Merger will occur as soon as practicable with a
concerted effort to be made that the Effective Time will occur at least thirty
(30) days prior to the end of the calendar quarter in which the Effective Time
occurs in order to minimize the time in which the holding period referred to in
paragraph A.3. of Appendix F will apply.
(g) ADDITIONAL AGREEMENTS. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest Buyer or any of its subsidiaries with full
title to all properties, assets, rights, approvals, immunities and franchises of
either of the Buyer or Seller, the proper officers and directors of each party
to this Agreement shall take all such necessary action.
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(h) COOPERATION GENERALLY. Between the date of this Agreement
and the Effective Time, Buyer, Buyer's BHC, and Seller shall use its best
efforts, and to take all actions necessary or appropriate, to consummate the
Merger and the other transactions contemplated by this Agreement.
Section 6. COVENANTS OF SELLER.
Seller covenants that, prior to the Effective Time, or the termination
of this Agreement, whichever occurs first, except as Buyer may otherwise consent
in writing:
(a) CHARTER AND BYLAWS. It will not change, alter, amend or
vote to amend Seller's Charter or Bylaws.
(b) NOTICE OF ACTUAL OR THREATENED BREACH. It will promptly
give written notice to Buyer upon becoming aware of any pending or threatened
occurrence of any event which would cause or constitute a breach of any of the
representations, warranties, or covenants made by Seller to Buyer and Buyer's
BHC in this Agreement, or which would materially alter or threaten consummation
of the transactions contemplated herein, and will use its reasonable best
efforts to prevent or to promptly remedy the same. It will promptly give written
notice to Buyer upon becoming aware of any breach by Buyer or Buyer's BHC of any
of their representations, warranties, or covenants in this Agreement, which
notice shall specify the facts constituting such breach.
(c) NO CAPITAL CHANGES. It will not allow Seller to make any
change in its authorized capital stock; issue, sell, purchase, or retire any of
their capital stock grant any option, warrant, call, or any other right to
purchase or to convert any obligation into any of its capital stock; issue or
sell or agree to issue or sell any other equity security or issue or sell any
debt security other than: the taking of deposits and/or sale of deposit
instruments, the purchase or sale of federal funds, the sale of securities under
agreements to repurchase, and the sale of similar debt instruments, in each case
only in the ordinary course of business.
(d) NO DISTRIBUTIONS. Except for regular quarterly dividends
of $1.20 per share paid on the first day of each calendar quarter, Seller will
not allow Seller prior to the Effective Time to declare or pay any dividend, or
to authorize or make any redemption or to make or declare any other distribution
of Seller's assets.
(e) ORDINARY COURSE OF BUSINESS. Except as may otherwise be
required by regulatory authorities or by law, or requested and approved in
writing by Buyer, it will or will cause Seller to carry on its business in, and
only in, the usual, regular and ordinary course, and in substantially the same
manner as heretofore conducted and, to the extent consistent with such business
and with past practice, it will use its best efforts to preserve intact the
present business organization of Seller, keep available the services of Seller's
present officers and employees, and preserve Seller relationships with
customers, depositors, creditors, correspondents, suppliers and others having
business dealings with Seller; provided, however, that this Section shall not
require Buyer's BHC or any of its subsidiaries to offer special incentives to
officers, employees, customers, depositors, creditors, correspondents, suppliers
and others.
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(f) EMPLOYEE COMPENSATION. Except as described in Section 3(n)
of the Seller Schedule of Exceptions, it will not allow Seller to enter into,
agree to or amend any employment contract or bonus, stock option, ESOP,
profit-sharing, Pension Plan, Employee Plan, retirement, incentive or other
similar arrangement, except as may be required by law or as consented to by
Buyer in writing.
(g) GOVERNMENTAL OR REGULATORY FILINGS. True and correct
copies of all reports filed by Seller from the date hereof through the Effective
Time with any applicable governmental or regulatory agencies shall be delivered
or transmitted to Buyer contemporaneously with the filing thereof with, or
transmittal for filing to, the appropriate governmental or regulatory agency.
(h) SELLER SHAREHOLDERS' MEETING. Seller shall call a meeting
of its shareholders to be held as promptly as practicable on a mutually
agreeable date for the purpose of voting upon the approval of this Agreement.
Seller will, through its Board of Directors, recommend to its shareholders
approval of this Agreement and all related matters necessary to the consummation
of the transactions contemplated hereby. Seller and Buyer's BHC shall coordinate
and cooperate with respect to the timing of such meeting and Seller shall use
its best efforts to hold such meeting as soon as practicable after the date on
which the Registration Statement becomes effective.
(i) AFFILIATES. No later than thirty (30) calendar days prior
to the Seller shareholders' meeting regarding the Merger, Seller shall deliver
to Buyer's BHC a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the shareholders of Seller, "affiliates"
of Seller for purposes of Rule 145 under the Securities Act. Seller shall use
its best efforts to cause each person named in the letter delivered by it to
deliver to Buyer's BHC fifteen (15) calendar days prior to the shareholders'
meeting a written "affiliates" agreement, in the form attached hereto as
Appendix F, restricting the disposition by such person of the Buyer's BHC Stock
to be received by such person in the Merger.
(j) ADDITIONAL COVENANTS OF SELLER. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement, Seller covenants and agrees that it will not do or agree or commit to
do any of the following, except with the prior written consent of Buyer's BHC:
(i) repurchase, redeem, or otherwise acquire or
exchange, directly or indirectly, any shares, or any securities convertible into
any shares, of the Seller Common Stock, or declare or pay any dividend or make
any other distribution in respect of the Seller Common Stock except as
specifically permitted by this Agreement;
(ii) acquire direct or indirect control over, or
invest in equity securities of, any person, other than in connection with
foreclosures in the ordinary course of business;
(iii) commence or appeal any litigation or settle any
litigation involving any liability of Seller for damages or property in excess
of $25,000 or involving any material restrictions upon the operations of Seller,
or modify, amend, or terminate any material contract or waive, release,
compromise, or assign any material rights or claims;
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(iv) enter into or terminate any material contract
(excluding any loans in the ordinary course of business) or make any change in
any material lease or contract except as specifically permitted by this
Agreement;
(v) change its methods of accounting in effect at
December 31, 1997, except as required by changes in GAAP concurred in by
Seller's independent auditors or change its fiscal year; or
(vi) issue any letters of credit or incur any
unfunded commitments other than in the ordinary course of business or acquire
any off-balance sheet or derivative financial instruments, except in the
ordinary course of business.
(k) AFFIRMATIVE COVENANTS OF SELLER. Seller agrees to take or
cause to be taken commencing as soon as practicable following the execution of
this Agreement, and continuing thereafter as appropriate, the following
affirmative actions prior to the Effective Time:
(i) No later than thirty (30) calendar days after the
date of this Agreement, Seller shall, at its cost and expense, obtain title
opinions of the real property of each branch or office owned by Seller and each
branch or office leased by Seller (the "Seller Properties"), and Seller shall
promptly forward such title opinions to Buyer. Buyer may, at its cost and
expense, obtain a Phase I environmental assessment of any or all of the Seller
Properties. If any of the Phase I assessments recommends the undertaking of a
Phase II assessment, Buyer may obtain such Phase II assessments at its cost and
expense. Should the cost of taking all remedial and corrective actions and
measures required by applicable law, health or safety concerns exceed an amount
which would have a material adverse effect on Seller, or if the cost of such
actions and measures cannot be reasonably estimated with any reasonable degree
of certainty that they would not exceed an amount which would have such an
effect on Seller, (A) Buyer and Buyer's BHC shall have the right to terminate
this Agreement upon written notice to Seller, and (B) if Buyer requests that
Seller expend such amounts prior to the Effective Date in order not to have this
Agreement terminated, Seller may terminate this Agreement upon written notice to
Buyer.
(ii) Seller agrees to maintain in effect all existing
insurance coverage including, without limitation, such coverage with respect to
existing or threatened litigation.
(iii) Seller agrees to take all appropriate measures
to ensure that any restrictive covenants against it or against Buyer, after the
Effective Time, including, without limitation, noncompetition agreements
relating to the sale, marketing, or promotion of securities, insurance products,
mutual funds, and annuities, are terminated and of no force and effect on or
before the Closing Date, except to the extent that the other party to such
agreement is a subsidiary of Buyer.
(iv) Seller, and any director or officer thereof,
shall provide to Buyer information requested by Buyer concerning any agreement
or arrangement regarding Seller's sale, marketing or promotion of credit-based
insurance, and, at the option of Buyer, shall terminate any such agreement or
arrangement in accordance with the terms thereof.
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(v) Seller agrees to cooperate and coordinate with
Buyer in good faith to ensure that there will be no liabilities to Buyer, at and
after the Effective Time, arising from or related to any former subsidiary of
Seller, wholly owned or otherwise, that is no longer in existence as of the date
of this Agreement, whether by merger, sale, dissolution, administrative
dissolution, or divestiture.
(l) NO SOLICITATION. Seller will not authorize or permit any
officer, director, employee, investment banker, financial consultant, attorney,
accountant or other representative of Seller directly or indirectly, to initiate
contact with any person or entity in an effort to solicit, initiate or encourage
any Competing Transaction. Seller will not authorize or permit any officer,
director, employee, investment banker, financial consultant, attorney,
accountant or other representative of Seller, directly or indirectly, (a) to
cooperate with, or furnish or cause to be furnished any non-public information
concerning its business, properties or assets to, any person or entity in
connection with any Competing Transaction; (b) to negotiate any Competing
Transaction with any person or entity; or (c) to enter into any agreement,
letter of intent or agreement in principle as to any Competing Transaction.
Seller will promptly give written notice to Buyer upon becoming aware of any
Competing Transaction. For purposes of this Agreement, the term "Competing
Transaction" means any of the following involving Seller (other than the
transactions contemplated by this Agreement): (x) any merger, consolidation,
share exchange, business combination, or other similar transaction; (y) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or
more of the capital stock or assets of Seller in a single transaction or series
of transactions to the same person, entity or group; or (z) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
(m) MONTHLY STATUS REPORTS. Upon the request of Buyer, but no
more often than monthly commencing June 1, 1998, and continuing to the Effective
Time, Seller will provide to Buyer a written description on a form to be
provided by Buyer of the actions taken during the preceding month with respect
to its compliance or non-compliance with the terms of this Section 6, together
with its then current estimate of the out-of-pocket costs and expenses incurred
or reasonably accruable to accomplish the above items. Such reports shall not be
so extensive as to be a burden to Seller to complete. The monthly status reports
shall also include copies of minutes of meetings of Seller's Board of Directors,
and all committees thereof, occurring in the month for which such report is made
and shall also include all documents presented to the directors of Seller
related to such meetings.
(n) BANK ACCRUALS AND RESERVES. No later than five (5)
business days prior to the Closing Date, Seller shall review and, to the extent
determined necessary or advisable, consistent with GAAP, modify and change its
loan, accrual and reserve policies and practices (including loan classifications
and levels of reserves and accruals and reserves to (i) reflect Buyer's plans
with respect to the conduct of Seller's business following the Merger and (ii)
make adequate provision and accrue for the costs and expenses relating thereto
including, without limitation, expenses relating to taxes, stock option plans,
employment agreements, severance benefits, split dollar insurance premiums, and
other costs associated with the transactions contemplated herein) so as to be
applied consistently on a basis with those of Buyer's BHC. Seller shall also
adjust loan loss and OREO reserves as may be appropriate, consistent with GAAP
and the accounting rules, regulations and interpretations of the SEC and its
staff, in light
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of the then anticipated post-Closing disposition of certain of Seller's assets.
Seller shall promptly send to Buyer a summary of the accruals, reserves, and
provisions made pursuant to this Section
Section 7. COVENANTS OF BUYER AND BUYER'S BHC.
Buyer and Buyer's BHC hereby covenant with Seller as follows:
(a) NOTICE OF ACTUAL OR THREATENED BREACH. Buyer will promptly
give written notice to Seller upon becoming aware of any pending or threatened
occurrence of any event which would cause or constitute a breach of any of the
representations, warranties, or covenants made by Buyer and Buyer's BHC in this
Agreement, or which would threaten consummation of the transactions contemplated
herein and will use its respective reasonable best efforts to prevent or
promptly remedy the same. Buyer will promptly give written notice to Seller upon
becoming aware of any breach by Seller of any of its representations,
warranties, or covenants in this Agreement, which notice shall specify the facts
constituting such breach.
(b) TRANSITION OF CERTAIN EMPLOYEE BENEFIT PLANS. Seller shall
take all actions necessary to terminate all Seller Benefit Plans that are
"welfare benefit plans" within the meaning of Section 3(2) of ERISA as of or
prior to the Effective Time. However, Buyer and Buyer's BHC and Seller may
otherwise agree on or before the Effective Time to cause any Seller Benefit Plan
to remain in effect for a period of time after the Effective Time in order to
allow for an orderly and reasonable transition of benefits under the Buyer's
BHC's benefit plans. Employees of Seller shall be eligible to participate in
Buyer's annual incentive plans for similarly situated employees on and after the
Effective Time. Employees of Seller will be eligible to participate in the
retirement and welfare plans maintained by Buyer's BHC after the Effective Time
subject to the eligibility requirements of those plans and the following
sentences. With respect to each Buyer's BHC's "employee benefit plan," as
defined in Section 3(3) of ERISA, for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, including vacation benefits
(but not for accrual of benefits under Buyer's BHC's Master Retirement Plan),
service with Seller shall be treated as service to Buyer; provided, however,
that such service shall not be recognized to the extent that such recognition
would result in a duplication of benefits. Such service shall also apply for
purposes of satisfying the application for preexisting condition limitations.
Buyer and Buyer's BHC will use its reasonable efforts to provide employment
opportunities in other locations of Buyer in Middle Tennessee to qualified
employees of Seller whose services in current Seller positions after the
Effective Time are no longer necessary, and from and for twelve (12) months
after the Effective Time, all employees of Seller who are terminated after the
Merger will be eligible for severance benefits under Buyer's severance policy, a
copy of which has previously been provided to Seller.
(c) SELLER EMPLOYEES. Buyer and Buyer's BHC agree that neither
they nor their affiliates will, during the time that this Agreement is pending
or for a period of one year after its termination, solicit to employ any of the
current executive officers or employees of Seller with whom they had contact or
who was specifically identified to them during the period of their due diligence
investigation or while this Agreement was pending, so long as such employees are
employed by the Seller, without obtaining written consent of the Seller.
(d) ISSUANCE OF SHARES AND EXCHANGE LISTING. Buyer's BHC has
reserved or will reserve for issuance sufficient shares of Buyer's BHC Stock for
issuance in the Merger.
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Buyer's BHC shall cause the shares of Buyer's BHC Stock to be issued in the
Merger to be approved for listing on the Exchange, as defined below, prior to
the Closing Date.
(e) ADVISORY BOARD. Promptly following the Effective Time,
Buyer shall cause certain persons who are members of the Board of Directors of
the Seller to be appointed or elected as members of the Buyer's Maury County
Advisory Board of Directors, to be determined by agreement between the Buyer and
Seller. Each such advisory director shall be paid retainers and meeting fees
which, in the aggregate, on an annual basis, are no less than the retainers and
meeting fees paid to members of the Buyer's other advisory boards (assuming all
meetings were attended).
(f) INDEMNIFICATION.
(i) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the Effective
Time, a director, officer or employee of the Seller (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 (aa) the fact that he is or
was a director, officer or employee of the Seller or any of its affiliates or
(bb) this Agreement or any of the transactions contemplated hereby, whether in
any case asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto. It is understood and agreed that after the Effective Time,
Buyer's BHC shall indemnify and hold harmless, as and to the extent permitted by
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonable satisfactory to them after consultation with
Buyer's BHC, provided, however, that (1) Buyer's BHC shall have the right to
assume the defense thereof and upon such assumption Buyer's BHC shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if Buyer's BHC elects not to assume such
defense or counsel for the Indemnified Parties reasonably advises that there are
issues which raise conflicts of interest between Buyer's BHC and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with Buyer's BHC, and Buyer's BHC shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties, (2)
Buyer's BHC shall in all cases be obligated pursuant to this paragraph to pay
for only one firm of counsel for all Indemnified Parties, (3) Buyer's BHC shall
not be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld) and (4) Buyer's BHC shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by
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applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Buyer's BHC thereof, provided that the
failure to so notify shall not affect the obligations of Buyer's BHC under this
Section except to the extent such failure to notify materially prejudices
Buyer's BHC. Buyer's BHC's obligations under this Section shall continue in full
force and effect without time limit from and after the Effective Time.
(ii) Buyer's BHC shall cause the persons serving as
officers and directors of the Seller immediately prior to the Effective Time to
be covered for a period of three years from the Effective Time by the directors'
and officers' liability insurance policy maintained by the Seller (provided that
Buyer's BHC may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not less advantageous than
such policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event shall Buyer's BHC be required to
expend on an annual basis more than 150% of the current amount expended by the
Seller (the "Insurance Amount") to maintain or procure insurance coverage, and
further provided that if Buyer's BHC is unable to maintain or obtain the
insurance called for by this Section, Seller shall use all reasonable efforts to
obtain as much comparable insurance as is available for the Insurance Amount.
(iii) In the event Buyer's BHC or any of its
successors or assigns (aa) 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 (bb) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors or
assigns of Buyer's BHC assume the obligations set forth in this section.
(iv) The provisions of this Section are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
Section 8. CONDITIONS PRECEDENT TO BUYER'S AND BUYER'S BHC OBLIGATIONS
TO CONSUMMATE THE MERGER.
Unless waived by Buyer in writing, the obligations of Buyer and Buyer's
BHC to consummate the Merger shall be subject to the prior satisfaction of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Seller set forth herein shall be true and correct in all
material respects as of the date hereof and as of the Effective Time. Buyer
shall have received a certificate signed on behalf of the Seller by the
President of the Seller to the foregoing effect.
(b) COVENANTS OBSERVED. The covenants set forth herein to be
performed by Seller prior to the Effective Time shall have been complied with
and performed in all material respects, including that Buyer's BHC shall have
received written affiliates agreements as provided in Section 6(j) hereof. Buyer
shall have received a certificate signed on behalf of the Seller by the
President of the Seller to the foregoing effect.
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(c) CORPORATE ACTION. The Board of Directors and the
shareholders of Seller shall have taken all corporate and/or other action
necessary to be taken to approve and consummate the Merger, and shall have
furnished Buyer with certified copies of resolutions duly adopted by Seller's
Board of Directors and Seller's shareholders evidencing the same in the form
attached as Appendix D.
(d) OPINION OF COUNSEL. Seller shall have delivered to Buyer,
dated as of the Effective Date, an opinion of legal counsel, in form and
substance similar to Appendix E and reasonably satisfactory to Buyer. Seller
also shall have received the opinion of counsel to Seller, dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that Buyer's BHC, Buyer, and Seller will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(e) GOVERNMENTAL APPROVALS. All necessary approvals and
authorizations by, filing and registrations with, and notifications to, all
federal and state authorities required for the consummation of the Merger and
the prevention of the termination of any licenses, permits or authorizations of
Seller, the termination of which would materially impair the conduct of their
business, shall have been duly obtained or made and shall not have been canceled
or rescinded and all required waiting periods shall have expired. The
Registration Statement shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order.
(f) NO INJUNCTION OR OTHER LEGAL PROSCRIPTION. No injunction,
restraining order, stop order, bankruptcy proceeding, receivership, or other
order or action of any federal or state court or agency in the United States
which specifically and materially enjoins or otherwise prevents the consummation
of the Merger in the opinion of Buyer shall be in effect, and no action shall
have been taken, and no statute, rule or regulation shall have been enacted, by
any state or federal government or government agency which makes unlawful the
consummation of the Merger.
(g) TIMELY COMPLETION. The Effective Time must occur on or
before December 31, 1998, except to the extent a delay is caused by a delay in
obtaining regulatory approval and such regulatory approval is being sought
actively by the parties, but in any event, the Effective Time must occur on or
before March 31, 1999.
(h) SELLER SHAREHOLDER APPROVAL. This Agreement shall have
been approved and adopted by the affirmative vote of the holders of not less
than two-thirds (2/3rds) of Seller Common Stock entitled to vote thereon and
with no more than 5% of shares of Seller Common Stock dissenting pursuant to the
Tennessee Business Corporation Act dissenters' provisions and Section 2(i)
hereof and Seller shall, upon such approval and adoption, immediately provide to
Buyer a written certificate attesting to the shareholders' adoption and
approval. In addition, if required by Buyer's BHC, commencing three (3) business
days after the date of mailing the Statement to the holders of Seller Common
Stock and continuing to the date of the stockholders' meeting referred to in
Section 5.4 hereof, Seller shall forward to Buyer, on a daily basis, a written
report concerning the number and percentage of shares of Seller Common Stock
dissenting to the Merger and the other transactions contemplated by this
Agreement.
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(i) OTHER APPROVALS. Other than the filing provided for by
Section 8(e), all authorizations, consents, orders or approvals of, or
declarations or filings with, and all expirations of waiting periods imposed by,
any governmental entity (all the foregoing, "Consents") which are necessary for
the consummation of the Merger, other than Consents the failure to obtain which
would have no material adverse effect on the consummation of the Merger or on
Buyer and its subsidiaries, taken as a whole, shall have been filed, occurred or
been obtained (all such permits, approvals, filings and consents and the lapse
of all such waiting periods being referred to as the "Requisite Regulatory
Approvals") and all such Requisite Regulatory Approvals shall be in full force
and effect. Buyer and Buyer's BHC shall have received all state securities or
blue sky permits and other authorizations necessary to issue the Buyer's BHC's
Common Stock in exchange for Seller Common Stock and to consummate the Merger.
(j) REGISTRATION STATEMENT. The Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(k) ACCOUNTANTS' LETTER. Buyer shall have received a letter
from KPMG Peat Marwick LLP, dated as of the Closing Date, in form and substance
satisfactory to Buyer's BHC, stating in effect in respect of Seller that: (1)
they have examined the consolidated financial statements of Seller as of
December 31, 1997, and December 31, 1996, and for each of the years then ended
and have made a limited review in accordance with the standards established by
the American Institute of Certified Public Accountants of the latest available
unaudited consolidated interim financial statements of Seller available after
December 31, 1997; (2) on the basis of reading the latest available unaudited
consolidated interim financial statements of Seller; reading the minutes of the
meetings of the shareholders and the Board of Directors and committees thereof
of Seller for the period from December 31, 1997, to the Closing Date, and
inquiries of officers of Seller having responsibility for financial and
accounting matters as to whether the unaudited consolidated financial statements
referred to in (1) above are stated on a basis substantially consistent with
that of the audited consolidated financial statements as of December 31, 1997,
and December 31, 1996, and for the years then ended, nothing came to their
attention which caused them to believe that during the period from December 31,
1997, to the Effective Time there were any changes in the capital stock or the
long term debt (except for decreases in Federal Home Loan Bank Board debt that
are consistent with Seller's past practices) of Seller, except for the effect of
transaction costs and other costs incurred upon consummation of the Merger; and
(3) on the basis of (i) reading the latest available interim consolidated
financial statements which are referred to above and (ii) inquiries of certain
officials of Seller having responsibility for financial and accounting matters
concerning whether the unaudited consolidated interim financial statements
referred to in (1) above are presented fairly, nothing came to their attention
which caused them to believe that the latest available consolidated interim
financial statements are not fairly presented in conformity with GAAP applied on
a basis consistent with that followed in the audited consolidated financial
statements dated December 31, 1997, and December 31, 1996, and for the years
then ended.
(l) CAPITALIZATION. Buyer shall have received a certificate of
the President of Seller certifying to Buyer immediately prior to the Effective
Time (1) the number of shares of Seller Common Stock issued and outstanding; (2)
that there were no options for Seller Common
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Stock outstanding; (3) that no other shares of capital stock or securities
convertible into or evidencing the right to purchase or subscribe for any shares
of Seller Capital stock are outstanding and that there are no other outstanding
warrants, calls, subscriptions, rights, commitments, stock appreciation rights,
phantom stock or similar rights or any other agreements of any character
obligating Seller to issue any shares of capital stock or securities convertible
into or evidencing the right to purchase such stock; and (4) no shares of Seller
stock are held by Seller in treasury.
(m) CONSULTING/EMPLOYMENT AGREEMENTS. The
Consulting/Employment Agreements with Edward D. Green and Beverly Douglas,
substantially in the form of Appendix G and, attached hereto, shall been
executed and delivered by Msrs. Green and Douglas prior to the Closing Date.
(n) ACCOUNTING TREATMENT. Buyer's BHC shall have received the
opinion of KPMG Peat Marwick, LLP to the effect that the transaction
contemplated hereby shall be accounted for as a "pooling-of-interests".
(o) FINAL MONTHLY STATUS REPORT. At Closing, Seller shall
provide to Buyer a statement, dated on and as of the Closing Date, concerning
the status of each of the items required by Section 6(m) hereof.
(p) YEAR 2000. At Closing, Buyer's BHC shall receive a
statement from the President of Seller certifying that Seller has complied in
all material respects with the standards set forth in the FFIEC Interagency
Statement regarding Year 2000 compliance dated May 5, 1997, as revised on
December 17, 1997, and any additional such statements or amendments thereto.
Section 9. CONDITIONS TO THE OBLIGATIONS OF SELLER TO CONSUMMATE THE
MERGER.
Unless waived by Seller, its obligation to consummate the Merger shall
be subject to prior satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Buyer and Buyer's BHC set forth herein shall, taken as a
whole, be true and correct in all material respects as of the date hereof and as
of the Effective Time. Seller shall have received a certificate signed on behalf
of the Buyer and the Buyer's BHC by executive officers of the Buyer and the
Buyer's BHC to the foregoing effect.
(b) COVENANTS OBSERVED. The covenants set forth herein to be
performed by Buyer and Buyer's BHC prior to the Effective Time shall have been
complied with and performed in all material respects. Seller shall have received
a certificate signed on behalf of the Buyer and the Buyer's BHC by executive
officers of the Buyer and the Buyer's BHC to the foregoing effect.
(c) CORPORATION ACTION. The Boards of Directors of Buyer and
Buyer's BHC and shareholders of Buyer shall have taken all corporate action
necessary to be taken by them to
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approve the Merger and authorize this Agreement, and Buyer and Buyer's BHC shall
have furnished Seller with certified copies of resolutions duly adopted by the
Boards of Directors of Buyer and Buyer's BHC and shareholders of Buyer
evidencing the same.
(d) OPINION OF COUNSEL. Buyer shall have delivered to Seller,
dated as of the Effective Date, an opinion of legal counsel, in form and
substance similar to Appendix E and reasonably satisfactory to Seller. Seller
also shall have received the opinion of counsel to Seller, dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that Buyer's BHC, Buyer, and Seller will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(e) GOVERNMENT APPROVALS. All necessary approvals and
authorizations by, filing and registrations with, and notifications to, all
federal and state authorities required for the consummation of the Merger and
the prevention of the termination of any licenses, permits or authorizations of
Buyer, the termination of which would materially impair the conduct of its
business, shall have been duly obtained or made and shall not have been canceled
or rescinded and all required waiting periods shall have expired. The
Registration Statement shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order.
(f) NO INJUNCTION OR OTHER LEGAL PROSCRIPTION. No injunction,
restraining order, stop order, bankruptcy proceeding, receivership, or other
order or action of any federal or state court or agency in the United States
which specifically and materially enjoins or otherwise prevents the consummation
of the Merger shall be in effect, and no action shall have been taken, and no
statute, rule or regulation shall have been enacted, by any state or federal
government or government agency which makes unlawful the consummation of the
Merger.
(g) FAIRNESS OPINION. The Seller shall have received an
opinion from its financial advisor to the effect that, as of the date of this
Agreement, the Merger is fair to the shareholders of the Seller from a financial
viewpoint.
(h) ACCOUNTANTS' LETTER. Seller shall have received a letter
from KPMG Peat Marwick LLP, dated as of the Closing Date, in form and substance
satisfactory to Seller, stating in effect in respect of Buyer's BHC that: (1)
they have examined the consolidated financial statements of Buyer's BHC as of
December 31, 1997, and December 31, 1996, and for each of the years then ended
and have made a limited review in accordance with the standards established by
the American Institute of Certified Public Accountants of the latest available
unaudited consolidated interim financial statements of Buyer's BHC available
after December 31, 1997; and (2) on the basis of reading the latest available
unaudited consolidated interim financial statements of Buyer's BHC; reading the
minutes of the meetings of the shareholders and the Board of Directors and
committees thereof of Buyer's BHC for the period from December 31, 1997, to the
Closing Date, and inquiries of officers of Buyer's BHC having responsibility for
financial and accounting matters as to whether the unaudited consolidated
financial statements referred to in (1) above are stated on a basis
substantially consistent with that of the audited consolidated financial
statements as of December 31, 1997, and December 31, 1996, and for the years
then ended, nothing came to their attention which caused them to believe
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that the latest available consolidated interim financial statements are not
fairly presented in conformity with GAAP applied on a basis consistent with that
followed in the audited consolidated financial statements dated December 31,
1997, and December 31, 1996, and for the years then ended.
(i CONSULTING/EMPLOYMENT AGREEMENTS. The Consulting/Employment
Agreements with Edward D. Green and Beverly Douglas, substantially in the form
of Appendix G and, attached hereto, shall been executed and delivered by Msrs.
Green and Douglas prior to the Closing Date.
(j YEAR 2000. At Closing, Seller shall receive a statement
from the President and Chief Executive Officer of Buyer's BHC certifying that
Buyer's BHC has complied in all material respects with the standards set forth
in the FFIEC Interagency Statement regarding Year 2000 compliance dated May 5,
1997, as revised on December 17, 1997, and any additional such statements or
amendments thereto.
(k TIMELY COMPLETION. The Effective Time must occur on or
before December 31, 1998, except to the extent a delay is caused by a delay in
obtaining regulatory approval and such regulatory approval is being sought
actively by the parties, but in any event, the Effective Time must occur on or
before March 31, 1999 .
Section 10. TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of Seller:
(a by mutual written consent of Buyer, Buyer's BHC and
Seller; or
(b by either Buyer or Seller if (i) the Merger shall not have
been consummated on or before March 31, 1999 (the "Termination Date"), provided
the terminating party shall not have breached in any material respect its
obligations under this Agreement in a manner that proximately contributed to the
failure to consummate the Merger by such date, (ii) any governmental or
regulatory body, the consent of which is a condition to the obligations of
Buyer, Buyer's BHC, and Seller to consummate the transactions contemplated
hereby or by the Plan of Merger, shall have determined not to grant its consent
and all appeals of such determination shall have been taken and have been
unsuccessful, or (iii) any court of competent jurisdiction in the United States
or any State shall have issued an order, judgment or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
Merger and such order, judgment or decree shall have become final and
nonappealable.
(c By Buyer and Buyer's BHC:
(i if any event shall have occurred as a result of
which any condition set forth in Section 8 hereof is no longer capable
of being satisfied;
(ii subject to a thirty day cure period after actual
knowledge or written notice, if there has been a breach by Seller of
any representation or warranty contained in
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this Agreement, which would or would be reasonably likely to have a
material adverse effect on the assets, liabilities, financial
condition, results of operations or prospects of Seller, or there has
been a material breach of any of the covenants or agreements set forth
in this Agreement on the part of Seller;
(iii if Seller (or its Board of Directors) shall have
authorized, recommended, proposed or publicly announced its intention
to enter into a Competing Transaction (as herein defined);
(iv if the Board of Directors of Seller shall have
withdrawn or materially modified its authorization, approval, or
recommendation to the shareholders of Seller with respect to the Merger
or this Agreement or shall have failed to make the favorable
recommendation required by Section 3(a); or
(v as provided in Section 6(k)(i).
(d By Seller:
(i if any event shall have occurred as a result of
which any condition set forth in Section 9 hereof is no longer capable
of being satisfied;
(ii if at any time during the five business day
period commencing on the date the Registration Statement becomes effective with
the SEC, the Buyer's BHC Average Closing Price (as defined below) shall be less
than $39.00; subject to the following sentences. If the Seller elects to
exercise its termination right pursuant to the immediately preceding sentence,
it shall give prompt written notice to Buyer's BHC; provided that such notice of
election to terminate may be withdrawn at any time within the five business day
period, commencing with its delivery of such notice. During the five business
day period commencing with its receipt of such notice, Buyer's BHC shall have
the option of adjusting the Exchange Ratio to a number equal to a quotient
(rounded to the nearest one-ten-thousandth), the numerator of which is the
product of $39.00 and the Exchange Ratio (as then in effect) and the denominator
of which is the Buyer's BHC Average Closing Price. If Buyer's BHC makes such an
election within such five business day period, it shall give prompt written
notice to the Seller of such election and the revised Exchange Ratio, whereupon
no termination shall have occurred pursuant to this Section, and this Agreement
shall remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this Agreement to
"Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as
adjusted pursuant to this Section. The Buyer's BHC "Average Closing Price," for
purposes of this Agreement, shall mean the average closing price per share of
Buyer's BHC Stock on The Nasdaq Stock Market or other exchange ("Exchange") (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source) for the ten (10) consecutive trading days ending on and
including the tenth trading day immediately preceding the date the Registration
Statement becomes effective with the SEC. If any abnormal activity in the
trading of the Buyer's BHC Stock occurs during such period, the period of
determining the Buyer's BHC Average Closing Price will be adjusted subject to
the agreement of the Buyer and Seller.
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(iii subject to a thirty day cure period after
actual knowledge or written notice, if there has been a breach by Buyer's BHC of
any representation or warranty contained in this Agreement which would have or
would be reasonably likely to have a material adverse effect on the assets,
liabilities, financial condition, results of operations, business or prospects
of Buyer and Buyer's BHC, taken as a whole, or there has been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
Buyer's BHC.
(iv as provided in Section 6(k)(i).
(e RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement
is terminated as provided herein, each party will deliver all documents, work
papers, and other materials of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same including using its best efforts to obtain and
deliver all such documents, work papers and materials, except to the extent
previously delivered to third parties in connection with the transactions
contemplated hereby, and all information received by any party hereto with
respect to the business of any other party shall not at any time be used for the
advantage of, or disclosed to third parties by, such party to the detriment of
the party furnishing such information; provided, however, that this Section
10(e) shall not apply to any documents, work papers, material, or information
which is a matter of public knowledge or which heretofore has been or hereafter
is published in any publication for public distribution or filed as public
information with any governmental agency.
(f FEES AND EXPENSES OF BUYER AND BUYER'S BHC. Seller
acknowledges that Buyer and Buyer's BHC have spent, and will be required to
spend, substantial time and effort in examining the business, properties,
affairs, financial condition and prospects of Seller; has incurred, and will
continue to incur, substantial fees and expenses in connection with such
examination, the preparation of this Agreement, and the accomplishment of the
transactions contemplated hereunder; and will be unable to evaluate and,
possibly, make investments in or acquire other entities due to the limited
number of personnel available for such purpose and the constraints of time.
Therefore, to induce Buyer and Buyer's BHC to enter this Agreement,
(i If Buyer and Buyer's BHC terminate this
Agreement pursuant to:
a) Sections 10(c)(i) or 10(c)(ii) by reason
of the failure to meet any condition
contained in Section 8(a) or 8(b) due to
Seller's knowing and intentional
misrepresentation or knowing and intentional
breach of warranty or breach of any covenant
or agreement and within twelve (12) months
from the date of termination a Competing
Transaction is consummated or Seller shall
have directly or indirectly solicited bids
for a Competing Transaction or shall have
entered into an agreement or an agreement in
principle which if consummated would
constitute a Competing Transaction;
b) Section 10(c)(iv);
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c) Section 10(c)(iii) and within twelve (12)
months from the date of termination a
Competing Transaction is consummated or
Seller shall have entered into an agreement
which if consummated would constitute a
Competing Transaction; or
(ii if Seller terminates this Agreement pursuant
to Section 10(c)(i) because this Agreement did not receive the requisite vote of
the Seller shareholders and within twelve (12) months from the date of
termination a Competing Transaction is consummated or Seller shall have entered
into an agreement which if consummated would constitute a Competing Transaction;
then Seller shall pay to Buyer's BHC a fee in the amount of $2 million (the
"Fee"), which amount is inclusive of the Buyer's BHC expenses, not as a penalty
but as full and complete liquidated damages. Any payment required pursuant to
this Section 10(f) shall be made no later than two business days after the date
due and shall be made by wire transfer of immediately available funds to an
account designated by Buyer's BHC. In the event that Buyer's BHC is entitled to
the Fee, Seller shall also pay to Buyer's BHC interest based upon the average
Federal Funds rate per year on any amounts that are not paid when due, plus all
costs and expenses in connection with or arising out of the enforcement of the
obligation of Seller to pay the Fee or such interest.
(g FEES AND EXPENSES OF SELLER. Buyer and Buyer's BHC
acknowledge that Seller has spent, and will be required to spend, substantial
time and effort in examining the business, properties, affairs, financial
condition and prospects of Buyer and Buyer's BHC; has incurred, and will
continue to incur, substantial fees and expenses in connection with such
examination, the preparation of this Agreement, and the accomplishment of the
transactions contemplated hereunder; and will be unable to negotiate a possible
sale to other entities due to the provisions of this Agreement and the limited
number of personnel available for such purpose and the constraints of time.
Therefore, to induce Seller to enter this Agreement, if Buyer or Buyer's BHC
terminates this Agreement pursuant to Sections 10(d)(i) or 10(d)(iii) by reason
of the failure to meet any condition contained in Section 9(a) or 9(b) due to
Buyer's or Buyer's BHC's knowing and intentional misrepresentation or knowing
and intentional breach of warranty or breach of any covenant or agreement; then
Buyer or Buyer's BHC shall pay to Seller a fee in the amount of $2 million (the
"Fee"), which amount is inclusive of the Seller's expenses, not as a penalty but
as full and complete liquidated damages. Any payment required pursuant to this
Section 10(g) shall be made no later than two business days after the date due
and shall be made by wire transfer of immediately available funds to an account
designated by Seller. In the event that Seller is entitled to the Fee, Buyer or
Buyer's BHC shall also pay to Seller interest based upon the average Federal
Funds rate per year on any amounts that are not paid when due, plus all costs
and expenses in connection with or arising out of the enforcement of the
obligation of Buyer or Buyer's BHC to pay the Fee or such interest.
(h EFFECT OF TERMINATION. Except for such provisions of this
Agreement which by their terms expressly survive the termination hereof and the
provisions of Sections 5(b), 5(c), and this Section 10, which shall survive any
termination of this Agreement. In the event of a termination of this Agreement
pursuant to Section 10 or Section 6(k)(i), this Agreement shall forthwith become
void and have no further effect.
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Section 11. INDEMNIFICATION.
(a INDEMNIFICATION OF PARTIES. Seller shall indemnify and hold
harmless Buyer and Buyer's BHC against all loss, liability, damage, or expense
(including reasonable fees and expenses of counsel) Buyer and Buyer's BHC may
suffer, sustain, or become subject to as a result of any breach of any
warranties, covenants, or other agreements contained in this Agreement or any
misrepresentation by Seller; any of Seller's warranties or representations not
being true and correct as of the time of the Closing; or a claim by a third
party which, without regard to the merits of the claim, would constitute such a
breach of misrepresentation (subject to compliance with the provisions of
Section 11(b) below). Buyer and Buyer's BHC shall jointly and severally
indemnify and hold harmless Seller against all loss, liability, damage, or
expense (including reasonable fees and expenses of counsel) Seller may suffer,
sustain or become subject to as a result of any breach of any warranties,
covenants, or other agreements contained in this Agreement or any
misrepresentation by the Buyer and Buyer's BHC; any of the Buyer's warranties or
representations not being true and correct as of the time of the Closing; or a
claim by a third party which, without regard to the merits of the claim, would
constitute such a breach or misrepresentation (subject to compliance with the
provisions of Section 11(b) below).
(b THIRD PARTY CLAIMS. The obligations and liabilities of the
parties under this Agreement with respect to, relating to, caused (in whole or
in part) by or arising out of claims of third parties (individually, a "Third
Party Claim" and collectively "Third Party Claims"), shall be subject to the
following terms and conditions:
(i The party or parties entitled to be
indemnified hereunder (the "Indemnified Party") shall give the party or parties
obligated to provide the indemnity (the "Indemnifying Party") prompt notice of
any Third Party Claim, and the Indemnifying Party may undertake the defense of
that claim by representatives chosen by it. Any such notice of a Third Party
Claim shall identify with reasonable specificity the basis for the Third Party
Claim, the facts giving rise to the Third Party Claim, and the amount of the
Third Party Claim (or, if such amount is not yet known, a reasonable estimate of
the amount of the Third Party Claim). The Indemnified Party shall make available
to the Indemnifying Party copies of all relevant documents and records in its
possession.
(ii If the Indemnifying Party, within a
reasonable time after notice of any such Third Party Claim, fails to assume the
defense in accordance with Section 11(b)(i), the Indemnified Party shall (upon
further notice to the Indemnifying Party) have the right to undertake the
defense, compromise or settlement of the Third Party Claim, subject to the right
of the Indemnifying Party to assume the defense of such Third Party Claim at any
time prior to settlement, compromise or final determination thereof; provided,
however, that at the time of the assumption of defense the Indemnifying Party
shall reimburse the Indemnified Party for its reasonable, actual, documented
out-of-pocket expenses incurred prior to the assumption of defense by the
Indemnifying Party.
(iii Anything in this Section 11 to the contrary
notwithstanding, the Indemnifying Party shall not, without the written consent
of the Indemnified Party, settle or compromise any Third Party Claim or consent
to the entry of judgment which does not include
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as an unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party of an unconditional release from all liability in respect
of the Third Party Claim; and, if there is a reasonable probability that a claim
may materially and adversely affect the Indemnified Party other than as a result
of money damages or other money payments, the Indemnified Party shall have the
right, at its own cost and expense, to participate in the defense of the Third
Party Claim (control of the defense to remain with the Indemnifying Party).
(c THIRD PARTY CLAIMS. In any case where an Indemnified Party
recovers from third parties all or any part of any amount paid to it by an
Indemnifying Party pursuant to this Section 11, such Indemnified Party shall
promptly pay over to the Indemnifying Party the amount so recovered (after
deducting therefrom the full amount of the expenses incurred by it in procuring
such recovery). The Indemnified Party shall be obligated to prosecute diligently
and in good faith any claim with any applicable insurer prior to collecting an
indemnification payment under this Section 11. However, an Indemnified Party
shall be entitled to collect an indemnification payment under this Section 11 if
such Indemnified Party has not received reimbursement from an applicable insurer
within one year after it has given such insurer written notice of this claim. In
such event, the Indemnified Party shall assign to the Indemnifying Party its
rights against such insurer.
Section 12. GENERAL.
(a CLOSING. The closing of the transactions contemplated by
this Agreement shall take place at First American Center, Nashville, Tennessee,
at 10:00 a.m. or at such other place and time as may be agreed upon by the
parties or, if they cannot agree, on the date of which any party shall give at
least five (5) days' advance notice to the other parties following satisfaction
of the conditions to consummation of the Merger that may not, as a matter of
law, be waived. Notwithstanding anything herein to the contrary, no party shall
be required to waive a condition that is within its power under the terms of the
Agreement not to waive. Buyer or Seller may, at or prior to the Closing, delay
the Closing for up to thirty (30) days by notice to the other parties specifying
the delayed date of the Closing, if necessary to permit satisfaction of any
condition to the obligations of the other parties that cannot be satisfied at
the Closing as originally scheduled and the satisfaction of which by the delayed
Closing date is not impossible.
(b AMENDMENT. The parties may, by mutual agreement of their
respective Boards of Directors, amend, modify or supplement this Agreement or
any Appendix to the Agreement in such manner as may be agreed upon by them in
writing, at any time before or after approval of the Merger and the transactions
contemplated thereby by the shareholders of Buyer and Seller, provided that no
such amendment, modification or supplement shall be made which reduces the
Exchange Ratio without the further approval of the Seller shareholders. This
Agreement may be amended at any time and, as amended, restated by the President
of the parties, without the necessity for approval by their respective Boards of
Directors or shareholders, to correct typographical errors or to change
erroneous references or cross-references, or to make such other changes which
are immaterial to the substance of the transactions contemplated hereby. This
Agreement may not be otherwise amended except by an instrument in writing signed
on behalf of all the parties hereto.
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(c EXTENSIONS AND WAIVERS. At any time prior to the Effective
Time, the parties hereto, by action taken by their respective Boards of
Directors or duly authorized officers, may: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
parties contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the covenants or agreements of the other parties or
with any of the conditions to the obligations of the waiving party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No such waiver or extension shall imply any further waiver
or extension.
(d COUNTERPARTS. For the convenience of the parties and to
facilitate the filing of this Agreement with regulatory authorities, any number
of counterparts hereof may be executed, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
(e NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing, and shall be personally delivered,
delivered by facsimile, delivered by overnight courier, or mailed certified or
registered mail, return receipt requested, postage prepaid, to the addresses
indicated above. Notices shall be deemed to have been received when delivered
personally or faxed or, if mailed, the date of such signed receipt.
(f ENTIRE AGREEMENT. This Agreement: (i) constitutes the
entire Agreement between the parties hereto and supersedes all other prior
agreements and undertakings, both written and oral, of the parties, or any of
them, with respect to the subject matter hereof; (ii) is not intended to confer
upon any other person or entity any rights or remedies hereunder; and (iii)
shall not be assigned except by operation of law.
(g GOVERNING LAW; SUBMISSION TO JURISDICTION. Except where
controlled by federal law, this Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by the
internal laws of the State of Tennessee, without reference to choice or conflict
of law principles thereof. Any legal action or proceeding with respect to this
Agreement against any party shall be brought only in a court of record of, or in
any federal court located in, Davidson County in the State of Tennessee, which
shall have exclusive jurisdiction and venue for such purpose. By execution and
delivery of this Agreement, the parties hereby accept for themselves, and in
respect of their property, generally and unconditionally, the jurisdiction and
venue of the aforesaid courts sitting in Davidson County, Tennessee, and waive
any objection to the laying of venue on the grounds of forum non conveniens
which they may now or hereafter have to the bringing or maintaining of any such
action or proceeding in such jurisdiction.
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(h HEADINGS. The headings of the Sections and subsections of
this Agreement are for convenience of reference only and shall not be taken into
account in the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed and delivered as of the day and year first above written, such
execution having been duly authorized by the respective Boards of Directors of
Buyer, Seller, and Buyer's BHC.
BUYER:
By: /s/ Dennis C. Bottorff
----------------------------------
Title: Chairman and CEO
----------------------------------
SELLER:
By: /s/ Edward D. Green
----------------------------------
Title: President
----------------------------------
BUYER'S BHC:
By: /s/ Dennis C. Bottorff
----------------------------------
Title: Chairman and CEO
----------------------------------
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APPENDIX B
OPINION OF THE CARSON MEDLIN COMPANY
August 25, 1998
Board of Directors
The Middle Tennessee Bank
700 North Garden Street
Columbia, TN 38402
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by the shareholders of The Middle
Tennessee Bank ("MTB") under the terms of a certain Bank Merger Agreement dated
May 26, 1998 (the "Agreement") pursuant to which Middle Tennessee shall be
merged with and into First American Corporation, Nashville, TN ("First
American") (the "Merger"). Under the terms of the Agreement, each of the
outstanding shares of Middle Tennessee Common Stock shall be converted into and
exchanged for the right to receive 7.768 shares of First American Common Stock.
The foregoing summary of the Merger is qualified in its entirety by reference
to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers,
Inc. (NASD) member investment banking firm which specializes in the securities
of southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Tennessee and the major commercial banks
operating in that market. We have been retained by MTB in a financial advisory
capacity to render our opinion hereunder, for which we will receive
compensation.
In reaching our opinion, we have analyzed the respective financial
positions, both current and historical, of First American and MTB. We have
reviewed: (i) the Agreement; (ii) the annual reports to shareholders of First
American, including audited financial statements for the five years ended
December 31, 1997; (iii) audited financial statements of MTB for the five years
ended December 31, 1997; (iv) the unaudited interim financial statements of
First American for the six months ended June 30, 1998; (v) the unaudited
interim financial statements of MTB for the six months ended June 30, 1998;
(vi) certain financial and operating information with respect to the business,
operations and prospects of First American and MTB; and (vii) this
Prospectus/Proxy Statement. We also: (i) held discussions with members of the
senior
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Board of Directors
The Middle Tennessee Bank
August 25, 1998
Page 2
management of First American and MTB regarding historical and current
business operations, financial condition and future prospects of their
respective companies; (ii) reviewed the historical market prices and trading
activity for the common stocks of First American and MTB and compared them with
those of certain publicly traded companies which we deemed to be relevant;
(iii) compared the results of operations of First American and MTB with those
of certain banking companies which we deemed to be relevant; (iv) compared the
proposed financial terms of the Merger with the financial terms, to the extent
publicly available, of certain other recent business combinations of commercial
banking organizations; (v) analyzed the pro forma financial impact of the
Merger on First American; and (vi) conducted such other studies, analyses,
inquiries and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of all information provided to us. We have not
performed or considered any independent appraisal or evaluation of the assets
of First American or MTB. The opinion we express herein is necessarily based
upon market, economic and other relevant considerations as they exist and can
be evaluated as of the date of this letter.
Based upon the foregoing, it is our opinion that the consideration
provided for in the Agreement is fair, from a financial point of view, to the
shareholders of The Middle Tennessee Bank.
Very truly yours,
/s/ The Carson Medlin Company
THE CARSON MEDLIN COMPANY
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APPENDIX C
UNITED STATES CODE ANNOTATED
TITLE 12. BANKS AND BANKING
CHAPTER 2--NATIONAL BANKS
SUBCHAPTER XVI--CONSOLIDATION AND MERGER
SECTION 215a -- Merger of national banks or State banks into national banks
(a) Approval of Comptroller, board and shareholders; merger agreement; notice;
capital stock; liability of receiving association
One or more national banking associations or one or more State banks,
with the approval of the Comptroller, under an agreement not inconsistent with
this subchapter, may merge into a national banking association located within
the same State, under the charter of the receiving association. The merger
agreement shall--
(1) be agreed upon in writing by a majority of the board of directors
of each association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least two-thirds
of its capital stock outstanding, or by a greater proportion of such capital
stock in the case of a State bank if the laws of the State where it is organized
so require, at a meeting to be held on the call of the directors, after
publishing notice of the time, place, and object of the meeting for four
consecutive weeks in a newspaper of general circulation published in the place
where the association or State bank is located, or, if there is no such
newspaper, then in the newspaper of general circulation published nearest
thereto, and after sending such notice to each shareholder of record by
certified or registered mail at least ten days prior to the meeting, except to
those shareholders who specifically waive notice, but any additional notice
shall be given to the shareholders of such State bank which may be required by
the laws of the State where it is organized. Publication of notice may be
waived, in cases where the Comptroller determines that an emergency exists
justifying such waiver, by unanimous action of the shareholders of the
association or State banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing law for
the organization of a national bank in the place in which it is located and
which will be outstanding upon completion of the merger, the amount of stock (if
any) to be allocated, and cash (if any) to be paid, to the shareholders of the
association or State bank being merged into the receiving association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the receiving
association.
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of
(1) one selected by the vote of the holders of the majority of the
stock, the owners of which are entitled to payment in cash;
(2) one selected by the directors of the receiving association; and (3)
one selected by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the Comptroller, who shall cause a reappraisal to be made which shall
be final and binding as to the value of the shares of the appellant.
(d) Application to shareholders of merging associations: appraisal by
Comptroller; expenses of receiving association; sale and resale of shares; State
appraisal and merger law
If, within ninety days from the date of consummation of the merger, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller shall
upon written
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request of any interested party cause an appraisal to be made which shall be
final and binding on all parties. The expenses of the Comptroller in making the
reappraisal or the appraisal, as the case may be, shall be paid by the receiving
association. The value of the shares ascertained shall be promptly paid to the
dissenting shareholders by the receiving association. The shares of stock of the
receiving association which would have been delivered to such dissenting
shareholders had they not requested payment shall be sold by the receiving
association at an advertised public auction, and the receiving association shall
have the right to purchase any of such shares at such public auction, if it is
the highest bidder therefor, for the purpose of reselling such shares within
thirty days thereafter to such person or persons and at such price not less than
par as its board of directors by resolution may determine. If the shares are
sold at public auction at a price greater than the amount paid to the dissenting
shareholders, the excess in such sale price shall be paid to such dissenting
shareholders. The appraisal of such shares of stock in any State bank shall be
determined in the manner prescribed by the law of the State in such cases,
rather than as provided in this section, if such provision is made in the State
law; and no such merger shall be in contravention of the law of the State under
which such bank is incorporated. The provisions of this subsection shall apply
only to shareholders of (and stock owned by them in) a bank or association being
merged into the receiving association.
(e) Status of receiving association; property rights and interests vested and
held as fiduciary
The corporate existence of each of the merging banks or banking
associations participating in such merger shall be merged into and continued in
the receiving association and such receiving association shall be deemed to be
the same corporation as each bank or banking association participating in the
merger. All rights, franchises, and interests of the individual merging banks or
banking associations in and to every type of property (real, personal, and
mixed) and chooses in action shall be transferred to and vested in the receiving
association by virtue of such merger without any deed or other transfer. The
receiving association, upon the merger and without any order or other action on
the part of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by any one of the merging banks or banking
associations at the time of the merger, subject to the conditions hereinafter
provided.
(f) Removal as fiduciary; discrimination
Where any merging bank or banking association, at the time of the
merger, was acting under appointment of any court as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, or committee of estates of lunatics, or in any other fiduciary
capacity, the receiving association shall be subject to removal by a court of
competent jurisdiction in the same manner and to the same extent as was such
merging bank or banking association prior to the merger. Nothing contained in
this section shall be considered to impair in any manner the right of any court
to remove the receiving association and to appoint in lieu thereof a substitute
trustee, executor, or other fiduciary, except that such right shall not be
exercised in such a manner as to discriminate against national banking
associations, nor shall any receiving association be removed solely because of
the fact that it is a national banking association.
(g) Issuance of stock by receiving association; pre-emptive rights
Stock of the receiving association may be issued as provided by the
terms of the merger agreement, free from any preemptive rights of the
shareholders of the respective merging banks.
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