<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-10787
[FRANKLIN FINANCIAL GROUP, INC. LETTERHEAD]
AUGUST 29, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
(the "Special Meeting") of Franklin Financial Group, Inc. ("FFGI") to be held
in the Jean Keener Room of the Rose Center, 442 W. Second North Street,
Morristown, Tennessee on October 1, 1996 at 10:00 a.m. Eastern Daylight Time.
As described in the enclosed Prospectus/Proxy Statement and the enclosed Notice
of Meeting, the purpose of the Special Meeting is to vote on the proposed
acquisition of FFGI by Union Planters Corporation ("UPC"), Memphis, Tennessee.
The merger with UPC is a relatively complicated transaction. In view
of the complexity of this matter, we urge each FFGI stockholder to carefully
read and consider the enclosed Prospectus/Proxy Statement and Notice of Meeting.
The FFGI Board of Directors has unanimously approved the Merger
Agreement with UPC. However, since all but one of the FFGI Board members
believe that they have an interest in the Merger which conflicts with the
interests of the Class A Stockholders who do not own Class B Common Stock, the
FFGI Board of Directors cannot, and does not, make any recommendation to the
FFGI stockholders with respect to the merger with UPC.
Your vote is very important to FFGI regardless of the number of shares
of FFGI common stock you own. You are urged to mark your vote on the enclosed
proxy appointment card and date and return the enclosed proxy appointment card
as soon as possible, even if you currently plan to attend the Special Meeting.
Returning a proxy appointment card will not prevent you from changing your mind
with respect to the matter to be voted on at the Special Meeting and
submitting a later dated proxy appointment card, nor will it prevent you from
voting in person at the Special Meeting. Returning a properly executed proxy
appointment card will assure that your vote will be counted if you are unable
to attend the Special Meeting.
Sincerely,
/s/ Charles G. Robinette
- ------------------------
Charles G. Robinette
President and Chief Executive Officer
<PAGE> 2
FRANKLIN FINANCIAL GROUP, INC.
622 WEST FIRST NORTH STREET
MORRISTOWN, TENNESSEE 37814
(423) 586-3820
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 1, 1996
A Special Meeting of Stockholders ("Special Meeting") of Franklin
Financial Group, Inc. ("FFGI") is scheduled to be held in the Jean Keener Room
of the Rose Center, 442 W. Second North Street, Morristown, Tennessee on
Tuesday, October 1, 1996 at 10:00 a.m., Eastern Daylight Time.
The Special Meeting is being held for the following purposes:
1. The approval of the Agreement and Plan of Merger ("Merger Agreement")
dated as of March 4, 1996, between Union Planters Corporation ("UPC"),
Franklin Acquisition Corp. ("Franklin Acquisition"), FFGI, Franklin
Federal Savings Bank, and the holders of FFGI's Class B Common Stock,
and of the merger of Franklin Acquisition with and into FFGI (the
"Merger"), with FFGI surviving the Merger and becoming a wholly-owned
subsidiary of UPC. Pursuant to the terms of the Merger Agreement,
FFGI Stockholders would receive 0.5440 shares of UPC Common Stock in
exchange for each share of Class A Common Stock and each share of
Class B Common Stock they own of record immediately prior to the
effective time of the merger (the "Exchange Ratio"). In addition, UPC
would deposit into escrow for the benefit of the Class B Stockholders
and UPC that number of shares of UPC Common Stock ("Escrowed Shares")
as would equal ten percent (10%) of the aggregate number of whole
shares of UPC Common Stock that UPC would be obligated to issue in the
Merger based on the Exchange Ratio. The Escrowed Shares, or some
portion thereof, would be issued to the Class B Stockholders only in
the event that FFGI successfully resolves a lawsuit currently pending
against the United States, and only then subject to the terms of the
Escrow Agreement, a copy of which is attached as Appendix B to the
accompanying Prospectus/Proxy Statement. The Escrow Agreement and the
Escrowed Shares, if issued, would serve to compensate the Class B
Stockholders for the additional value of their Class B Common Stock
related to the existing right of Class B Stockholders to receive a
special dividend if the currently pending lawsuit is successfully
resolved. However, FFGI's Charter currently provides that in a
merger or consolidation, the Class A Stockholders are to receive the
same consideration for their shares of Class A Common Stock that the
Class B Stockholders receive for their shares of Class B Common
Stock. Therefore, a vote "FOR" the Merger Agreement is in effect a
vote to amend FFGI's Charter to allow the payment of compensation to
the Class B Stockholders for their shares of Class B Common Stock
that the Class A Stockholders would not receive for their shares of
Class A Common Stock. The additional consideration the Class B
Stockholders might receive would be for and as the result of
litigation rights against the United States held by the Class B
Stockholders that are not held by the Class A Stockholders, which
enhance the value of the Class B Common Stock by reason of such
rights.
2. Such other matters as may properly come before the Special Meeting or
any adjournment thereof. NOTE: The Board of Directors of FFGI is not
aware of any other business which may come before the Special Meeting.
<PAGE> 3
All but one of the members of FFGI's Board of Directors are Class B
Stockholders and, as such, have an interest in the Merger which conflicts with
the interests of other Class A Stockholders who do not own Class B Common
Stock. This conflict of interest is described in the accompanying
Prospectus/Proxy Statement. Because of the conflict of interest, the Merger
must be approved by a majority of the outstanding shares of Class A Common
Stock as well as a majority of the outstanding shares of Class B Common Stock,
voting separately as voting groups. Furthermore, because of the conflict of
interests, the FFGI Board cannot, and does not, make any recommendation as to
how FFGI Stockholders should vote with respect to the Merger.
FFGI Stockholders have the right to exercise statutory dissenters'
rights with respect to the Merger and to receive the "fair value" of their
shares of FFGI Common Stock in cash if the Merger is actually consummated.
Numerous steps must be taken to properly perfect these dissenters' rights. The
right to dissent and the mechanics to properly perfect statutory dissenters'
rights are more specifically discussed in the accompanying Prospectus/Proxy
Statement. In addition, a copy of the Tennessee statutes governing dissenters'
rights is attached as Appendix C to the accompanying Prospectus/Proxy Statement.
A Proxy Appointment Card and a Prospectus/Proxy Statement for the
Special Meeting are enclosed herewith.
Any action may be taken at the Special Meeting on the date specified
above or on any date or dates to which, by original or later adjournment, the
Special Meeting may be adjourned. FFGI Stockholders of record at the close of
business on August 15, 1996 are the only FFGI Stockholders who are
entitled to notice of, or to vote at, the Special Meeting and any adjournment
thereof.
You are requested to fill in and sign the enclosed Proxy Appointment
Card, which is solicited by the Board of Directors, and to mail it promptly in
the enclosed envelope. A SIGNED AND DATED PROXY CARD THAT IS RETURNED WITHOUT
BEING MARKED TO VOTE ON THE PROPOSED MERGER WILL BE VOTED "FOR" APPROVAL OF THE
MERGER. If you return the Proxy Appointment Card, it will not be used if you
attend and vote at the Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard C. Jessee
----------------------------------
Richard C. Jessee
Secretary
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE FFGI THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 4
PROSPECTUS
738,100 SHARES OF COMMON STOCK
OF
UNION PLANTERS CORPORATION
PROXY STATEMENT
OF
FRANKLIN FINANCIAL GROUP, INC.
622 WEST FIRST NORTH STREET
MORRISTOWN, TENNESSEE 37814
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 1, 1996
This Prospectus and Proxy Statement (hereinafter referred to as the
"Prospectus/Proxy Statement") relates to up to 738,100 shares of common
stock, $5.00 par value per share ("UPC Common Stock") of Union Planters
Corporation ("UPC"), a Tennessee corporation which is a registered bank
holding company and savings and loan holding company, to be issued to holders
of its Class A Common Stock, $1.00 par value per share, (the "Class A Common
Stock") and Class B Common Stock, $1.00 par value per share, (the "Class B
Common Stock") of Franklin Financial Group, Inc. ("FFGI"), a Tennessee
corporation, in a merger (the "Merger") in which Franklin Acquisition
Corporation ("Franklin Acquisition"), a wholly-owned subsidiary of UPC, would
be merged with and into FFGI. FFGI would survive the Merger and become a
wholly-owned subsidiary of UPC.
The Merger is to be consummated pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of March 4, 1996, as amended, by and
between UPC, Franklin Acquisition, FFGI, Franklin Federal Savings Bank
("Franklin Federal"), a wholly-owned subsidiary of FFGI, and the holders of all
of the outstanding shares of Class B Common Stock (the "Class B Stockholders"),
and pursuant to the Plan of Merger (the "Plan of Merger") annexed thereto as
Exhibit A. As a result of the Merger becoming effective, those persons who are
record holders of shares of Class A Common Stock (the "Class A Stockholders") as
well as those persons who are record holders of shares of Class B Common Stock
(the "Class B Stockholders") outstanding immediately prior to the effective time
of the Merger (the "FFGI Record Stockholders"), would receive 0.5440 shares of
UPC Common Stock in exchange for each of their shares of Class A Common Stock
and each of their shares of Class B Common Stock (the "Exchange Ratio").
In addition to the 0.5440 shares of UPC Common Stock to be exchanged
for each share of Class A Common Stock and each share of Class B Common Stock
outstanding immediately prior to the Effective Time of the Merger, UPC will
deposit in escrow for the benefit of the Class B Stockholders and UPC, that
number of shares of UPC Common Stock (the "Escrowed Shares") equal to ten
percent (10%) of the aggregate number of whole shares of UPC Common Stock that
<PAGE> 5
UPC would be obligated to issue to FFGI Record Stockholders based on the
Exchange Ratio. While held in escrow, the Escrowed Shares would participate in
all dividends and other distributions made by UPC with respect to its Common
Stock, but such dividends and distributions on the Escrowed Shares, and any
earnings thereon, would be held in escrow and would not be distributed unless
and until the Escrowed Shares, or some portion thereof, are actually
distributed in accordance with the Escrow Agreement. This provision of the
Merger Agreement is hereinafter referred to as the "Escrowed Shares Provision."
The Escrowed Shares, and dividends thereon and earnings with respect
thereto, would be delivered to the Class B Stockholders ONLY in the event there
is a successful resolution of a lawsuit between FFGI, Franklin Federal and the
United States of America (the "FFGI Pending Litigation") in such an amount that
the proceeds actually received would exceed FFGI's costs incurred after March
4, 1996, in prosecuting such litigation. The actual number of the Escrowed
Shares that would be delivered in such event would be determined by dividing
the amount of net proceeds actually received (such proceeds hereinafter
referred to as the "Net FFGI Pending Litigation Proceeds"), by the closing
price of UPC Common Stock on the New York Stock Exchange on the Effective Date
of the Merger. In that manner, the maximum number of Escrowed Shares that
possibly could be delivered to Class B Stockholders is limited to the number of
Escrowed Shares initially deposited in escrow by UPC, and only those dividends
and earnings on the Escrowed Shares actually delivered would be distributed to
the Class B Stockholders. A copy of the Escrow Agreement is attached hereto as
Appendix B.
Further, as a result of the Merger being consummated, options
currently issued and outstanding under the Franklin Financial Group Stock
Option Plan ("FFGI Options") to purchase shares of Class A Common Stock which
are outstanding immediately prior to the Effective Time of the Merger would be
amended automatically to become options to purchase 0.5440 shares of UPC Common
Stock for every one share of Class A Common Stock that could otherwise have
been purchased upon exercise of such FFGI Options. There are no FFGI Options
outstanding to purchase Class B Common Stock.
UPC would not issue fractional shares of UPC Common Stock to the FFGI
Record Stockholders as a result of the Merger. Instead, after aggregating all
whole and fractional shares of UPC Common Stock otherwise due to an FFGI Record
Stockholder based on the Exchange Ratio, any resulting fractional share would
be settled with a cash payment determined by multiplying such fraction by the
last sale price of UPC Common Stock on the New York Stock Exchange ("NYSE") on
the Effective Date of the Merger.
The annexed Notice of Special Meeting of Stockholders and this
Prospectus/Proxy Statement explain the Merger, the Exchange Ratio, the Merger
Agreement, the Plan of Merger, the Escrow Agreement, the Escrowed Shares
Provision, the FFGI Pending Litigation, the conflict of interest between all
but one of the members of the Board of Directors of FFGI (the "FFGI Board") and
the other Class A Stockholders with respect to the Merger, and provide specific
information relative to FFGI and UPC. PLEASE READ THESE MATERIALS CAREFULLY
AND THOUGHTFULLY CONSIDER THE INFORMATION CONTAINED IN THEM.
<PAGE> 6
Shares of UPC Common Stock are now, and the UPC Common Stock to be
issued in connection with the Merger will be, listed for trading on the NYSE
under the symbol "UPC". The last reported sale price of UPC Common Stock on
the NYSE on August 26, 1996, was $32.50 per share. Based on the closing price
per share of the UPC Common Stock on that date, the value of the UPC Common
Stock to be received for each share of FFGI Common Stock would be approximately
$17.68. However, the value of UPC Common Stock is subject to fluctuation, and
the value of the UPC Common Stock to be received by FFGI Record Stockholders
upon consummation of the Merger may be more or less than $17.68.
The consideration to be received by FFGI's Stockholders pursuant to
the Merger Agreement was negotiated by the FFGI Board in light of various
factors, including FFGI's recent operating results, current financial condition
and perceived future prospects. Professional Bank Services ("PBS"), FFGI's
financial advisor, has advised the FFGI Board that, in its opinion, the
consideration to be received by the FFGI Stockholders in the Merger is fair to
them from a financial point of view. THE FFGI BOARD BELIEVES THAT THE MERGER
IS IN THE BEST INTEREST OF FFGI'S STOCKHOLDERS AND HAS APPROVED THE MERGER
AGREEMENT. BECAUSE ALL BUT ONE OF THE MEMBERS OF FFGI'S BOARD OF DIRECTORS
HAVE A CONFLICT OF INTEREST WITH THE CLASS A STOCKHOLDERS WITH RESPECT TO THE
PROPOSED MERGER, THE FFGI BOARD MAKES NO RECOMMENDATION TO THE FFGI
STOCKHOLDERS AS TO HOW THEY SHOULD CAST THEIR VOTES WITH RESPECT TO THE
PROPOSED MERGER.
All information contained in this Prospectus/Proxy Statement
pertaining to UPC and its subsidiaries, including Franklin Acquisition, has
been supplied by UPC, and all information pertaining to FFGI has been supplied
by FFGI. This Prospectus/Proxy Statement and the accompanying Proxy
Appointment Card are first being mailed to the FFGI Stockholders on or about
August 30, 1996.
THE SHARES OF UPC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE OFFICE OF THRIFT
SUPERVISION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR THE OFFICE OF THRIFT SUPERVISION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus/Proxy Statement is August 29, 1996.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
SUMMARY 4
The Parties 4
Special Meeting of FFGI Stockholders 5
Record Date; Votes Required 6
Dissenters' Rights 6
Terms of the Merger 6
Effective Date 10
Reasons for the Merger 10
Fairness Opinion of Financial Advisor 11
Waiver and Amendment; Termination 11
Conditions; Regulatory Approvals 11
Limitation on Negotiations 12
Management After the Merger 12
Comparison of the Rights of UPC and FFGI Stockholders 12
Provisions That May Have an Anti-Takeover Effect 13
Certain Federal Income Tax Consequences 13
Accounting Treatment 13
Interests of Certain Persons in the Merger 13
Selected Consolidated Financial Data 14
Recent Developments Affecting UPC 18
Equivalent and Pro Forma Per Share Data 21
Pro Forma Condensed Consolidated Financial Information 24
THE SPECIAL MEETING 31
Date, Place and Time 31
Purpose of Special Meeting; The Proposed Merger 31
Quorum Requirements 32
Solicitation of Proxies; Revocation 33
Votes Required 34
Recommendation 34
THE MERGER 35
Background of the Merger 35
Reasons for the Merger 37
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Fairness Opinion of Financial Advisor 38
Terms of the Merger 43
Effective Date and Effective Time of the Merger 45
Surrender of Certificates 46
Conditions to Consummation of the Merger 47
Regulatory Approvals 48
Conduct of Business Pending the Merger 49
Payment of Dividends 50
Waiver and Amendment; Termination 50
Management After the Merger 51
Interests of Certain Persons in the Merger 51
Employee Benefit Plans 53
Limitation on Negotiations 53
Certain Federal Income Tax Consequences 54
Accounting Treatment 55
Expenses 56
Resales of UPC Common Stock 56
Dissenters' Rights 56
THE ESCROW AGREEMENT 57
The Escrowed Shares Provision 57
Qualifying Class B Stockholders; No Transfers 59
Duties and Rights of the Escrow Participants 60
Duties and Rights of the Escrow Agent 61
Certain Other Related Matters 61
Completed and Pending Litigation 62
Private Placement of the Class B Shares 64
The FFGI Class B Stockholders 65
CERTAIN REGULATORY CONSIDERATIONS 65
General 66
Payment of Dividends 68
Capital Adequacy 69
Support of Subsidiary Banks 70
Prompt Corrective Action 71
FDIC Insurance Assessments 72
Proposed Legislation 74
DESCRIPTION OF UPC COMMON AND PREFERRED STOCK 74
UPC Common Stock 74
UPC Preferred Stock 75
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT 76
Charter and Bylaw Provisions 76
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Share Purchase Rights Plan 76
Provisions of the Tennessee Code 77
EFFECT OF MERGER ON RIGHTS OF FFGI STOCKHOLDERS 78
Removal of Directors 78
Required Stockholder Votes 78
Election of Directors 79
Amendment of Charter 79
Share Purchase Rights Plan 79
Limitations on Changes in Control 79
MARKET PRICES OF UPC AND FFGI COMMON STOCK 79
UPC Common Stock 79
FFGI Common Stock 81
BUSINESS OF FFGI 81
General History 81
Asset/Liability Management 83
Lending Activities 85
Reserves for Losses on Loans and Real Estate 91
Investment Activities 91
Sources of Funds 92
Subsidiary Activity 95
Personnel 95
Competition 95
Taxation 96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF FFGI 113
General 113
Asset/Liability Management 113
Interest Rate Sensitivity 114
Comparison of Financial Condition at September 30, 1995 and June 30, 1996 114
Comparison of Operating Performance 115
Earnings Per Share 117
Liquidity and Capital Resources 117
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS 118
INDEPENDENT ACCOUNTANTS 120
LEGAL OPINIONS 120
EXPERTS 120
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
INDEX TO APPENDICES 121
</TABLE>
Appendix A Agreement and Plan of Merger dated as of March 4, 1996
and related Plan of Merger
Appendix B Escrow Agreement dated as of March 4, 1996
Appendix C Tennessee Dissenters' Rights
Appendix D Fairness Opinion of Professional Bank Services, Inc.
Appendix E Franklin Financial Group, Inc. Consolidated Financial
Statements for the years ended September 30, 1995 and
1994 and the nine months ended June 30, 1996 and 1995
<PAGE> 11
AVAILABLE INFORMATION
UPC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Copies of
such reports, proxy statements and other information can be obtained, at
prescribed rates, from the Commission by addressing written requests for such
copies to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports,
proxy statements, and other information can be inspected and copied at the
public reference facilities referred to above, at the regional offices of the
Commission at Room 1024, 7 World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or, if such reports or proxy statements have been
filed electronically, through the Internet Web site maintained by the
Commission at (http://www.sec.gov.). In addition, UPC Common Stock is listed
on the New York Stock Exchange. Reports, proxy statements and other
information concerning UPC may be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus/Proxy Statement constitutes part of the Registration
Statement on Form S-4 of UPC (including any exhibits, appendices and amendments
thereto, the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
securities offered hereby. This Prospectus/Proxy Statement does not contain
all of the information in the Registration Statement, certain portions of which
have been omitted consistent with the rules and regulations of the Commission.
For further information about UPC and the securities offered hereby, reference
is made to the Registration Statement. The Registration Statement may be
inspected and copied, at prescribed rates, at the Commission's public reference
facilities at the addresses set forth above.
Certain financial and other information relating to UPC is contained
in the documents indicated below under "DOCUMENTS INCORPORATED BY REFERENCE."
All information contained in this Prospectus/Proxy Statement or
incorporated herein by reference with respect to UPC was supplied by UPC and
all information contained in this Prospectus/Proxy Statement or incorporated
herein by reference with respect to FFGI was supplied by FFGI. Although
neither UPC nor FFGI has actual knowledge that would indicate that any
statements or information (including financial statements) relating to the
other party contained or incorporated herein are inaccurate or incomplete,
neither UPC nor FFGI warrants the accuracy or completeness of such statements
or information as they relate to the other party.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT
1
<PAGE> 12
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED
PURSUANT TO THIS PROSPECTUS/PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UPC OR
FFGI OR THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by UPC
pursuant to the Exchange Act (Commission File No. 1-10160 except as otherwise
indicated) are hereby incorporated by reference herein:
(a) UPC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) UPC's Quarterly Report on Form 10-Q for the quarterly periods
ended March 31, 1996 and June 30, 1996;
(c) UPC's Current Reports on Form 8-K dated January 5, 1996, March
8, 1996, April 1, 1996, April 2, 1996, April 18, 1996, May
21, 1996, May 22, 1996, July 18, 1996, August 15, 1996 and
August 16, 1996;
(d) The description of the current management and Board of
Directors contained in the Proxy Statement pursuant to Section
14(a) of the Exchange Act for UPC's Annual Meeting of
Shareholders held April 25, 1996;
(e) UPC's Registration Statement on Form 8-A dated January 19,
1989, filed on February 1, 1989 (Commission File Number
0-6919), in connection with UPC's designation and
authorization of its Series A Preferred Stock; and
(f) The description of the UPC Common Stock contained in UPC's
Registration Statement under Section 12(b) of the Exchange Act
and any amendment or report filed for the purpose of updating
such description.
UPC's Annual Report on Form 10-K for the year ended December 31, 1995,
incorporates by reference specific portions of UPC's Annual Report to
Shareholders for that year (UPC's "Annual Report to Shareholders" which is
Exhibit 13 to said Form 10-K) but does not incorporate other portions of UPC's
Annual Report to Shareholders. The portion of UPC's Annual Report to
Shareholders captioned "Letter to Shareholders" and certain other portions of
UPC's Annual Report to Shareholders not specifically incorporated into UPC's
Annual Report on Form 10-K are not incorporated herein and are not a part of
the Registration Statement.
2
<PAGE> 13
All documents filed by UPC pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date of this Prospectus/Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Prospectus/Proxy Statement and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed to constitute a part hereof, except as so modified or superseded.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE, UPON THE
WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED. SUCH REQUESTS FOR DOCUMENTS
RELATING TO UPC SHOULD BE DIRECTED TO UNION PLANTERS CORPORATION, POST OFFICE
BOX 387, MEMPHIS, TENNESSEE 38147 (TELEPHONE (901) 383-6584), ATTENTION: E.
JAMES HOUSE, JR., SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 20, 1996.
3
<PAGE> 14
SUMMARY
The following is a summary of certain information contained in this
Prospectus/Proxy Statement and the documents incorporated herein by reference.
This summary is not intended to be a complete description of the matters
covered in this Prospectus/Proxy Statement and is qualified in its entirety by
the more detailed information appearing elsewhere or incorporated by reference
into this Prospectus/Proxy Statement. FFGI Stockholders are urged to read
carefully the entire Prospectus/Proxy Statement, including each of the
Appendices. As used in this Prospectus/Proxy Statement, the terms "UPC" and
"FFGI" refer to those entities, respectively and, where the context requires,
to those entities and their respective subsidiaries.
THE PARTIES
Union Planters Corporation. UPC is a multi-state bank holding company
and savings and loan holding company headquartered in Memphis, Tennessee. At
June 30, 1996, UPC had total consolidated assets of approximately $11.4
billion, total consolidated loans of approximately $7.2 billion, total
consolidated deposits of approximately $9.3 billion and total consolidated
stockholders' equity of approximately $1 billion. As of that date, UPC was the
second largest independent bank holding company headquartered in Tennessee as
measured by total consolidated assets.
UPC conducts its business activities through its principal bank
subsidiary, Union Planters National Bank ("UPNB"), founded in 1869 and
headquartered in Memphis, Tennessee with $2.2 billion in assets, and through 33
other bank subsidiaries and two savings bank subsidiaries located in Tennessee,
Mississippi, Missouri, Arkansas, Louisiana, Alabama, and Kentucky
(collectively, the "UPC Banking Subsidiaries"). Through the UPC Banking
Subsidiaries, UPC provides a diversified range of financial services in the
communities in which it operates, including traditional banking services,
consumer, commercial and corporate lending, retail banking and mortgage
banking. UPC also is engaged in mortgage servicing, investment management and
trust services, the issuance and servicing of credit and debit cards, and the
origination, packaging and securitization of the government-guaranteed portions
of Small Business Administration loans.
Through the UPC Banking Subsidiaries, UPC operates approximately 402
banking offices. UPC's assets at June 30, 1996 are allocable by state to its
banking offices (before consolidating adjustments) approximately as follows:
$6.0 billion in Tennessee, $2.4 billion in Mississippi, $1.0 billion in
Missouri, $915 million in Arkansas, $548 million in Louisiana, $249 million in
Alabama and $110 million in Kentucky.
Acquisitions have been, and are expected to continue to be, an
important part of the expansion of UPC's business. UPC completed four
acquisitions in 1992, twelve in 1993, thirteen in 1994, and three in 1995
adding approximately $1.6 billion in total assets in 1992, $1.3 billion in
1993, $3.8 billion in 1994, and $1.3 billion in 1995. UPC has completed two
acquisitions in 1996 (the "Recently Completed Acquisitions"), adding
approximately $122 million in assets. Prior to the date hereof, UPC had
entered into definitive agreements to acquire five additional financial
institutions with total assets of approximately $4.0 billion (collectively, the
"Other Pending
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Acquisitions"). For additional information regarding the Other Pending
Acquisitions, see "--Recent Developments Affecting UPC" and "--Pro Forma
Condensed Consolidated Financial Information." For a discussion of UPC's
acquisition program and UPC management's philosophy on that subject, see the
caption "Acquisitions" (on page 6) and Note 2 to UPC's audited consolidated
financial statements for the years ended December 31, 1995, 1994 and 1993 (on
pages 41 through 43) contained in UPC's Annual Report to Shareholders which is
Exhibit 13 to UPC's Annual Report on Form 10-K for the year ended December 31,
1995, which Exhibit 13 is incorporated by reference herein to the extent
indicated.
UPC expects to continue to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions. Future acquisitions may entail the
payment by UPC of consideration in excess of the book value of the underlying
net assets acquired, may result in the issuance of additional shares of UPC
capital stock or the incurring of additional indebtedness by UPC, and could
have a dilutive effect on the earnings or book value per share of UPC Common
Stock. Moreover, significant charges against earnings are sometimes required
incidental to acquisitions. For a description of acquisitions which are
currently pending and a discussion of potential significant charges against
earnings, see "--Recent Developments Affecting UPC."
UPC's corporate office is located at 7130 Goodlett Farms Parkway,
Memphis, Tennessee 38018, and its telephone number is (901) 383-6000.
Additional information concerning UPC is included in the documents incorporated
by reference into this Prospectus/Proxy Statement. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Franklin Financial Group, Inc. FFGI is a Tennessee savings and loan
holding company headquartered in Morristown, Tennessee. At June 30, 1996, on a
consolidated basis, FFGI had total assets of approximately $137.7 million,
total loans of approximately $100.4 million, total deposits of approximately
$112.6 million, and total stockholders' equity of approximately $12.0 million.
FFGI's corporate office is located at 622 West First North Street,
Morristown, Tennessee 37814, and its telephone number is (423) 586-3820.
Franklin Acquisition. Franklin Acquisition is a newly formed
Tennessee corporation organized solely for the purpose of consummating the
Merger. Franklin Acquisition has been organized by UPC as a wholly-owned
subsidiary and will have its main office at 7130 Goodlett Farms Parkway,
Memphis, Tennessee 38018. In the Merger, Franklin Acquisition would be merged
with and into FFGI, with FFGI surviving the Merger. After the Merger, FFGI, as
the survivor, would operate as a wholly-owned subsidiary of UPC.
SPECIAL MEETING OF FFGI STOCKHOLDERS
A Special Meeting (the "Special Meeting") of the FFGI Stockholders
will be held on Tuesday, October 1, 1996, at 10:00 a.m., Eastern Daylight Time
in the Jean Keener Room of the Rose Center, 442 W. Second North Street,
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Morristown, Tennessee, to consider and vote on the proposed Merger, and any
other business as may properly come before the Special Meeting. See "THE
MERGER - - Terms of the Merger." Management of FFGI is unaware of any other
business to be considered at the Special Meeting.
RECORD DATE; VOTES REQUIRED
Only FFGI Stockholders of record at the close of business on
August 15, 1996 (the "Record Date") will be entitled to receive notice of and
to vote at the Special Meeting. As of the Record Date there were 712,320
shares of Class A Common Stock and 500,000 shares of Class B Common Stock
issued and outstanding.
Voting with respect to Merger will be taken by voting class in that a
majority of all of the shares of Class A Common Stock and a majority of all of
the shares of Class B Common Stock outstanding on the Record Date must be voted
"FOR" approval of the Merger in order to receive the requisite shareholder
approval. Those persons who own Class B Common Stock, all but one of whom are
directors of FFGI, may vote their shares of Class A Common Stock and Class B
Common Stock with respect to the Merger. The directors of FFGI, the one Class
B Stockholder who is not a director of FFGI, and certain other executive
officers of FFGI collectively own or control 283,180 shares (39.75%) of the
outstanding shares of Class A Common Stock and 500,000 shares (100%) of the
outstanding shares of Class B Common Stock. Each of these persons have
indicated that he or she will vote all of his or her shares of Class A Common
Stock and Class B Common Stock "FOR" approval of the Merger. Assuming that
occurs, then 72,981 shares (17%) of the remaining 429,140 outstanding shares of
Class A Common Stock must be voted "FOR" approval of the Merger in order to
receive the requisite FFGI Stockholder approval to consummate the Merger. See
"THE SPECIAL MEETING", "THE MERGER", "THE ESCROW AGREEMENT" and "STOCK
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS."
DISSENTERS' RIGHTS
FFGI Stockholders may perfect their statutory dissenters' rights with
respect to the proposed Merger. A "Dissenting FFGI Stockholder" must take
specific action to properly "perfect" his or her dissenters' rights and
thereby, to be entitled to receive in cash the "fair value" of their shares of
FFGI Common Stock in the event the Merger is actually consummated. See "THE
MERGER--Dissenters' Rights" and "THE MERGER--Conditions to Consummation of the
Merger."
TERMS OF THE MERGER
Pursuant to the terms of the Merger Agreement, FFGI would be acquired
by UPC through the Merger in which Franklin Acquisition, a wholly-owned
subsidiary of UPC, would be merged with and into FFGI. FFGI would survive the
Merger and become a wholly-owned subsidiary of UPC. Upon consummation of the
Merger, each share of Class A Common Stock and each share of Class B Common
Stock outstanding immediately prior to the Effective Time of the Merger would
be cancelled and converted into the right of the holders thereof to receive
0.5440 shares of UPC
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<PAGE> 17
Common Stock in exchange for such shares of FFGI Common Stock (the "Exchange
Ratio"). See "THE MERGER--Terms of the Merger."
In addition, UPC would deposit into escrow that number of shares of
UPC Common Stock ("Escrowed Shares") which would equal ten percent (10%) of the
aggregate number of whole shares of UPC Common Stock which UPC would actually
issue to FFGI Record Holders based on the Exchange Ratio. While held in
escrow, the Escrowed Shares would participate in all dividends and other
distributions made by UPC with respect its UPC Common Stock, but such dividends
and distributions on the Escrowed Shares, and any earnings thereon, would be
held in escrow and would not be distributed unless and until the Escrowed
Shares, or some portion thereof, are actually distributed in accordance with
the Escrow Agreement. A copy of the Escrow Agreement is attached hereto as
Appendix B. The provision of the Merger Agreement providing for the Escrowed
Shares is hereinafter referred to as the "Escrowed Shares Provision."
The Escrowed Shares would be issued to the Class B Stockholders ONLY
in the event that FFGI successfully resolves that certain lawsuit styled
Franklin Federal Savings Bank, et al., Plaintiffs v. United States of America,
Defendant, Civil Action No. 92-739C, pending in the United States Claims Court
(the "FFGI Pending Litigation"), and ONLY then if the proceeds of the
resolution of such litigation exceed the aggregate costs and expenses incurred
after March 4, 1996 in connection with the FFGI Pending Litigation (such
expenses incurred after March 4, 1996, hereinafter referred to as the "FFGI
Pending Litigation Expenses").
There is no assurance that FFGI will obtain a favorable resolution of
the FFGI Pending Litigation. If FFGI does, however, to the extent that the
proceeds actually received exceed the aggregate FFGI Pending Litigation
Expenses, the remainder (the "Net FFGI Pending Litigation Proceeds") would be
divided by the closing price per share of UPC Common Stock on the NYSE on the
Effective Date of the Merger in order to determine the aggregate number of
Escrowed Shares that would be issued to the holders of Class B Common Stock.
However, the maximum number of Escrowed Shares which possibly could be
delivered to the Class B Stockholders in any event is limited to the number of
Escrowed Shares initially deposited into escrow by UPC (that is, limited to ten
percent (10%) of the number of whole shares of UPC Common Stock issued to Class
A Stockholders and Class B Stockholders based on the Exchange Ratio). Only
those dividends received on the Escrowed Shares which would actually be
distributed to Class B Stockholders, and the earnings on those dividends while
held in escrow, would be distributed to the Class B Stockholders with the
Escrowed Shares.
Each of the Class B Stockholders has executed the Escrow Agreement.
The Escrow Agreement provides, among other things, that the Class B
Stockholders must each pay his or her proportionate share of one-half of the
FFGI Pending Litigation Expenses on a semi-annual basis. Should UPC fail to
receive any Class B Stockholder's proportionate share of one-half of the FFGI
Pending Litigation Expenses within the time period established in the Escrow
Agreement, the defaulting Class B Stockholder would be deemed to have forfeited
all of his or her rights to any Escrowed Shares. In such event, the defaulting
Class B Stockholder's entire proportionate share of the Escrowed Shares would
be withdrawn from escrow and returned to UPC, with all dividends
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<PAGE> 18
paid thereon and earnings attributable thereto. See "THE ESCROW
AGREEMENT--Duties and Rights of the Escrow Participants."
The FFGI Board negotiated for the Escrowed Shares Provision in order
to establish a mechanism pursuant to which the Class B Stockholders would
receive the right to obtain compensation for the additional value of their
shares of Class B Common Stock represented by the right under FFGI's Charter to
receive a special dividend equal to the net proceeds of the FFGI Pending
Litigation (the "Special Dividend"). As structured, under the Escrowed Shares
Provision the Class B Stockholders would only RECEIVE the additional
compensation for the additional value of their shares of Class B Common Stock
under the same circumstances that the Class B Stockholders would have actually
RECEIVED the Special Dividend. Further, because UPC desires to account for the
Merger as a "pooling of interests" transaction, in order to qualify for such
accounting treatment it was necessary to limit the number of Escrowed Shares to
ten percent (10%) of the initial shares actually issued by UPC in the Merger
based on the Exchange Ratio. Since that is the maximum number of Escrowed
Shares that could possibly be distributed to the Class B Stockholders, it is
possible that the Class B Stockholders would ultimately receive less under the
Escrowed Shares Provision than they would have received if the Merger had not
been consummated.
Another reason that the FFGI Board negotiated for the Escrowed Shares
Provision was to enable all FFGI Stockholders the opportunity to consider and
vote on the proposed Merger at a time when the FFGI Pending Litigation is still
in fact pending, without the Class B Stockholders, all but one of whom are
members of the FFGI Board, being required to forfeit the additional value of
their Class B Common Stock attributable to the right to receive the Special
Dividend. An alternative would have been to forego the proposed Merger with
UPC until such time as either the Special Dividend had been paid to the Class B
Stockholders or until the FFGI Pending Litigation had been otherwise resolved.
Because a distribution of Escrowed Shares to Class B Stockholders is
dependent upon the results obtained in the FFGI Pending Litigation, there is no
guarantee that any of the Escrowed Shares will ever be distributed. There is
no guarantee that FFGI will be successful with respect to the FFGI Pending
Litigation or, if it is, that the proceeds received would exceed the expenses
incurred in prosecuting the litigation after March 4, 1996. For a discussion
of the FFGI Pending Litigation see "THE ESCROW AGREEMENT--Completed and Pending
Litigation--The FFGI Pending Litigation." For a discussion of the terms of the
Escrow Agreement, see "THE ESCROW AGREEMENT" and the copy of the Escrow
Agreement attached hereto as Appendix B. See also, "THE MERGER."
THERE ARE NO ASSURANCES THAT ANY OF THE ESCROWED SHARES WILL BE
DISTRIBUTED TO THE CLASS B STOCKHOLDERS OR THAT THE FFGI PENDING LITIGATION
WILL BE SUCCESSFULLY RESOLVED IN FAVOR OF FFGI OR FRANKLIN FEDERAL.
FURTHERMORE, EVEN IF THE FFGI PENDING LITIGATION IS RESOLVED IN FAVOR OF FFGI
OR FRANKLIN FEDERAL, THERE IS NO ASSURANCE THAT THE PROCEEDS OF SUCH RESOLUTION
WOULD BE IN AN AMOUNT THAT WOULD EXCEED THE FFGI PENDING LITIGATION EXPENSES
AND RESULT IN A DISTRIBUTION OF
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ESCROWED SHARES PURSUANT TO THE ESCROW AGREEMENT. See "SUMMARY - - Record
Date; Required", "THE SPECIAL MEETING" and "THE MERGER - - Conditions to
Consummation of the Merger."
Notwithstanding the FFGI Board's effort to balance the interests of
the Class B Stockholders to receive the Special Dividend with the interests of
all FFGI Stockholders in considering the proposed Merger, FFGI's Charter
currently provides in Section 7(C)(2)(a) that in the event of a merger or
consolidation, the Class A Stockholders are to receive the same consideration
for their shares of Class A Common Stock that the Class B Stockholders receive
for their shares of Class B Common Stock. No provision is specifically set
forth in FFGI's Charter as it currently exists to compensate the Class B
Stockholders for the additional value, if any, of their shares of Class B
Common Stock represented by their right to receive the Special Dividend.
The Escrowed Shares Provision of the Merger Agreement provides for the
potential distribution of compensation to the FFGI Stockholders in the Merger
which is inconsistent with FFGI's current Charter. As such, a vote "FOR"
approval of the proposed Merger is in effect a vote for an amendment to FFGI's
Charter. Because the Merger Agreement and Plan of Merger contain a provision
(the Escrowed Shares Provision) which is in effect an amendment to FFGI's
Charter, the voting on the proposed Merger will be taken by voting class in
that a majority of all outstanding shares of both Class A Common Stock and
Class B Common Stock must vote "FOR" approval of the proposed Merger in order
to receive the requisite FFGI Stockholder approval. Furthermore, because all
but one of the members of the FFGI Board is a Class B Stockholder, those
members of FFGI's Board who own Class B Common Stock ("Interested Directors")
have an interest in the Merger which conflicts with the interests of the Class
A Stockholders who do not own Class B Common Stock. Due to this conflict of
interest, the FFGI Board cannot, and does not, make any recommendation
whatsoever as to how the FFGI Stockholders should vote with respect to the
proposed Merger. See "THE MERGER - - The Conflict of Interests."
In addition to the shares of UPC Common Stock to be exchanged for
shares of Class A Common Stock and Class B Common Stock based on the Exchange
Ratio, and the Escrowed Shares Provision of the Merger Agreement, each FFGI
Option outstanding immediately prior to the Effective Time of the Merger would
automatically be amended to represent an option to purchase 0.5440 shares of
UPC Common Stock instead of one share of FFGI's Class A Common Stock, subject
to certain pro rata adjustments to the option exercise price so that the
aggregate option exercise price of shares subject to an option immediately
following the Effective Time of the Merger shall be the same as the aggregate
option exercise price for shares subject to an option immediately prior to the
Effective Time of the Merger.
In no event would UPC issue fractional shares of UPC Common Stock in
exchange for FFGI Common Stock, but instead would settle any fractional share
in cash. The cash amount to be paid to FFGI Record Stockholders for a fraction
of a share of UPC Common Stock to be issued in the Merger would be determined
by multiplying the particular fraction by the last sale price of UPC Common
Stock on the NYSE on the Effective Date of the Merger. In such cases, the
fraction
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would be determined after aggregating all whole shares and fractions of shares
of UPC Common Stock to which the holder is entitled.
Based on the closing price per share of the UPC Common Stock on August
26, 1996, the value of 0.5440 shares of UPC Common Stock to be exchanged for
each share of Class A Common Stock or Class B Common Stock would be
approximately $17.68. However, the value of UPC Common Stock is subject to
fluctuation, and the value of the UPC Common Stock to be received by FFGI
Record Stockholders upon consummation of the Merger and Class B Stockholders
upon distribution of Escrowed Shares, if any, may be more or less than $17.68
per share.
The market price of the UPC Common Stock may change significantly
prior to the Effective Date of the Merger. The Merger Agreement DOES NOT
contain any provisions which would cause an adjustment to the Exchange Ratio
based on the market price of UPC Common Stock. However, it is a condition
precedent to FFGI's obligation to consummate the Merger that the fairness
opinion received by the FFGI Board from PBS shall not have been withdrawn on or
prior to the time of the closing (the "Closing Date"). See "THE
MERGER--Fairness Opinion of Financial Advisor" and "THE MERGER--Conditions to
Consummation of the Merger."
EFFECTIVE DATE
The Merger would become effective at the date (the "Effective Date of
the Merger") and time (the "Effective Time of the Merger") as specified on the
endorsement of the Articles of Merger by the Secretary of State of the State of
Tennessee. Assuming the timely receipt of all prior regulatory approvals, the
expiration of all statutory waiting periods and the satisfaction or waiver of
all contractual conditions to closing set forth in the Merger Agreement, it is
expected that the Merger would become effective in UPC's fourth quarter of
1996. Only FFGI Record Stockholders would be entitled to receive the shares of
UPC Common Stock and cash payment for any fractional share to be exchanged in
the Merger pursuant to the Merger Agreement. Under the Escrow Agreement, only
Class B Stockholders would receive an interest in the Escrowed Shares.
REASONS FOR THE MERGER
The FFGI Board considered a number of factors in approving the Merger
and directing that it be submitted to the vote of the FFGI Stockholders. In
addition to the structuring of the proposed Merger in a manner that would
provide Class B Stockholders the opportunity to receive compensation for the
additional value inherent in their shares of Class B Common Stock because of
the right to the Special Dividend, the FFGI Board also considered many business
factors that would affect FFGI and Franklin Federal on a going forward basis,
and the overall adequacy of the consideration UPC offered in exchange for all
of the outstanding FFGI Common Stock. The FFGI Board considered the
compatibility of the respective business management philosophies of FFGI and
UPC, UPC's ability to provide comprehensive financial services in FFGI's
market, the financial terms of other recent business combinations in the local
financial services industry, UPC's financial resources to serve the lending and
deposit needs of the local communities served by FFGI and the financial effect
on FFGI's stockholders of FFGI's continued independence as compared to the
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benefits of the Merger. After considering these and other factors, the FFGI
Board determined that the Merger, as proposed, was in the best interests of
FFGI and the FFGI Stockholders and approved the execution and delivery of the
Merger Agreement and Plan of Merger. See "THE MERGER--Reasons for the Merger."
FAIRNESS OPINION OF FINANCIAL ADVISOR
FFGI has retained Professional Bank Services, Inc. ("PBS"), of
Louisville, Kentucky, as its financial advisor in connection with the Merger
and requested that PBS render an opinion to the FFGI Board that the Exchange
Ratio was fair from a financial point of view to the FFGI stockholders. A copy
of PBS' written opinion is attached hereto as Appendix D and should be read in
its entirety with respect to assumptions made, limitations on the review
undertaken and other matters. The description of PBS' opinion set forth herein
is qualified in its entirety by reference to the opinion.
PBS' fairness opinion addresses only the fairness of the Merger from a
financial point of view. PBS did not consider or opine as to whether the
Merger is fair to the Class A Stockholders in light of the fact that it
requires Class A Stockholders to forego their right under the FFGI Charter to
receive the same consideration for their shares of Class A Common Stock that
Class B Stockholders receive for their shares of Class B Common Stock.
See "THE MERGER--Fairness Opinion of Financial Advisor" for
information regarding, among other things, the selection of PBS and
compensation for its services rendered in connection with the Merger.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Date of the Merger, any condition to
consummation of the Merger (to the extent permitted by law) may be waived
unilaterally by the party benefitted by the provision or may be amended or
modified by an agreement in writing which is approved by the UPC Board and the
FFGI Board.
The Merger Agreement is subject to termination by UPC and/or FFGI at
any time prior to the closing of the Merger, which is expected to take place on
the business day immediately preceding the date on which the Effective Time of
the Merger is expected to occur, upon the occurrence of certain events. See
"THE MERGER--Waiver and Amendment; Termination."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions precedent,
including receipt of approval of the FFGI Stockholders, receipt of the required
prior regulatory approvals and satisfaction of certain customary contractual
closing conditions. The regulatory approvals and consents necessary to
consummate the transactions contemplated by the Merger Agreement include the
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve")
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and of the Office of Thrift Supervision (the "OTS"). By letters dated June 10,
1996 and July 24, 1996, respectively, the Federal Reserve and the OTS have
approved the Merger. Receipt of regulatory approval or consent from any
governmental agency does not constitute a recommendation by such governmental
agency for approval of any of the transactions contemplated by the Merger
Agreement and should not be considered as such. See "THE MERGER--Conditions to
Consummation of the Merger," "THE MERGER--Regulatory Approvals," "THE
MERGER--Conduct of Business Pending the Merger" and "CERTAIN REGULATORY
CONSIDERATIONS."
LIMITATION ON NEGOTIATIONS
FFGI is prohibited from instituting, soliciting or knowingly
encouraging any inquiry, discussion or proposal concerning any "Acquisition
Proposal" (defined generally as any agreement or proposal pursuant to which any
entity other than UPC or any UPC subsidiary would acquire ownership, directly
or indirectly, of FFGI, or the right to vote ten percent (10%) or more of the
outstanding FFGI Common Stock, or a significant portion of the assets or
earning power of FFGI). As protection against possible violation of this
limitation, FFGI has granted UPC an option to purchase that number of shares of
FFGI Class A Common Stock and of FFGI Class B Common Stock which would give UPC
nineteen percent (19%) of the total aggregate amount of all outstanding shares
of FFGI Common Stock in each such class. Such option would become exercisable,
however, only in the event and at the time that FFGI enters into a letter of
intent or agreement with respect to an Acquisition Proposal or support or
indicate an intent to support an Acquisition Proposal other than pursuant to
the Merger Agreement. See "THE MERGER--Limitation on Negotiations" and "THE
MERGER--Conditions to Consummation of the Merger."
MANAGEMENT AFTER THE MERGER
Those persons serving as directors and officers of Franklin
Acquisition immediately prior to the Effective Time of the Merger, all of whom
are officers of UPC, would serve as directors or officers of FFGI after the
Effective Time of the Merger. The directors and officers of Franklin Federal
immediately prior to the Effective Time of the Merger, however, would continue
to serve as directors or officers of Franklin Federal after the Effective Time
of the Merger until Franklin Federal is merged with and into another
wholly-owned UPC subsidiary, Bank of East Tennessee ("BOET"). It is currently
anticipated that the merger of Franklin Federal into BOET will also occur in
the fourth quarter of 1996. See "THE MERGER--Management After the Merger."
COMPARISON OF THE RIGHTS OF UPC AND FFGI STOCKHOLDERS
Upon consummation of the Merger, FFGI Stockholders, whose rights are
presently governed by FFGI's Charter and Bylaws, would become stockholders of
UPC. Accordingly, the former FFGI Stockholders' rights as stockholders of UPC
would be governed by Tennessee corporate law and by the Charter and Bylaws of
UPC. Certain differences arise from differences between the Charter and Bylaws
of UPC and the Charter and Bylaws of FFGI. See "EFFECT OF MERGER ON RIGHTS OF
FFGI STOCKHOLDERS."
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PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
UPC's Charter and Bylaws include provisions that may discourage, delay
or prevent certain types of transactions involving an actual or potential
change in control of UPC, including transactions in which UPC stockholders
might otherwise receive a premium for their shares of UPC Common Stock over the
current market prices. These "anti-takeover" provisions may limit the ability
of the stockholders of UPC to approve transactions that they may deem to be in
their best personal interests. In addition, Tennessee and federal law requires
the approvals of the Tennessee Department of Financial Institutions ("TDFI"),
the Federal Reserve and the OTS prior to the acquisition of "control" of a
Tennessee bank or savings and loan holding company. These provisions may have
the effect of delaying or preventing a change in control of UPC and, therefore,
could adversely affect the price of UPC's Common Stock. See "DESCRIPTION OF
UPC COMMON AND PREFERRED STOCK" and "CERTAIN PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, no gain or loss will be recognized by an
FFGI Record Stockholder upon the exchange of such stockholder's FFGI Common
Stock solely for shares of UPC Common Stock at the Closing. Subject to the
provisions and limitations of Section 302(a) of the Code, gain or loss will be
recognized with respect to cash received in lieu of fractional shares. See
"THE MERGER--Certain Federal Income Tax Consequences." DUE TO THE INDIVIDUAL
NATURE OF THE TAX CONSEQUENCES OF THE MERGER, FFGI RECORD STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF THE MERGER
ON THEM UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. For a further
discussion of the federal income tax consequences of the Merger, see "THE
MERGER--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests"
under generally accepted accounting principles ("GAAP") as described in
Accounting Principles Board Opinion No. 16 and the interpretations thereof.
See "THE MERGER--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The members of the FFGI Board, excluding Mr. Herbert Bacon who owns no
shares of Class B Common Stock, currently own or control in the aggregate 93%
of the outstanding shares of Class B Common Stock. These members of the FFGI
Board who own Class B Common Stock all own Class A Common Stock and are
hereinafter referred to as the "Interested Directors". If the proposed Merger
is approved and actually consummated, UPC would deposit the Escrowed Shares
with the Escrow Agent for the benefit of the Class B Stockholders, all but one
of whom are an
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Interested Director. As a result thereof, the Interested Directors, and the
one other Class A Stockholder who also owns Class B Common Stock, Ms. Marjorie
Jarnagin, would receive compensation, albeit contingent compensation, for their
shares of Class B Common Stock that the Class A Stockholders would not receive
for their shares of Class A Common Stock. This is contrary to Section
7(C)(2)(a) of FFGI's Charter which provides that in a merger or similar
transaction, the Class A Stockholders are entitled to receive THE SAME
consideration for their shares of Class A Common Stock that the Class B
Stockholders receive for their shares of Class B Common Stock. Therefore, a
vote "FOR" approval of the proposed Merger is in effect a vote for the
amendment of FFGI's Charter to allow the Class B Stockholders to receive, under
certain circumstances set forth in the Escrow Agreement, additional
compensation for their shares of Class B Common Stock pursuant to the Escrowed
Shares Provision of the Merger Agreement that the Class A Stockholders would
not receive for their shares of Class A Common Stock. The Interested Directors
therefore have interests with respect to the proposed Merger which conflict
with the interests of the Class A Stockholders who do not also own Class B
Common Stock. See "THE SPECIAL MEETING" and "STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS."
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present for UPC selected consolidated financial
data for the five year period ended December 31, 1995 and for the six month
periods ended June 30, 1996 and 1995 and, for FFGI, selected consolidated
financial data for the five year period ended September 30, 1995 and for the
nine month periods ended June 30, 1996 and 1995. The information for UPC has
been derived from the consolidated financial statements of UPC, including the
unaudited consolidated financial statements of UPC incorporated into this
Prospectus/Proxy Statement by reference to UPC's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996 and the audited consolidated
financial statements of UPC incorporated into this Prospectus/Proxy Statement
by reference to UPC's 1995 Annual Report on Form 10-K for the year ended
December 31, 1995, and should be read in conjunction therewith and with the
notes thereto. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
information for FFGI has been derived from the consolidated financial
statements of FFGI, including the unaudited consolidated financial statements
of FFGI for the nine month period ended June 30, 1996, and the audited
consolidated financial statements of FFGI for the three year period ended
September 30, 1995, both of which are attached to this Prospectus/Proxy
Statement collectively as Appendix E, and should be read in conjunction
therewith and with the notes thereto. Historical results are not necessarily
indicative of results to be expected for any future period. In the opinions of
the management of both UPC and of FFGI, all adjustments, consisting only of
normal recurring adjustments necessary to arrive at a fair statement of interim
results of operations of UPC and FFGI, have been included. See "--Recent
Developments Affecting UPC" for information concerning UPC's recently completed
and pending acquisitions.
14
<PAGE> 25
UPC
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,(1) YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income.............. $ 232,316 $ 219,564 $ 447,431 $ 423,114 $ 375,033 $ 305,211 $ 256,537
Provision for losses on loans.... 15,851 4,538 22,231 4,894 17,950 29,071 35,960
Investment securities gains
(losses)....................... 66 (3) 476 (20,298) 4,506 14,019 2,633
Other noninterest income......... 81,404 75,707 157,176 121,103 123,056 103,506 95,415
Noninterest expense.............. 178,362 184,371 382,164 427,697 346,450 297,665 255,906
----------- ----------- ----------- ----------- ---------- ---------- ----------
Earnings before income taxes,
extraordinary item, and
accounting changes............. 119,573 106,359 200,688 91,328 138,195 96,000 62,719
Applicable income taxes.......... 39,786 34,251 65,286 25,467 41,168 27,048 14,443
----------- ----------- ----------- ----------- ---------- ---------- ----------
Earnings before extraordinary
item and accounting changes.... 79,787 72,108 135,402 65,861 97,027 68,952 48,276
Extraordinary item -- defeasance
of debt, net of taxes.......... -- -- -- -- (3,206) -- --
Accounting changes, net of
taxes.......................... -- -- -- -- 5,782 -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net earnings............. $ 79,787 $ 72,108 $ 135,402 $ 65,861 $ 99,603 $ 68,952 $ 48,276
=========== =========== =========== =========== ========== ========== ==========
PER COMMON SHARE DATA
Primary
Earnings before extraordinary
item and accounting
changes...................... $ 1.66 $ 1.52 $ 2.82 $ 1.28 $ 2.24 $ 1.75 $ 1.35
Extraordinary
item -- defeasance of debt,
net of taxes................. -- -- -- -- (0.08) -- --
Accounting changes, net of
taxes........................ -- -- -- -- 0.15 -- --
Net earnings................... 1.66 1.52 2.82 1.28 2.31 1.75 1.35
Fully diluted
Earnings before extraordinary
item and accounting
changes...................... 1.58 1.45 2.70 1.28 2.18 1.73 1.35
Extraordinary item -- defeasance
of debt, net of tax............ -- -- -- -- (0.07) -- --
Accounting changes, net of
taxes........................ -- -- -- -- 0.13 -- --
Net earnings................... 1.58 1.45 2.70 1.28 2.24 1.73 1.35
Cash dividends................... 0.54 0.48 0.98 0.88 0.72 0.60 0.48
Book value....................... 19.96 17.87 19.24 16.08 16.25 14.08 12.88
BALANCE SHEET DATA (AT PERIOD
END)
Total assets..................... $11,367,625 $10,921,482 $11,277,116 $10,985,020 $9,919,944 $8,331,073 $6,566,973
Loans, net of unearned income.... 7,169,872 6,960,602 7,069,853 6,721,597 5,293,850 4,193,149 3,613,945
Allowance for losses on loans.... 136,255 132,884 133,487 133,966 125,499 100,282 74,739
Investment securities............ 3,053,759 2,639,545 2,774,890 3,084,110 3,431,081 2,935,665 1,864,871
Deposits......................... 9,343,893 9,291,329 9,447,736 9,253,165 8,445,760 7,171,191 5,698,062
Short-term borrowings............ 421,061 167,540 241,023 455,010 300,414 343,452 244,513
Long-term debt(3)
Parent company................. 213,453 115,368 214,758 114,790 114,729 74,292 38,163
Subsidiary banks............... 259,691 325,446 270,500 241,218 212,149 38,463 18,790
Total shareholders' equity..... 1,007,608 897,066 966,331 805,147 751,844 595,106 475,128
Average assets................... 11,285,745 10,837,594 10,954,895 10,948,979 9,706,356 7,586,827 6,555,009
Average shareholders' equity..... 971,638 862,212 899,615 850,934 707,788 551,650 442,756
Average shares outstanding (in
thousands)
Primary........................ 45,940 44,648 45,008 43,741 38,914 35,463 34,569
Fully diluted.................. 50,533 49,138 49,618 44,083 43,144 38,307 34,922
</TABLE>
15
<PAGE> 26
UPC
SELECTED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------- YEARS ENDED DECEMBER 31,
JUNE 30,(1) ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PROFITABILITY AND CAPITAL RATIOS
Return on average assets......... 1.42% 1.34% 1.24% 0.60% 1.03% 0.91% 0.74%
Return on average common
equity......................... 17.40 18.01 15.92 7.61 15.10 13.11 10.95
Net interest income (taxable-
equivalent) to average earning
assets(2)...................... 4.63 4.58 4.59 4.36 4.40 4.57 4.48
Loans/deposits................... 76.73 74.92 74.83 72.64 62.68 58.47 63.42
Common and preferred dividend
payout ratio................... 35.41 34.12 37.55 62.50 32.64 36.12 34.51
Equity/assets (period end)....... 8.86 8.21 8.57 7.33 7.58 7.14 7.24
Average shareholders'
equity/average total assets.... 8.61 7.96 8.21 7.77 7.29 7.27 6.75
Leverage ratio(4)................ 8.49 7.88 8.09 7.15 7.21 7.07 7.06
Tier 1 capital to risk-weighted
assets(4)...................... 13.19 12.51 12.64 11.88 13.10 12.85 11.66
Total capital to risk-weighted
assets(4)...................... 16.85 14.86 16.35 14.27 15.74 14.83 13.80
ASSET QUALITY RATIOS
Allowance/period end loans....... 1.90 1.91 1.89 1.99 2.37 2.39 2.07
Nonperforming loans/total
loans(5)....................... 0.53 0.47 0.48 0.32 0.58 1.22 1.01
Allowance/nonperforming
loans(5)....................... 355 404 391 614 411 196 205
Nonperforming assets/loans and
foreclosed properties(6)....... 0.63 0.57 0.59 0.43 0.78 1.58 1.60
Provision/average loans.......... 0.44 0.13 0.32 0.08 0.35 0.72 0.95
Net charge-offs/average loans.... 0.38 0.22 0.36 0.09 0.28 0.55 0.92
</TABLE>
- ---------------
(1) Interim period ratios have been annualized where applicable.
(2) Average balances and calculations do not include the impact of the net
unrealized gain or loss on available for sale securities.
(3) Long-term debt includes subordinated notes and debentures, obligations under
capital leases, mortgage indebtedness, and notes payable with maturities
greater than one year. Subsidiary banks' long-term debt is primarily
Federal Home Loan Bank ("FHLB") advances.
(4) The risk-based capital ratios are based upon capital guidelines prescribed
by Federal bank regulatory authorities. Under those guidelines, the
required minimum Tier 1 and Total capital to risk-weighted assets ratios
are 4% and 8%, respectively. The required minimum leverage ratio of Tier 1
capital to total adjusted assets is 3% to 5% (5% for bank holding companies
effecting acquisitions).
(5) Nonperforming loans include loans on nonaccrual status and restructured
loans.
(6) Nonperforming assets include nonperforming loans and foreclosed properties.
16
<PAGE> 27
<TABLE>
<CAPTION>
FFGI Selected Consolidated Financial Data
As of or For the
Nine Months Ended
June 30,
(Unaudited) As of or For the Years Ended September 30,
----------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- --------- --------- --------- -------- ---------
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income $ 4,461 $ 3,985 $ 5,323 $ 5,129 $ 4,704 $ 3,625 $ 2,856
Provision for loan losses 302 207 306 299 145 127 205
Investment securities gains (losses) (28) (9) (9) 90 126 241 140
Other non-interest income 812 738 1,022 1,002 926 1,015 758
Non-interest expense 5,106 3,074 4,104 4,094 3,723 3,959 3,976
Income (loss) before income taxes,
and accounting changes (163) 1,433 1,926 1,838 1,888 710 (544)
Applicable income taxes 976 783 1,040 1,085 46 22 11
Income (loss) before
accounting changes (1,139) 650 886 743 1,842 688 (555)
Accounting changes, net of taxes -- -- -- 644 -- -- --
Net income (loss) (2) (1,139) 650 886 1,387 1,842 688 (555)
PER COMMON SHARE DATA
Primary and Fully Diluted
Earnings (loss) before
accounting changes $ (0.94) $ 0.54 $ 0.73 $ 0.62 $ 2.34 $ 1.38 $ (1.11)
Accounting changes, net of taxes -- -- -- 0.53 -- -- --
Net income (loss) (0.94) 0.54 0.73 1.15 2.34 1.38 (1.11)
Cash dividends 413 412 412 411 -- -- --
Book value 9.85 10.97 11.15 10.57 9.97 9.06 7.89
BALANCE SHEET DATA (at period end)
Total assets $137,707 $133,516 $135,822 $122,487 $115,680 $102,079 $ 95,642
Loans, net 99,656 91,445 93,817 82,265 72,065 61,311 60,764
Allowance for loan losses 713 601 643 551 428 365 367
Investment securities 29,014 30,952 30,187 31,851 30,965 29,776 21,937
Deposits 112,635 108,333 111,084 105,635 101,337 92,770 86,466
Total shareholders' equity 11,993 13,293 13,512 12,790 12,038 4,534 3,847
Average assets 137,109 126,228 129,224 123,138 107,173 98,533 94,745
Average shareholders' equity 13,637 12,761 12,904 12,671 7,739 4,201 4,073
Average shares outstanding primary
and fully diluted (in thousands) 1,214 1,212 1,212 1,207 786 500 500
PROFITABILITY AND CAPITAL RATIOS
Net income
Return on average assets (0.66)% 0.73% 0.69% 1.13% 1.72% 0.70% (0.59)%
Return on average equity (6.63)% 7.31% 6.87% 10.95% 23.80% 16.37% (13.63)%
Net interest income to average
earning assets 4.63% 4.40% 4.35% 4.42% 4.74% 4.07% 3.41%
Loans/deposits 88.48% 84.41% 84.46% 77.88% 71.11% 66.09% 70.28%
Average shareholders' equity/
average total assets 9.95% 10.11% 9.99% 10.29% 7.22% 4.26% 4.30%
Equity/assets (period end) (3) 8.71% 9.96% 8.05% 7.90% 7.61% 0.16% (2.16)%
Total capital to risk-weighted assets (3) 14.30% 13.83% 13.77% 14.29% 14.37% 2.72% (1.04)%
ASSET QUALITY RATIOS
Allowance/period end loans 0.72% 0.66% 0.69% 0.67% 0.59% 0.60% 0.60%
Nonperforming loans/total loans 1.05% 0.80% 0.87% 0.93% 0.64% 0.82% 0.33%
Allowance/nonperforming loans 68.16% 81.88% 78.51% 72.21% 93.04% 72.71% 183.50%
Nonperforming assets/loans and
foreclosed properties (4) 1.24% 0.99% 1.05% 1.08% 0.72% 0.99% 0.41%
Provision/average loans 0.29% 0.23% 0.35% 0.38% 0.22% 0.17% 0.27%
Net charge-offs/average loans 0.22% 0.18% 0.24% 0.22% 0.12% 0.17% 0.87%
FULL SERVICE OFFICES 7 6 6 6 5 5 5
- ------------------------------------------
</TABLE>
(1) Interim period ratios have been annualized where applicable.
(2) During the nine months ended June 30, 1996, $22 million of goodwill was
written off. See management's discussion and analysis and note 2 to the
financial statements for further explanation.
(3) Intangible assets are not considered part of qualifying capital and have
been removed for capital calculations.
(4) Nonperforming assets include nonperforming loans and foreclosed
properties.
17
<PAGE> 28
RECENT DEVELOPMENTS AFFECTING UPC
Recently Completed Acquisitions. Since December 31, 1995, UPC has
completed the acquisition of the following institutions (collectively, the
"Recently Completed Acquisitions").
<TABLE>
<CAPTION>
Asset Size
Institution (In Millions) Type of Consideration
- ----------------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
First Bancshares of Eastern $ 60 Cash
Arkansas, Inc., West Memphis,
Arkansas, and its subsidiary, First
National Bank of West Memphis,
Arkansas
First Bancshares of N.E. Arkansas, 62 Cash
Inc., Osceola, Arkansas, and its ----
subsidiary, First National Bank of
Osceola, Arkansas
Total $122
====
</TABLE>
[This space left blank intentionally]
18
<PAGE> 29
Pending Acquisitions. UPC has entered into definitive agreements to
acquire the following five financial institutions in addition to FFGI, which
UPC's management considers probable of consummation and which are expected to
close in 1996 (collectively, the "Other Pending Acquisitions").
<TABLE>
<CAPTION>
Asset Size
Institution (In Millions)(1) Type of Consideration
- ---------------------------------------- ----------------------- --------------------------------
<S> <C> <C>
Leader Financial Corporation ("Leader"), $3,211 Approximately 16,600,000 shares
Memphis, Tennessee, and its subsidiary, of UPC Common Stock
Leader Federal Bank for Savings (2)
Eastern National Bank ("ENB"), Miami, 286 Cash, Notes and UPC Series E
Florida (3) Preferred Stock (4)
Valley Federal Savings Bank ("Valley 118 Approximately 435,000 shares of
Federal"), Sheffield, Alabama UPC Common Stock
BancAlabama, Inc. ("BancAlabama"), 99 Approximately 415,000 shares of
Huntsville, Alabama, and its subsidiary UPC Common Stock
BankAlabama-Huntsville
Financial Bancshares, Inc. ("FBI"), St. 324 Approximately 1,220,000 shares
Louis, Missouri, and its subsidiaries, of UPC Common Stock (5)
First Financial Bank of St. Louis,
Missouri; Citizens First Financial Bank
in Dexter, Missouri; First Financial
Bank of Southeast Missouri in Sikeston,
Missouri; First Financial Bank of
Mississippi County in East Prairie,
Missouri; and First Financial Bank of
Ste. Genevieve, Missouri
------
$4,038
======
</TABLE>
(1) At June 30, 1996.
(2) Reference is made to UPC's Current Reports on Form 8-K dated March 8,
1996, April 1, 1996, May 21, 1996, August 15, 1996 and August 16,
1996, incorporated by reference herein, for additional information
concerning the acquisition of Leader Financial Corporation and pro
forma financial statements including all pending acquisitions.
19
<PAGE> 30
(3) UPC's management expects to complete the acquisition of ENB on or
before December 31, 1996, provided that disputes between ENB's
shareholders and agencies of the Republic of Venezuela and others, in
the United States District Court for the Southern District of Florida,
shall have been resolved to the satisfaction of UPC by that date.
(4) Cash in the amount of $4.5 million, UPC Promissory Notes in the
aggregate original principal amount of up to $14.5 million, and up to
317,458 shares of Series E Preferred Stock of UPC.
(5) UPC plans to purchase up to 1,220,000 shares of UPC's Common Stock to
be issued in this transaction.
Earnings Considerations Related to Pending Acquisitions. It is
expected that either UPC or the institutions to be acquired in connection with
the Merger and the Other Pending Acquisitions will incur charges arising from
such acquisitions and from the assimilation of those institutions into the UPC
organization. Anticipated charges would normally arise from matters such as,
but not limited to, legal and accounting fees, financial advisory fees,
consulting fees, payment of contractual benefits triggered by a change of
control, early retirement and involuntary separation and related benefits,
costs associated with the elimination of duplicate facilities, branch closures,
data processing charges, cancellation of vendor contracts, the potential for
additional provisions for loan losses and similar costs which normally arise
from the consolidation of operational activities.
Aggregate charges expected to arise with respect to the acquisition of
FFGI and the Other Pending Acquisitions have been preliminarily estimated to be
in the range of $17 million to $22 million after taxes. To the extent that
UPC's recognition of these acquisition-related charges is contingent upon
consummation of a particular transaction, those charges would be recognized in
the period in which such transaction closes. In addition, the range of
estimated potential charges set forth above does not take into account any
potential assessment for recapitalization of the Savings Association Insurance
Fund discussed below under the heading "--Earnings Considerations Related to
Potential Special Regulatory Assessments." This range of potential charges is
based on currently available information as well as preliminary estimates and
is subject to change. The range is provided as a preliminary estimate of the
significant charges which may in the aggregate be required and should be viewed
accordingly. These charges are not reflected in the pro forma consolidated
financial statements.
Earnings Considerations Related to Potential Special Regulatory
Assessment. There are several proposals currently under consideration by the
U.S. Congress, the purposes of which are to provide additional financing for
the Savings Association Insurance Fund ("SAIF") and to provide for interest
payments on the Financing Corporation ("FICO") bonds issued in connection with
earlier Congressional efforts to support the then failing thrift industry. A
common feature of these proposals is a one-time special assessment of from 70
to 85 basis points on all deposits insured by the SAIF ($0.70 to $0.85 per $100
of covered deposits) ("SAIF-Insured Deposits"). All SAIF-Insured Deposits may
not be subject to an assessment at the 70 to 85 basis point level. Those
SAIF-Insured Deposits which have been acquired by banks in so-called Oakar
transactions ("Oakar Deposits") may be assessed at a lower rate, (one proposal
suggests 20% lower.) In addition to the special assessment on SAIF-Insured
Deposits, the proposals also contemplate annual assessments on
20
<PAGE> 31
deposits which are insured by the Bank Insurance Fund ("BIF") ("BIF Deposits").
The assessment on BIF Deposits would be for the purpose of providing financial
support to pay approximately $600 million annually in interest on the FICO
bonds until they mature in 2017. It is unknown at this time what the
assessment level will be on BIF Deposits, but it has been suggested that the
assessment will be approximately 2.4 basis points ($0.024 per $100 of covered
deposits). The proposals generally provide that such assessments will reduce
the paying institution's taxable income. At June 30, 1996, UPC's Banking
Subsidiaries held approximately $1.3 billion in SAIF-Insured Deposits,
approximately $1.0 billion of which are Oakar Deposits. At June 30, 1996,
Leader held approximately $1.6 billion in SAIF-Insured Deposits and the Other
Pending Acquisitions held approximately $217 million in SAIF-Insured Deposits.
If the FFGI Merger and all Recently Completed and Other Pending Acquisitions had
been consummated by June 30, 1996, then UPC's subsidiaries would have held
approximately $3.1 billion in SAIF-Insured Deposits, approximately $1.0 billion
of which would have been Oakar Deposits, assuming the savings associations to
be acquired (FFGI, Leader Federal and Valley Federal) had not been merged into
other UPC Banking Subsidiaries. Should the proposed legislation be adopted at
levels indicated, both UPC and FFGI, as well as all other financial
institutions with insured deposits, would be required to take significant
charges in relation to these special assessments. These proposals to
recapitalize the SAIF have not passed and are under strong criticism by the
banking industry. It is questionable whether any such legislation will
actually pass in 1996, however UPC does expect some form of legislation to be
passed in the near future relative to the recapitalization of the SAIF and that
such legislation will provide for special assessments at or above the levels
discussed above against both SAIF-Insured Deposits and BIF Deposits.
A number of other related proposals are also under consideration
relating to the elimination of the thrift charter and the conversion of all
federally-chartered thrifts to state-chartered banks or national banks, and the
merger of the OTS into the Office of the Comptroller of the Currency (the
"OCC"). It is not expected that any such proposals would have a material
adverse impact on UPC, either before or after considering the pending
acquisitions, except to the extent such proposals are tied to the
recapitalization of the SAIF as discussed above. However, none of these
proposals are currently in definitive form, are subject to amendment, and UPC
is unable to predict with any accuracy the impact any such proposals will have
on UPC and its subsidiaries when and if actually passed. See "CERTAIN
REGULATORY CONSIDERATIONS."
EQUIVALENT AND PRO FORMA PER SHARE DATA
The following table presents selected, comparative, unaudited per
share data for: (i) UPC Common Stock and FFGI Common Stock (both Class A and
Class B Common Stock) on an historical basis; (ii) UPC Common Stock on a pro
forma basis, including the Merger, all Recently Completed Acquisitions and the
Other Pending Acquisitions; and (iii) FFGI Common Stock on an equivalent pro
forma basis, including all Recently Completed Acquisitions and the Other
Pending Acquisitions for the periods indicated. Pro forma and equivalent pro
forma per share data is not presented separately for FFGI because it would not
be significantly different from UPC's results.
21
<PAGE> 32
The pro forma data for 1995 and the six month period ended June 30,
1996 reflect the assumed acquisition of FFGI, all Recently Completed
Acquisitions and all Other Pending Acquisitions as of January 1, 1995. The pro
forma data for 1994 and 1993 reflect only the assumed acquisition of Leader
because the Other Pending Acquisitions and Recently Completed Acquisitions are
not considered significant to UPC from a financial statement presentation
standpoint. Reference is made to UPC's Current Reports on Form 8-K dated March
8, 1996, April 1, 1996, May 21, 1996, August 15, 1996 and August 16, 1996, for
information regarding the Leader acquisition and the pro forma financial
statements which are incorporated by reference herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
The pro forma information is not necessarily indicative of the results
of the future operations of either UPC, FFGI, the Recently Completed
Acquisitions or the Other Pending Acquisitions, or the actual results that
would have occurred had the Merger been consummated on January 1, 1995. The
information is derived from, and should be read in conjunction with, the
historical consolidated financial statements of UPC (including related notes
thereto) which are incorporated by reference herein, the historical
consolidated financial statements of FFGI (including related notes thereto)
which are included herewith, the historical consolidated financial statements
of Leader (including related notes thereto) which are incorporated by reference
herein, and the pro forma consolidated financial statements (including related
notes thereto) which are incorporated by reference herein. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," "--Selected Consolidated Financial Data,"
"--Recent Developments Affecting UPC," and "--Pro Forma Condensed Consolidated
Financial Information."
22
<PAGE> 33
UNION PLANTERS CORPORATION
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER
ENDED 31,(1)
JUNE 30, ----------------------
1996 1995 1994 1993
---------- ----- ------ -----
<S> <C> <C> <C> <C>
EARNINGS BEFORE EXTRAORDINARY ITEMS AND ACCOUNTING CHANGES
UPC
Primary.................................................... $ 1.66 $2.82 $ 1.28 $2.24
Fully diluted.............................................. 1.58 2.70 1.28 2.18
Franklin..................................................... (1.07) 1.09 (0.15) 2.91
UPC pro forma (all recently completed and other pending
acquisitions and Franklin)(1)
Primary.................................................... 1.60 2.66 1.52 2.17
Fully diluted.............................................. 1.54 2.57 1.52 2.11
Franklin equivalent pro forma (all recently completed and
other pending acquisitions and Franklin)(1)
Primary.................................................... 0.87 1.45 0.83 1.18
Fully diluted.............................................. 0.84 1.40 0.83 1.15
Cash dividends per share
UPC.......................................................... 0.54 0.98 0.88 0.72
UPC Pro Forma (Leader only).................................. 0.54 0.98 0.88 0.72
Franklin..................................................... -- -- -- --
Franklin equivalent pro forma(1)............................. 0.29 0.53 0.48 0.39
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE
UPC................................................................... $19.96 $19.24
Franklin.............................................................. 9.95 11.24
UPC pro forma (all recently completed and other pending acquisitions
and Franklin)....................................................... 19.58 18.63
Franklin pro forma equivalent (all recently completed and other
pending acquisitions and Franklin)(1)............................... 10.65 10.13
</TABLE>
- ---------------
(1) The equivalent pro forma per share data for Franklin are computed by
multiplying UPC's pro forma information by .544, the Exchange Ratio.
(2) See also, "-- Recent Developments Affecting UPC."
23
<PAGE> 34
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed
consolidated financial statements, including a balance sheet at June 30, 1996
and statements of earnings for the six month period ended June 30, 1996 and for
the years ended December 31, 1995, 1994 and 1993. These statements present on
a pro forma basis historical results for (i) UPC for all periods, (ii) UPC and
Leader, combined, for all periods, and (iii) UPC, FFGI, the Recently Completed
Acquisitions, and the Other Pending Acquisitions, as of June 30, 1996 and for
the six month period ended June 30, 1996 and for the twelve month period ended
December 31, 1995.
The unaudited pro forma condensed consolidated financial statements
also reflect UPC's Recently Completed Acquisitions: (i) First Bancshares of
Eastern Arkansas, Inc., and its subsidiary, First National Bank of West
Memphis, Arkansas, with total assets of $60 million; and (ii) First Bancshares
of N.E. Arkansas, Inc., and its subsidiary, First National Bank of Osceola,
Arkansas, with total assets of $62 million. Both acquisitions were accounted
for using the purchase method of accounting. Additionally, these statements
reflect the proposed Merger and UPC's Other Pending Acquisitions: (i) Leader
Financial Corporation in Memphis, Tennessee, a savings and loan holding
company, and its subsidiary, Leader Federal Bank for Savings, with total assets
of approximately $3.2 billion, which is expected to be accounted for using the
pooling of interests method of accounting; (ii) Valley Federal Savings Bank in
Sheffield, Alabama, with total assets of approximately $118 million, which is
expected to be accounted for using the pooling of interests method of
accounting; (iii) Eastern National Bank, Miami, Florida, with total assets of
approximately $286 million, which is expected to be accounted for using the
purchase method of accounting; (iv) BancAlabama, Inc. in Huntsville, Alabama, a
bank holding company, and its subsidiary, BankAlabama-Huntsville, with total
assets of approximately $99 million, which is expected to be accounted for
using the pooling of interests method of accounting, and (v) Financial
Bancshares, Inc., St. Louis, Missouri, a bank holding company, and its five
subsidiary banks, with total consolidated assets of approximately $324 million,
which is expected to be accounted for using the purchase method of accounting.
The operating results for FFGI and Valley Federal included in the
unaudited pro forma statement of earnings have been converted from their
respective fiscal year ends (September 30) to UPC's fiscal year end (December
31) by adding their respective first quarter operating results for the current
year and subtracting first quarter operating results for the previous year.
The Recently Completed Acquisitions and the Other Pending
Acquisitions, with the exception of the Leader transaction, are not considered
significant to UPC from a financial statement presentation standpoint.
Therefore, the financial information for the transactions expected to be
accounted for using the pooling of interests method of accounting have been
restated only for the current period.
The unaudited pro forma condensed consolidated financial statements
include adjustments necessary to record the entities that have been or are
expected to be acquired using the purchase method of accounting. Eliminations
have been made for significant intercompany transactions.
24
<PAGE> 35
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements of UPC and Leader which are incorporated by reference herein, and of
FFGI which are included herein, and in conjunction with the information
presented in UPC's Current Reports on Form 8-K dated March 8, 1996, April 1,
1996, May 21, 1996, May 22, 1996, August 15, 1996 and August 16, 1996, which
are incorporated by reference herein. Pro forma results are not necessarily
indicative of future operating results. Certain nonrecurring charges as
discussed in "--Recent Developments Affecting UPC--Earnings Considerations
Related to Pending Acquisitions" have not been included in the unaudited pro
forma condensed consolidated financial statements. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
[This space left blank intentionally]
25
<PAGE> 36
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UPC, LEADER,
RECENTLY
COMPLETED AND
UPC AND OTHER PENDING
UPC LEADER ACQUISITIONS
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................ $ 465,555 $ 495,869 $ 530,181
Interest-bearing deposits at financial institutions.... 4,962 5,892 10,353
Federal funds sold and securities purchased under
agreements to resell................................. 61,918 143,918 114,104
Trading account assets................................. 134,528 134,528 134,528
Loans held for resale.................................. 68,046 86,837 86,837
Available for sale securities, at fair value........... 3,053,759 3,941,548 4,169,432
Loans.................................................. 7,201,771 9,186,196 9,828,016
Less: Unearned income................................ (31,899) (40,222) (41,112)
Allowance for losses on loans................. (136,255) (158,663) (166,721)
----------- ----------- -----------
Net loans.................................... 7,033,617 8,987,311 9,620,183
Premises and equipment................................. 229,124 248,435 278,723
Accrued interest receivable............................ 103,009 177,371 184,633
Goodwill and other intangibles......................... 60,610 60,610 84,498
Other assets........................................... 152,497 296,647 312,084
----------- ----------- -----------
Total assets................................. $11,367,625 $14,578,966 $15,525,556
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing.................................. $ 1,392,856 $ 1,564,416 $ 1,670,829
Certificates of deposit of $100,000 and over......... 749,833 916,301 1,022,710
Other interest-bearing............................... 7,201,204 8,432,898 9,065,447
----------- ----------- -----------
Total deposits............................... 9,343,893 10,913,615 11,758,986
Short-term borrowings.................................. 421,061 1,062,228 1,076,419
FHLB advances.......................................... 258,269 835,840 849,091
Long-term debt......................................... 214,875 231,618 249,239
Accrued interest, expenses, and taxes.................. 83,349 116,424 120,206
Other liabilities...................................... 38,570 144,966 156,955
----------- ----------- -----------
Total liabilities............................ 10,360,017 13,304,691 14,210,896
----------- ----------- -----------
Shareholders' equity
Preferred stock
Convertible....................................... 87,233 87,233 95,169
Common stock......................................... 230,602 306,457 311,492
Additional paid-in capital........................... 123,962 136,625 156,558
Net unrealized gain on available for sale
securities........................................ 2,489 8,695 7,780
Retained earnings.................................... 563,322 735,265 743,661
----------- ----------- -----------
Total shareholders' equity................... 1,007,608 1,274,275 1,314,660
----------- ----------- -----------
Total liabilities and shareholders' equity... $11,367,625 $14,578,966 $15,525,556
=========== =========== ===========
</TABLE>
26
<PAGE> 37
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UPC, LEADER,
RECENTLY
UPC COMPLETED AND
AND OTHER PENDING
UPC LEADER ACQUISITIONS
-------- -------- -------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans................................ $327,252 $418,524 $ 447,949
Interest on investment securities
Taxable................................................ 74,982 105,817 113,003
Tax-exempt............................................. 14,991 15,220 15,220
Interest on deposits at financial institutions............ 98 109 219
Interest on federal funds sold and securities purchased
under agreements to resell............................. 6,140 8,507 8,115
Interest on trading account assets........................ 5,115 5,115 5,115
Interest on loans held for resale......................... 2,838 3,705 3,705
-------- -------- ---------
Total interest income............................. 431,416 556,997 593,326
-------- -------- ---------
Interest expense
Interest on deposits...................................... 177,253 215,009 231,438
Interest on short-term borrowings......................... 6,663 23,156 23,356
Interest on FHLB advances and long-term debt.............. 15,184 32,221 33,255
-------- -------- ---------
Total interest expense............................ 199,100 270,386 288,049
-------- -------- ---------
Net interest income............................... 232,316 286,611 305,277
Provision for losses on loans............................... 15,851 18,772 20,736
-------- -------- ---------
Net interest income after provision for losses on
loans........................................... 216,465 267,839 284,541
Noninterest income
Service charges on deposit accounts....................... 34,111 36,487 38,315
Bank card income.......................................... 10,287 10,747 10,747
Mortgage servicing income................................. 4,872 17,282 17,330
Trust service income...................................... 5,772 5,772 5,772
Profits and commissions from trading activities........... 3,104 3,104 3,104
Investment securities gains............................... 66 66 30
Other income.............................................. 23,258 26,864 28,598
-------- -------- ---------
Total noninterest income.......................... 81,470 100,322 103,896
-------- -------- ---------
Noninterest expense
Salaries and employee benefits............................ 85,806 100,007 108,184
Net occupancy expense..................................... 13,565 15,164 17,281
Equipment expense......................................... 14,391 16,613 16,613
Other expense............................................. 64,600 77,751 85,970
-------- -------- ---------
Total noninterest expense......................... 178,362 209,535 228,048
-------- -------- ---------
Earnings before income taxes........................... 119,573 158,626 160,389
Applicable income taxes..................................... 39,786 53,695 55,453
-------- -------- ---------
Net earnings...................................... $ 79,787 $104,931 $ 104,936
======== ======== =========
Earnings per common share
Primary................................................... $ 1.66 $ 1.65 $ 1.60
Fully diluted............................................. 1.58 1.59 1.54
Weighted average shares outstanding (in thousands)
Primary................................................... 45,940 61,520 63,036
Fully diluted............................................. 50,533 66,139 68,052
</TABLE>
27
<PAGE> 38
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UPC, LEADER,
RECENTLY
UPC COMPLETED AND
AND OTHER PENDING
UPC LEADER ACQUISITIONS
-------- ---------- -------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans............................... $636,769 $ 804,420 $ 869,944
Interest on investment securities
Taxable............................................... 137,453 177,272 193,752
Tax-exempt............................................ 31,816 32,313 33,218
Interest on deposits at financial institutions........... 1,910 1,936 2,151
Interest on federal funds sold and securities purchased
under agreements to resell............................ 12,095 17,041 15,945
Interest on trading account assets....................... 12,774 12,774 12,774
Interest on loans held for resale........................ 3,865 5,318 5,318
-------- ---------- -----------
Total interest income............................ 836,682 1,051,074 1,133,102
-------- ---------- -----------
Interest expense
Interest on deposits..................................... 347,859 422,360 459,489
Interest on short-term borrowings........................ 12,825 33,856 34,241
Interest on FHLB advances and long-term debt............. 28,567 58,917 62,314
-------- ---------- -----------
Total interest expense........................... 389,251 515,133 556,044
-------- ---------- -----------
Net interest income.............................. 447,431 535,941 577,058
Provision for losses on loans.............................. 22,231 27,381 32,576
-------- ---------- -----------
Net interest income after provision for losses on
loans.......................................... 425,200 508,560 544,482
Noninterest income
Service charges on deposit accounts...................... 71,611 75,694 80,649
Bank card income......................................... 20,103 20,740 20,740
Mortgage servicing income................................ 9,835 36,645 36,645
Trust service income..................................... 8,010 8,010 8,010
Profits and commissions from trading activities.......... 10,441 10,441 10,441
Investment securities gains.............................. 476 409 342
Other income............................................. 37,176 42,110 45,819
-------- ---------- -----------
Total noninterest income......................... 157,652 194,049 202,646
-------- ---------- -----------
Noninterest expense
Salaries and employee benefits........................... 171,325 197,855 216,820
Net occupancy expense.................................... 27,192 30,447 34,761
Equipment expense........................................ 30,156 34,405 35,257
Other expense............................................ 153,491 180,498 197,961
-------- ---------- -----------
Total noninterest expense........................ 382,164 443,205 484,799
-------- ---------- -----------
Earnings before income taxes.......................... 200,688 259,404 262,329
Applicable income taxes.................................... 65,286 86,649 88,110
-------- ---------- -----------
Net earnings..................................... $135,402 $ 172,755 $ 174,219
======== ========== ===========
Earnings per common share
Primary.................................................. $ 2.82 $ 2.72 $ 2.66
Fully diluted............................................ 2.70 2.64 2.57
Weighted average shares outstanding (in thousands)
Primary.................................................. 45,008 60,385 61,893
Fully diluted............................................ 49,618 64,995 67,141
</TABLE>
28
<PAGE> 39
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UPC
AND
UPC LEADER
-------- --------
<S> <C> <C>
Interest income
Interest and fees on loans............................................. $517,032 $644,690
Interest on investment securities
Taxable............................................................. 162,012 193,276
Tax-exempt.......................................................... 32,999 33,415
Interest on deposits at financial institutions......................... 734 748
Interest on federal funds sold and securities purchased under
agreements
to resell........................................................... 4,472 6,862
Interest on trading account assets..................................... 9,143 9,143
Interest on loans held for resale...................................... 1,573 2,396
-------- --------
Total interest income.......................................... 727,965 890,530
-------- --------
Interest expense
Interest on deposits................................................... 262,572 317,721
Interest on short-term borrowings...................................... 21,300 28,277
Interest on FHLB advances and long-term debt........................... 20,979 38,927
-------- --------
Total interest expense......................................... 304,851 384,925
-------- --------
Net interest income............................................ 423,114 505,605
Provision for losses on loans............................................ 4,894 9,661
-------- --------
Net interest income after provision for losses on loans........ 418,220 495,944
Noninterest income
Service charges on deposit accounts.................................... 55,551 59,564
Bank card income....................................................... 10,953 11,386
Mortgage servicing income.............................................. 9,621 31,060
Trust service income................................................... 7,990 7,990
Profits and commissions from trading activities........................ 6,639 6,639
Investment securities losses........................................... (20,298) (22,515)
Other income........................................................... 30,349 42,365
-------- --------
Total noninterest income....................................... 100,805 136,489
-------- --------
Noninterest expense
Salaries and employee benefits......................................... 175,218 201,532
Net occupancy expense.................................................. 28,041 31,638
Equipment expense...................................................... 28,698 32,618
Other expense.......................................................... 195,740 221,048
-------- --------
Total noninterest expense...................................... 427,697 486,836
-------- --------
Earnings before income taxes................................... 91,328 145,597
Applicable income taxes.................................................. 25,467 45,174
-------- --------
Net earnings................................................... $ 65,861 $100,423
======== ========
Earnings per common share
Primary................................................................ $ 1.28 $ 1.52
Fully diluted.......................................................... 1.28 1.52
Weighted average shares outstanding (in thousands)
Primary................................................................ 43,741 59,587
Fully diluted.......................................................... 44,083 59,929
</TABLE>
29
<PAGE> 40
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UPC
AND
UPC LEADER
-------- --------
<S> <C> <C>
Interest income
Interest and fees on loans............................................. $425,967 $531,417
Interest on investment securities
Taxable............................................................. 157,403 186,966
Tax-exempt.......................................................... 30,507 30,596
Interest on deposits at financial institutions......................... 1,862 1,884
Interest on federal funds sold and securities purchased under
agreements to
resell.............................................................. 6,175 8,569
Interest on trading account assets..................................... 6,194 6,194
Interest on loans held for resale...................................... 7,438 8,163
-------- --------
Total interest income.......................................... 635,546 773,789
-------- --------
Interest expense
Interest on deposits................................................... 238,019 298,312
Interest on short-term borrowings...................................... 8,203 8,203
Interest on FHLB advances and long-term debt........................... 14,291 27,984
-------- --------
Total interest expense......................................... 260,513 334,499
-------- --------
Net interest income............................................ 375,033 439,290
Provision for losses on loans............................................ 17,950 22,660
-------- --------
Net interest income after provision for losses on loans........ 357,083 416,630
Noninterest income
Service charges on deposit accounts.................................... 49,490 53,723
Bank card income....................................................... 10,393 10,884
Mortgage servicing income.............................................. 9,595 28,266
Trust service income................................................... 7,643 7,643
Profits and commissions from trading activities........................ 13,787 13,787
Investment securities gains............................................ 4,506 3,508
Other income........................................................... 32,148 39,951
-------- --------
Total noninterest income....................................... 127,562 157,762
-------- --------
Noninterest expense
Salaries and employee benefits......................................... 163,711 186,703
Net occupancy expense.................................................. 25,393 28,476
Equipment expense...................................................... 25,989 30,345
Other expense.......................................................... 131,357 163,364
-------- --------
Total noninterest expense...................................... 346,450 408,888
-------- --------
Earnings before income taxes, extraordinary items, and accounting
changes............................................................ 138,195 165,504
Applicable income taxes.................................................. 41,168 51,864
-------- --------
Earnings before extraordinary items and accounting changes..... $ 97,027 $113,640
======== ========
Earnings per common share before extraordinary items and accounting
changes(1)
Primary................................................................ $ 2.24 $ 2.17
Fully diluted.......................................................... 2.18 2.11
Weighted average shares outstanding (in thousands)
Primary................................................................ 38,914 43,192
Fully diluted.......................................................... 43,144 47,422
</TABLE>
- ---------------
(1) Leader was organized on March 18, 1993 in connection with the conversion of
its principal subsidiary, Leader Federal Bank for Savings and subsidiaries,
from a federal mutual savings bank to a federally-chartered capital stock
savings bank. Accordingly, the calculation of pro forma earnings per share
on a pooled basis is based on Leader's fourth quarter net income since the
stock conversion occurred on September 30, 1993.
30
<PAGE> 41
THE SPECIAL MEETING
DATE, PLACE AND TIME
Each copy of this Prospectus/Proxy Statement is accompanied by a Proxy
Appointment Card furnished in connection with the FFGI Board's solicitation of
proxies for use at the Special Meeting and at any adjournments or postponements
thereof. The Special Meeting is scheduled to be held at 10:00 a.m., Eastern
Daylight Time on Tuesday, October 1, 1996, in the Jean Keener Room of the Rose
Center, 442 W. Second North Street, Morristown, Tennessee. Only FFGI
Stockholders at the close of business on August 15, 1996 (the "Record Date")
are entitled to receive notice of and to vote at the Special Meeting.
PURPOSE OF SPECIAL MEETING; THE PROPOSED MERGER
At the Special Meeting, FFGI Stockholders will consider and vote on a
proposal to approve the Agreement and Plan of Merger (the "Merger Agreement")
dated as of March 4, 1996, as amended, between UPC, Franklin Acquisition, FFGI,
Franklin Federal and the Class B Stockholders pursuant to which FFGI would
merge (the "Merger") with Franklin Acquisition and, as a result thereof, become
a wholly-owned subsidiary of UPC. Pursuant to the terms of the Merger
Agreement, each share of FFGI Class A Common Stock and each share of FFGI Class
B Common Stock outstanding immediately prior to the Effective Time of the
Merger would be cancelled and converted into the right of the holder of such
shares to receive 0.5440 shares of UPC Common Stock in exchange for such shares
of FFGI Common Stock (the "Exchange Ratio"). See "THE MERGER--Terms of the
Merger."
In addition to the 0.5440 shares of UPC Common Stock which would be
exchanged for each share of FFGI Class A Common Stock and Class B Common Stock
based on the Exchange Ratio, UPC would also deposit with Union Planters
National Bank as escrow agent ("Escrow Agent") that number of shares of UPC
Common Stock which would equal ten percent (10%) of the aggregate number of
whole shares of UPC Common Stock which UPC would actually issue to FFGI Record
Holders in the Merger based on the Exchange Ratio, subject to certain downward
adjustments. (Shares of UPC Common Stock deposited into escrow with the Escrow
Agent are hereinafter referred to as the "Escrowed Shares"). The provision of
the Merger Agreement providing for the deposit of the Escrowed Shares in escrow
for the benefit of the Class B Stockholders and UPC is hereinafter referred to
as the "Escrowed Shares Provision"). The Escrowed Shares Provision is intended
to provide Class B Stockholders with the right to receive additional
compensation for their shares of Class B Common Stock to compensate them for
their right under FFGI's Charter to receive the Special Dividend equal to the
net proceeds of the FFGI Pending Litigation. A copy of the escrow agreement
between UPC, the Class B Stockholders and UPNB as Escrow Agent (the "Escrow
Agreement") is attached hereto as Appendix B. See "THE MERGER - - Terms of the
Merger", and "THE ESCROW AGREEMENT."
FFGI's Charter provides that in a merger transaction such as the
proposed Merger, the Class A Stockholders are to receive the same compensation
for their shares of Class A Common Stock that the Class B Stockholders receive
for their shares of Class B Common Stock. The Escrowed
31
<PAGE> 42
Shares Provision of the Merger Agreement therefore contains a provision which
would in effect create an amendment to FFGI's Charter. For that reason, voting
with respect to the proposed Merger will be taken by voting class and the
Merger Agreement must be approved by the holders of a majority of the
outstanding shares of Class A Common Stock, voting as a separate voting group,
and by a majority of the holders of the outstanding shares of Class B Common
Stock, voting as a separate voting group. See "THE SPECIAL MEETING - - Votes
Required", "THE SPECIAL MEETING - - Voting", and "THE MERGER - - Interests of
Certain Persons in the Merger". Furthermore, a vote "FOR" approval of the
Merger Agreement is in effect a vote for approval of an amendment to FFGI's
Charter so that the Class B Stockholders, all but one of whom are directors of
FFGI, can receive additional consideration pursuant to the Escrowed Shares
Provision of the Merger Agreement, for their shares of Class B Common Stock
that the Class A Stockholders would not receive for their shares of Class A
Common Stock.
ALL BUT ONE OF THE MEMBERS OF THE FFGI BOARD ARE CLASS B STOCKHOLDERS
AND, AS SUCH, HAVE INTERESTS WITH RESPECT TO THE PROPOSED MERGER WHICH CONFLICT
WITH THE INTERESTS OF THE OTHER CLASS A STOCKHOLDERS. BECAUSE OF THE EXISTENCE
OF THESE CONFLICTS OF INTEREST, THE FFGI BOARD CANNOT AND DOES NOT MAKE ANY
RECOMMENDATION WHATSOEVER AS TO HOW FFGI STOCKHOLDERS SHOULD VOTE WITH RESPECT
TO THE PROPOSED MERGER.
See "THE MERGER - - Interests of Certain Persons in the Merger", "THE
ESCROW AGREEMENT" and "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS."
FFGI Stockholders have the right to dissent to the proposed Merger and
to receive the "fair value" of their shares of FFGI Common Stock in the event
the Merger is actually consummated. There are numerous steps a dissenting FFGI
Stockholder must take to properly "perfect" his or her statutory dissenters'
rights. See - "THE MERGER - Dissenters' Rights."
QUORUM REQUIREMENTS
In order to be able to transact business at the Special Meeting, a
"quorum" of the shares of FFGI Common Stock must be represented in person or by
proxy at the Special Meeting. For purposes of the proposed Merger, a majority
of the aggregate outstanding shares of both the Class A Common Stock and Class
B Common Stock must be represented in person or by proxy in order for a quorum
to exist. As of the Record Date, 712,320 shares of Class A Common Stock and
500,000 shares of Class B Common Stock were outstanding; therefore, in order
for a quorum to exist at the Special Meeting, a total of at least 356,161
shares of Class A Common Stock and 250,001 shares of Class B Common Stock must
be represented in person or by proxy at the Special Meeting.
For purposes of determining whether a quorum exists with respect to
the Special Meeting, a signed Proxy Appointment Card will represent the total
number of shares of Class A Common
32
<PAGE> 43
Stock and Class B Common Stock covered by the Proxy Appointment Card as present
for purposes of determining a quorum. Furthermore, a signed Proxy Appointment
Card which has been marked to "ABSTAIN" will represent the total number of
shares of Class A Common Stock and Class B Common Stock covered by the Proxy
Appointment Card as present for purposes of determining a quorum, but will not
be counted as a vote "FOR" or "AGAINST" the proposed Merger.
If a quorum does not exist at the Special Meeting, the Special Meeting
may be adjourned to a later date in order for FFGI to solicit additional
proxies. Unless the Special Meeting is adjourned to a date later than eleven
(11) months from the date of the Proxy Appointment Card, proxies received will
still be valid for all purposes at the later date. Any proxy returned to FFGI
may be revoked or amended prior to the time the vote is taken with respect
thereto at the Special Meeting. See "THE SPECIAL MEETING - Solicitation of
Proxies; Revocation."
SOLICITATION OF PROXIES; REVOCATION
If a signed Proxy Appointment Card is returned to FFGI and the
stockholder has not marked his or her vote with respect to the proposed Merger,
all of the shares represented by that Proxy Appointment Card will be voted
"FOR" approval of the Merger Agreement and Plan of Merger. If matters other
than the consideration of the proposed Merger properly come before the Special
Meeting, the proxy will be voted by the persons named therein in a manner which
they consider to be in the best interests of FFGI. FFGI's management is not
aware of any other matter to be acted upon at the Special Meeting.
FFGI STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY APPOINTMENT CARD AND RETURN IT PROMPTLY TO FFGI IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED
PROXY APPOINTMENT CARD WILL RESULT IN YOUR VOTE NOT BEING COUNTED WITH RESPECT
TO THE PROPOSED MERGER. FFGI STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY APPOINTMENT CARDS.
Any FFGI Stockholder who has executed and delivered a Proxy
Appointment Card may nevertheless revoke it at any time before it is voted by
either attending the Special Meeting and voting in person, giving notice of
revocation in writing or submitting a signed Proxy Appointment Card bearing a
later date to FFGI, 622 West First North Street, Morristown, Tennessee,
Attention: Richard C. Jessee, Corporate Secretary, provided such notice or
later dated Proxy Appointment Card is actually received by FFGI before the vote
of FFGI Stockholders has been taken. Proxy Appointment Cards may be submitted
by telefax to FFGI at (423) 587-5481.
In addition to the solicitation of proxies from FFGI Stockholders by
use of the mail, proxies also may be solicited by personal interview, telephone
or facsimile by directors, officers and employees of FFGI who will not be
specifically compensated for such services.
33
<PAGE> 44
However, due to the conflict of interest of all but one of the members of the
FFGI Board, these solicitations may be made ONLY for the purpose of receiving
proxies. No director, officer or employee of FFGI has the authority to solicit
specific votes with respect to the Merger.
It is expected that banks, brokerage houses, and other institutions,
nominees or fiduciaries will be requested to forward the soliciting materials
to their principals and obtain authorization for the execution of proxies. All
costs of soliciting proxies, assembling and mailing the Prospectus/Proxy
Statement and any paper which now accompanies or hereafter may supplement the
same, as well as reasonable out-of-pocket expenses incurred by such banks,
brokerage houses, and other institutions, nominees or fiduciaries for
forwarding proxy materials to and obtaining proxies from their principals, will
be borne by FFGI; provided, however, that UPC will pay all Commission filing
fees and other regulatory filing fees incurred in connection with the Merger as
well as the costs of printing this Prospectus/Proxy Statement.
YOUR VOTE WITH RESPECT TO THE PROPOSED MERGER IS IMPORTANT, NO MATTER
HOW MANY SHARES OF CLASS A COMMON STOCK OR CLASS B COMMON STOCK YOU OWN.
VOTES REQUIRED
The affirmative votes of the holders of a majority (356,161) of the
outstanding shares of Class A Common Stock and the affirmative vote of the
holders of a majority (250,001) of the outstanding shares of Class B Common
Stock, voting separately as groups, are required in order to approve the Merger
Agreement and Plan of Merger. The shares of Class A Common Stock and Class B
Common Stock owned by Class B Stockholders WILL be counted to determine whether
the requisite number of shares have been voted for approval of the Merger
Agreement and Plan of Merger. As of the Record Date there were 712,320 shares
of Class A Common Stock and 500,000 shares of Class B Common Stock outstanding
and entitled to be voted at the Special Meeting, with each share entitled to
one vote. Of such shares, the Class B Stockholders, all but one of whom are
directors of FFGI, owned in the aggregate, 254,279 shares, or approximately
35.70%, of the outstanding shares of Class A Common Stock, and ALL of the
outstanding shares of Class B Common Stock. In addition, Mr. Herbert Bacon,
the one member of the FFGI Board who does not own any shares of Class B Common
Stock, owns 29,912 shares of Class A Common Stock, and other executive officers
of FFGI own in the aggregate 331 additional shares of Class A Common Stock.
Each of these persons has indicated his or her intent to vote all of their
shares of Class A Common Stock and Class B Common Stock "FOR" approval of the
Merger Agreement and Plan of Merger. Assuming that occurs, then 71,639 or
approximately 17% of the remaining 427,798 shares of Class A Common Stock must
vote "FOR" approval of the Merger Agreement in order for FFGI to receive the
requisite shareholder approval of the Merger.
RECOMMENDATION
The FFGI Board has adopted and approved the Merger Agreement and
believes that the Merger is in the best interest of FFGI and the FFGI
Stockholders. However, since all but one of
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the members of the FFGI Board own Class B Common Stock, and since the Merger
Agreement provides that the Class B Stockholders are entitled to receive
contingent additional consideration for their shares of Class B Common Stock
that the Class A Stockholders will not receive for their Class A Common Stock,
members of the FFGI Board believe it would be inappropriate for them to make,
and they do not make, any recommendation whatsoever as to how the FFGI
Stockholders should vote with respect to the proposed Merger.
THE MERGER
The following information describes the material aspects of the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the Appendices hereto, including the Agreement and
the Plan of Merger, which is attached as Appendix A to this Prospectus/Proxy
Statement and incorporated herein by reference. All stockholders are urged to
read the Appendices in their entirety.
BACKGROUND OF THE MERGER
Franklin Federal is a federally-chartered savings bank with its main
office at 622 West First North Street, Morristown, Tennessee. At June 30,
1996, Franklin Federal had total assets of approximately $137.7 million, total
deposits of approximately $112.6 million and total stockholders' equity of
approximately $12.0 million. Franklin Federal offers traditional banking
services including commercial, consumer, and residential loans as well as
checking, savings, and time deposit depository accounts. As of June 30, 1996,
Franklin Federal had forty-four (44) full-time employees.
Franklin Federal has three wholly-owned subsidiaries which engage in
business activities which compliment those services and products offered by
Franklin Federal. Colonial Loan Association ("Colonial Loan"), with offices in
Morristown, Jefferson City, and Knoxville, Tennessee is engaged in the finance
and consumer credit business. Colonial Loan fills a financing need for low and
middle income borrowers. Franklin Insurance Group ("Franklin Insurance")
offers a full line of insurance products including life, home, auto, annuities,
and commercial coverage. Franklin Insurance maintains one office in
Morristown, Tennessee. Colonial Standard Title Company ("Colonial Title"),
through its office in Morristown, Tennessee, acts as an agent for real estate
title insurance and closes real estate transactions. At June 30, 1996, these
subsidiaries had twenty (20) full-time employees and four (4) part-time
employees.
After resolving serious difficulties with various bank regulatory
agencies regarding the ability of FFGI to include supervisory goodwill in the
calculation of its capital adequacy ratios and regarding the company's amount
of tangible capital from 1989 to 1992, Franklin Federal has been in a strong
growth mode. Total assets, deposits, and loans have generally experienced
annual double-digit compounded growth rates since 1992. Likewise, tangible
capital, through retained earnings and the amortization of goodwill, has
increased at a vigorous rate since 1993. Franklin Federal has strong asset
quality with minimal annual charge-offs and a very small percentage of its
loans classified as having some weakness. The company's earnings (excluding
amortization of
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goodwill) have consistently ranked at the top of the thrift industry.
Non-interest operating expenses have been, and continue to be, low.
In assessing the long-term prospects for FFGI, the FFGI Board believed
that all of the above noted factors concerning Franklin Federal, FFGI's only
subsidiary, favored a sale or merger at an attractive price.
In recent years the financial services industry has experienced
tremendous consolidation. The FFGI Board believes that the slowing of this
trend, which started in 1995, provides a window of opportunity to maximize the
return to FFGI Stockholders by sale or merger.
The FFGI Board further believes that other factors present in this
environment will profoundly affect FFGI's future. The level of competition
from brokerage companies, mortgage banking operations, and government-sponsored
enterprises such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corp. ("FHLMC") have tended to compress margins on
both the income and expense sides of the profit and loss statement. The trend
toward consolidation will continue to exacerbate this level of competition.
Likewise, technology presents an incalculable threat to Franklin Federal, being
a community financial institution. The prospects of home banking and the
"smart card" could further serve to narrow profit margins, since FFGI may
either lose customers to competitors who provide these services or be required
to make significant expenditures for the technology required to provide these
products. Additionally, the cost and time of maintaining complete regulatory
compliance is an increasing burden.
Considering these factors which shape FFGI's current operating
environment along with FFGI's recent outstanding operating performance, the
FFGI Board felt that the timing for a sale or merger was good.
Over the last 24 months, the FFGI Board initiated conversations with
four regional holding companies which own commercial banking businesses. The
purpose of those conversations was to determine the existence of a mutual
interest in pursuing a merger, discuss price and determine whether the
institutions "fit" FFGI's customer base and employees. From the conversations,
it clearly emerged that UPC best met these criteria. Over the past few months,
discussions have ensued with UPC only as various details of the merger
arrangements have been resolved. The UPC philosophy in allowing its community
banks to exercise local autonomy permits Franklin Federal to continue its long
tradition of service to its customers and to remain responsible to the
community it serves.
UPC was selected as a merger partner for a number of reasons,
including the following.
1. The price offered by UPC represents a substantial gain to the
FFGI Stockholders, particularly those who purchased FFGI Common Stock
in 1993 for $8.50 per share. Likewise, the price as a multiple of
book-value and as a multiple of earnings is extremely competitive in
the current market. Finally, FFGI Stockholders would not realize a
taxable
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gain upon the exchange of their shares of FFGI Common Stock for UPC
Common Stock in the Merger.
2. The annual dividend yields on the UPC Common Stock will
substantially exceed the historical dividend yield on FFGI Common
Stock.
3. UPC has a distinct operating philosophy of maintaining local
autonomy in its community banks. Allowing local management to respond
to local customers' needs would continue to have a positive effect on
the economic and social environment in the communities served by
Franklin Federal.
4. Franklin Federal employees would benefit from UPC's
compensation and benefits as well as from enhanced career
opportunities.
5. Franklin Federal would benefit from UPC's capital, operations
and regulatory expertise and may achieve certain economies of scale in
its banking operations.
The FFGI Board believes that the terms of the Merger are fair and in
the best interests of FFGI's stockholders. Aside from price appreciation from
the price originally paid, FFGI Stockholders would experience enhanced returns
by virtue of the higher dividends paid by UPC. Additionally, the non-financial
factors of the Merger are very positive for FFGI's customers, employees, and
the communities served. Also, the compatibility of the respective business
management philosophy of FFGI and UPC, UPC's ability to provide a greater array
of products and services in FFGI's market, and UPC's greater financial
resources to serve the lending and deposit needs of the communities served by
Franklin Federal were additional factors considered in the decision-making
process. See "THE MERGER--Reasons for the Merger."
REASONS FOR THE MERGER
The FFGI Board believes the Merger is fair to, and in the best
interest of, FFGI and its stockholders. For that reason, the FFGI Board
entered into the Merger Agreement on behalf of FFGI. The FFGI Board, after
consideration of a number of alternatives available to FFGI and its
stockholders, believes that the Merger would enable the FFGI Stockholders to
participate in opportunities for investment value and growth greater than the
opportunities available absent the Merger. The Merger and the resulting
affiliation with UPC's banking network would give Franklin Federal's banking
offices access to a substantially greater base of capital and enhanced
regulatory and operating expertise and would permit Franklin Federal's banking
offices to expand their services beyond those presently provided or which would
be available under FFGI's continued independence. Moreover, the Merger would
allow the banking offices presently operated by Franklin Federal to compete
more effectively in the East Tennessee market place and to endure certain
economies of scale in their banking operations. See "THE MERGER--Background of
the Merger."
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While the FFGI Board believes that the Merger is fair to, and in the
best interest of, FFGI and its stockholders and entered into the Merger
Agreement on behalf of FFGI, it cannot and does not make any recommendation to
the FFGI Stockholders as to how they should vote with respect to the Merger. The
FFGI Board makes no recommendation to the FFGI Stockholders either for or
against the approval of the Merger Agreement due to the conflict of interest all
but one of the members of the FFGI Board have with the other Class A
Stockholders who do not own Class B Common Stock. The FFGI Board members who
own shares of Class B Common Stock own 463,750 shares (93%) of the outstanding
shares of Class B Common Stock. Pursuant to the terms of the Merger Agreement
and of the Escrow Agreement, UPC would deposit the Escrowed Shares into escrow
for the benefit of the Class B Stockholders and UPC. See "--Terms of the
Merger" and "THE ESCROW AGREEMENT." In, and only in, the event that FFGI
successfully resolves the FFGI Pending Litigation for an amount which exceeds
the FFGI Pending Litigation Expenses, the Class B Stockholders would receive all
or a portion of the Escrowed Shares (computed based upon the terms and
conditions of the Escrow Agreement which is attached hereto as Appendix B). The
amount the Class B Stockholders receive will be limited by, and under no
circumstances will exceed, the number of shares of UPC Common Stock placed in
Escrow at the Effective Time of the Merger (i.e., no more than 10% of the shares
to be distributed in the Merger based upon the Exchange Ratio). The Escrowed
Shares to be received by the Class B Stockholders would be in addition to the
shares of UPC Common Stock to be transferred in the Merger to FFGI's Class A
Stockholders and Class B Stockholders in exchange for their FFGI Common Stock
based upon the Exchange Ratio. Accordingly, if FFGI obtains a favorable
judgment in or resolution of the FFGI Pending Litigation in an amount that
exceeds the FFGI Pending Litigation Expenses, the Class B Stockholders would
receive consideration for their shares of Class B Common Stock which exceeds, on
a pro rata basis, the consideration to be received by the Class A Stockholders.
In view of the fact that most members of the FFGI Board are Class B Stockholders
and that the Class B Stockholders may receive consideration for their shares of
Class B Common Stock which exceeds the consideration to be received by Class A
Stockholders for their shares of Class A Common Stock, the members of the FFGI
Board who own Class B Common Stock have interests with regard to the Merger that
conflict with the interests of the Class A Stockholders. Consequently, under
Tennessee law, the FFGI Board is required to submit the Merger Agreement and
Plan of Merger to the FFGI Stockholders for approval without recommendation and,
in connection with the submission, to communicate the basis for its
determination that the Merger Agreement and Plan of Merger be submitted for
approval without any recommendation. The FFGI Board believes that, because of
the conflict of interest of all but one of the members of its Board of Directors
with the other Class A Stockholders who do not own Class B Common Stock, it
should make no recommendation and, in accordance with Tennessee law, is
therefore submitting the Merger Agreement and Plan of Merger set forth in
Appendix A along with the Merger Agreement to the FFGI Stockholders for approval
without any recommendation.
FAIRNESS OPINION OF FINANCIAL ADVISOR
Professional Bank Services, Inc. ("PBS") was engaged by FFGI to advise
the FFGI Board as to the fairness of the consideration, from a financial
perspective, to be paid by UPC to FFGI's stockholders as set forth in the
Merger Agreement. PBS is a bank consulting firm with offices in
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Louisville, Nashville, Indianapolis, Washington, D.C., and Ocala, Florida. As
part of its investment banking business, PBS is regularly engaged in reviewing
the fairness of financial institution acquisition transactions from a financial
perspective and in the valuation of financial institutions and other businesses
and their securities in connection with mergers, acquisitions, estate
settlements and other transactions. Neither PBS nor any of its affiliates has
a material financial interest in FFGI or UPC. PBS was selected to advise the
FFGI Board based upon its familiarity with Tennessee financial institutions and
knowledge of the banking industry as a whole.
PBS performed certain analyses described below and discussed the range
of values for FFGI resulting from such analyses with the FFGI Board in
connection with its advice as to the fairness of the consideration to be paid
by UPC.
A fairness opinion of PBS was delivered to the FFGI Board on March 5,
1996, at a regular meeting of the FFGI Board. A copy of the fairness opinion,
which includes a summary of the assumptions made and information analyzed in
deriving the fairness opinion, is attached as Appendix D to this
Prospectus/Proxy Statement and should be read in its entirety.
In arriving at its fairness opinion, PBS reviewed certain publicly
available business and financial information relating to FFGI and UPC. PBS
considered certain financial and stock market data of FFGI and UPC, compared
that data with similar data for certain other publicly-held bank holding
companies and considered the financial terms of certain other comparable
southern United States thrift transactions that had recently been effected.
PBS also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant. In connection with its review, PBS did not independently verify the
foregoing information and relied on such information as being complete and
accurate in all material respects. Financial forecasts prepared by PBS were
based on assumptions believed by PBS to be reasonable and to reflect currently
available information. PBS did not make an independent evaluation or appraisal
of the assets of FFGI or UPC.
As part of preparing the fairness opinion, PBS performed a due
diligence review of UPC and its affiliate banks. As part of the due diligence,
PBS reviewed minutes of the UPC Board's meetings; reports filed with the
Commission by UPC on Forms 10-K and 10-Q for the year ended December 31, 1994
and for the quarters ended March 31, 1995 and June 30, 1995; the monthly
financial report as of August 31, 1995; the summary of Regulatory Examinations
and Audits; the Audit Committee reference file on audit risk; Uniform Bank
Performance Reports for the three largest banking affiliates; the internally
identified listing of problem loans of $1,000,000 and over; the report on
credit relationships of $5,000,000 and over; the security inventory report; and
various other internal financial and operational reports.
PBS also interviewed senior management, external auditors and general
counsel of UPC regarding operations, performance and the future prospects of
UPC. PBS compared the historical common stock market activity of selected
financial institutions to that of UPC.
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PBS considered the FFGI Pending Litigation. PBS interviewed
management and special counsel regarding the litigation. PBS took into account
recent developments regarding other similar litigation before the Supreme
Court. See "THE ESCROW AGREEMENT--Completed and Pending Litigation." PBS also
took into consideration that there is no guarantee that FFGI will be successful
in resolving the litigation and no way to predict the timing of any resolution
or the level of damages to the institution.
PBS reviewed and analyzed the historical performance of FFGI and its
wholly-owned subsidiary Franklin Federal contained in audited financial
statements as of September 30, 1992, 1993, 1994 and 1995; unaudited internal
financial statements as of December 31, 1995; and September 30, 1995 and
December 31, 1995 Thrift Financial Reports filed with the OTS by FFGI;
historical common stock trading activity of FFGI; and the premises and other
fixed assets. PBS reviewed and tabulated statistical data regarding the loan
portfolio, securities portfolio and other performance ratios and statistics.
Financial projections were prepared and analyzed as well as other financial
studies, analyses and investigations as deemed relevant for the purposes of the
opinion. In review of the aforementioned information, PBS took into account
its assessment of general market and financial conditions, experience in other
transactions, and knowledge of the banking industry generally.
In connection with rendering the fairness opinion and preparing its
various written and oral presentations to the FFGI Board, PBS performed a
variety of financial analyses, including those summarized. The summary does
not purport to be a complete description of the analyses performed by PBS in
this regard. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors summarized
below, PBS believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. In performing its analyses, PBS
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond FFGI's or UPC's
control. The analyses performed by PBS are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
process by which businesses actually may be sold.
Acquisition Comparison Analysis. In performing this analysis, PBS
reviewed thrift acquisition transactions in the states of Tennessee, Georgia,
Alabama and North Carolina (the "Southern Region"). There were 78 thrift
acquisition transactions in the Southern Region announced since 1989 for which
detailed financial information was available. The purpose of the analysis was
to obtain an evaluation range based on these regional acquisition transactions.
Median multiples of earnings and book value implied by the comparable
transactions were utilized in obtaining a range for the acquisition value of
FFGI. In addition to reviewing recent Southern Region thrift transactions, PBS
performed separate comparable analyses for acquisitions of Southern
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Region thrifts which, like FFGI, had an equity-to-asset ratio between 9.0% and
11.0%, were located in Tennessee and those with assets between $100.0 and
$250.0 million. Median values for the 78 Southern Region acquisitions
expressed as multiples of both book value and earnings were 1.34 and 12.63,
respectively. The median multiples of book value and earnings for acquisitions
of Southern Region thrifts with equity-to-asset ratios between 8.0% and 11.0%
were 1.78 and 10.93, respectively. For acquisitions of Southern Region thrifts
located in the state of Tennessee, the median multiples were 1.04 and 11.63,
respectively. For acquisitions of Southern Region thrifts with assets between
$100.0 and $250.0 million the median multiples were 1.56 and 12.90,
respectively. In the proposed merger, FFGI Stockholders would receive 0.5440
UPC common shares per FFGI common share. Utilizing a UPC common stock price of
$31.25 per share, the price per share of UPC Common Stock on February 28, 1996,
the multiple of book value and a multiple of earnings is equal to 1.53 and
24.07 respectively.
Adjusted Net Asset Value Analysis. PBS reviewed FFGI's balance sheet
data to determine the amount of material adjustments required to the
stockholders' equity of FFGI based on differences between the market value of
FFGI's assets and their value reflected on FFGI's financial statements. PBS
determined that three adjustments were warranted. $1,614,000 was deducted from
equity to reflect the existing goodwill. The investment securities portfolio
had depreciation of approximately $92,000 after adjustment for income taxes.
Finally, PBS also reflected a value of the non-interest bearing demand deposits
of approximately $1,054,000. The adjusted net asset value was determined to be
$10.59 per share of FFGI's common stock.
Discounted Earnings Analysis. A dividend discount analysis was
performed by PBS pursuant to which a range of stand-alone values of FFGI was
determined by adding the present value of estimated future dividend streams
that FFGI could generate over a five-year period beginning in 1996 and ending
in 2000, and the present value of the "terminal value" of FFGI's earnings at
the end of the year 2000. The "terminal value" of FFGI's earnings at the end
of the five-year period was determined by applying a multiple of 1.34 times
the projected terminal year's book value. The 1.34 multiple represents the
median price paid as a multiple of book for all Southern Region thrift
transactions since 1989.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of FFGI Common Stock. The value
of FFGI, determined by adding the present value of the total cash flows, was
$12.44 per FFGI share. In addition, using the five-year projection as a base,
a twenty-year projection was prepared assuming an annual growth rate of 7% and
a return on assets equal to 1.00% by year seven, increasing to 1.10% by year
thirteen and remaining in effect throughout the analysis, beginning in 2001.
Dividends also were assumed to be 50% of income for all years. This long-term
projection resulted in a value of $11.88 per FFGI share.
Specific Acquisition Analysis. PBS valued FFGI based on an
acquisition analysis assuming a "break-even" earnings scenario to an acquiror
as to price, current interest rates and amortization of the premium paid.
Based on this analysis, an acquiring institution would pay $12.11 per share of
FFGI common stock, assuming they were willing to accept no impact to their net
income in the
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initial year. This analysis was based on a funding cost of 8% adjusted for
taxes, amortization of the acquisition premium over 15 years and an adjusted
projected earnings level for FFGI of $871,000 in 1995. Implementing the same
assumptions and utilizing a 10% overhead reduction, an acquiring institution
would pay $14.02 per share of FFGI common stock, assuming they were willing to
accept no impact to their net income in the initial year.
Pro Forma Merger Analysis. PBS compared the historical performance of
FFGI to that of UPC and other regional bank holding companies. This included,
among other things, a comparison of profitability, asset quality and capital
adequacy measures. In addition, the contribution of each of FFGI and UPC to
the income statement and balance sheet of the pro forma combined company was
analyzed.
The effect of the affiliation on the historical and pro forma
financial data of FFGI, as well as the projected financial data prepared by
PBS, was analyzed. FFGI's historical financial data was compared to pro forma
combined historical and projected earnings, book value and dividends per share
as well as other measures of profitability, capital adequacy and asset quality.
The fairness opinion is directed only to the question of whether the
consideration to be received by FFGI's stockholders under the Merger Agreement
is fair and equitable from a financial perspective and does not constitute a
recommendation to any FFGI stockholder to vote in favor of the Merger. No
limitations were imposed on PBS regarding the scope of its investigation or
otherwise by FFGI or any of its affiliates.
PBS' FAIRNESS OPINION ADDRESSES ONLY THE FAIRNESS OF THE MERGER FROM A
FINANCIAL POINT OF VIEW. PBS DID NOT CONSIDER OR OPINE AS TO WHETHER THE
MERGER IS FAIR TO THE CLASS A STOCKHOLDERS IN LIGHT OF THE FACT THAT IT
REQUIRES CLASS A STOCKHOLDERS TO WAIVE THEIR RIGHT UNDER THE FFGI CHARTER TO
RECEIVE THE SAME CONSIDERATION FOR THEIR SHARES OF CLASS A COMMON STOCK THAT
CLASS B STOCKHOLDERS RECEIVE FOR THEIR SHARES OF CLASS B COMMON STOCK.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by FFGI stockholders under the
Agreement is fair and equitable from a financial perspective to the
stockholders of FFGI.
PBS will receive a fee of $20,000 for all services performed in
connection with the Merger, including rendering the fairness opinion. In
addition, FFGI has agreed to indemnify PBS and its directors, officers and
employees, from liability in connection with the Merger, and to hold PBS
harmless from any losses, actions, claims, damages, expenses or liabilities
related to any of PBS' acts or decisions made in good faith and in the best
interest of FFGI.
THE FULL TEXT OF THE OPINION OF PBS, DATED THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN
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BY PBS, IS ATTACHED HERETO AS APPENDIX D. FFGI STOCKHOLDERS ARE URGED TO READ
THE OPINION IN ITS ENTIRETY.
TERMS OF THE MERGER
At the Effective Time of the Merger, Franklin Acquisition would merge
with and into FFGI with FFGI surviving the Merger. As the surviving entity,
FFGI would continue to operate thereafter as a wholly-owned subsidiary of UPC
and Franklin Federal would be a wholly-owned subsidiary of FFGI. As a result,
FFGI and all of its subsidiaries would be acquired by UPC.
In the Merger, each share of FFGI Common Stock outstanding immediately
prior to the Effective Time of the Merger would be cancelled and converted
exclusively into the right of the FFGI Record Stockholder to receive the
consideration provided for in the Merger Agreement and Plan of Merger, as
described in the following paragraphs.
The Exchange Ratio. Under the terms of the Merger Agreement, the FFGI
Record Stockholders would receive for each of their shares of Class A Common
Stock or Class B Common Stock 0.5440 shares of UPC Common Stock (the "Exchange
Ratio) in the Merger.
Additional Consideration to Class B Stockholders; The Escrowed Shares.
In addition to the shares of UPC Common Stock that would be exchanged in the
Merger for each share of FFGI Common Stock outstanding immediately prior to the
Effective Time of the Merger, UPC would deposit into escrow as the Escrowed
Shares that number of shares of UPC Common Stock which equals ten percent (10%)
of the aggregate number of whole shares of UPC Common Stock which UPC would be
obligated under the Merger Agreement to issue to FFGI Record Holders based upon
the Exchange Ratio, subject to certain downward adjustments. The Escrowed
Shares would be issued to the Escrow Agent for the benefit of the Class B
Stockholders and UPC, pursuant to the Escrow Agreement, a copy of which is
attached hereto as Appendix B. See "THE ESCROW AGREEMENT."
The Escrowed Shares would be distributed to the Class B Stockholders
ONLY in the event that FFGI successfully resolves that certain lawsuit styled
Franklin Federal Savings Bank, et al., Plaintiffs v. United States of America,
Defendant, Civil Action No. 92-739C, pending in the United States Claims Court
(the "FFGI Pending Litigation"), and ONLY then if the proceeds of the
resolution of such litigation exceed the aggregate costs and expenses incurred
after March 4, 1996 in connection with the FFGI Pending Litigation (such
expenses incurred after March 4, 1996, hereinafter referred to as the "FFGI
Pending Litigation Expenses").
There is no assurance that FFGI will obtain a favorable resolution of
the FFGI Pending Litigation. If FFGI does, however, to the extent that the
proceeds actually received exceed the aggregate FFGI Pending Litigation
Expenses, the remainder (the "Net FFGI Pending Litigation Proceeds") would be
divided by the closing price per share of UPC Common Stock on the NYSE on the
Effective Date of the Merger in order to determine the aggregate number of
Escrowed Shares that would be issued to the holders of Class B Common Stock.
However, the maximum number of
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Escrowed Shares which possibly could be delivered to the Class B Stockholders
in any event is limited to the number of Escrowed Shares initially deposited
into escrow by UPC (that is, limited to ten percent (10%) of the number of
whole shares of UPC Common Stock issued to Class A Stockholders and Class B
Stockholders based on the Exchange Ratio). Only those dividends received on
the Escrowed Shares which would actually be distributed to Class B
Stockholders, and the earnings on those dividends while held in escrow, would
be distributed to the Class B Stockholders with the Escrowed Shares.
Each of the Class B Stockholders has executed the Escrow Agreement.
The Escrow Agreement provides, among other things, that the Class B
Stockholders must each pay his or her proportionate share of one-half of the
FFGI Pending Litigation Expenses on a semi-annual basis. Should UPC fail to
receive any Class B Stockholder's proportionate share of one-half of the FFGI
Pending Litigation Expenses within the time period established in the Escrow
Agreement, the defaulting Class B Stockholder would be deemed to have forfeited
his or her rights to any Escrowed Shares. In such event, the defaulting Class
B Stockholder's proportionate share of the Escrowed Shares would be withdrawn
from escrow and returned to UPC, with all dividends paid thereon and earnings
attributable thereto. See "THE ESCROW AGREEMENT-- Duties and Rights of the
Escrow Participants" for several examples of how the Escrowed Shares Provision
would work based on various assumptions.
The FFGI Board negotiated for the Escrowed Shares Provision in order
to establish a mechanism pursuant to which the Class B Stockholders would
receive the right to obtain compensation for the additional value of their
shares of Class B Common Stock represented by the right to receive the Special
Dividend. As structured, under the Escrowed Shares Provision the Class B
Stockholders would only RECEIVE the additional compensation under the same
circumstances in which the Class B Stockholders would have actually RECEIVED
the Special Dividend. Further, because UPC desires to account for the Merger
as a "pooling of interests" transaction, in order to qualify for such
accounting treatment it was necessary to limit the number of Escrowed Shares to
ten percent (10%) of the initial shares of UPC Common Stock actually issued by
UPC in the Merger, based on the Exchange Ratio. Since that is the maximum
number of Escrowed Shares that could possibly be distributed to the Class B
Stockholders, it is possible that the Class B Stockholders would ultimately
receive less under the Escrowed Shares Provision than they would have received
if the Merger had not been consummated.
Another reason the FFGI Board negotiated for the Escrowed Shares
Provision was to enable all FFGI Stockholders the opportunity to consider and
vote on the proposed Merger at a time when the FFGI Pending Litigation is still
in fact pending, without the Class B Stockholders, all but one of whom are
members of the FFGI Board, being required to forfeit the additional value of
their Class B Common Stock attributable to the right to receive the Special
Dividend. An alternative would have been to forego the proposed Merger with
UPC until such time as either the Special Dividend had been paid to the Class B
Stockholders or until the FFGI Pending Litigation had been otherwise resolved.
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Because a distribution of Escrowed Shares to Class B Stockholders is
dependent upon the results obtained in the FFGI Pending Litigation, there is no
guarantee that any of the Escrowed Shares will ever be distributed. There is
no guarantee that FFGI will be successful with respect to the FFGI Pending
Litigation or, if it is, that the proceeds received would exceed the expenses
incurred in prosecuting the litigation after March 4, 1996. For a discussion
of the FFGI Pending Litigation see "THE ESCROW AGREEMENT--Completed and Pending
Litigation--The FFGI Pending Litigation". For a discussion of the terms of the
Escrow Agreement, see "THE ESCROW AGREEMENT--The Escrow Agreement", as well as
the copy of the Escrow Agreement attached hereto as Appendix B. See also, "THE
MERGER."
FFGI Options. Pursuant to Section 2.7 of the Merger Agreement, at the
Effective Time of the Merger, each FFGI Option outstanding immediately prior to
the Effective Time of the Merger would automatically be amended to represent an
option to purchase that number of shares of UPC Common Stock as would equal the
Exchange Ratio under the same terms and conditions, except that the exercise
price of the FFGI Option would be adjusted on a pro rata basis so that the
aggregate option exercise price of shares of UPC Common Stock subject to an
option after the Merger would be the same as the aggregate option price for
shares of FFGI Common Stock immediately prior to the Merger. Thereafter, the
stock option plan pursuant to which the FFGI Options were issued would remain
in effect, but no additional FFGI Options would be issued. UPC will register
with the Commission the shares of UPC Common Stock to be issued upon exercise
of the FFGI Options outstanding immediately prior to the Effective Time of the
Merger, which it is anticipated will become effective on or shortly after the
Effective Date of the Merger. Such shares would also be listed on the NYSE.
No fractional shares of UPC Common Stock would be issued in the
Merger. If, after aggregation of all shares, including fractional shares, of
UPC Common Stock which an FFGI Record Stockholder would be entitled to receive
in the Merger, any FFGI Record Stockholder should be entitled to a fraction of
a share of UPC Common Stock, cash would be paid by UPC in lieu of such
remaining fractional share. The amount of cash to be paid would be based on
the closing sale price of UPC Common Stock on the NYSE on the Effective Date of
the Merger.
EFFECTIVE DATE AND EFFECTIVE TIME OF THE MERGER
As soon as reasonably practicable after all conditions precedent
contained in the Merger Agreement have been satisfied or lawfully waived,
including receipt of all regulatory approvals and expiration of all statutory
waiting periods, or on such later date as may be agreed upon by UPC and FFGI,
the parties would file Articles of Merger with the Secretary of State of
Tennessee. The Effective Date of the Merger and the Effective Time of the
Merger would be the date and time specified on the endorsement of the Articles
of Merger by the Secretary of State of Tennessee. It is presently expected
that the Effective Time of the Merger would occur in the fourth quarter of
UPC's 1996 fiscal year. There can be no assurance that such expectation would
be achieved.
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SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the Effective Time of the
Merger, the Corporate Trust Department of UPNB, acting in the capacity of
exchange agent for UPC and FFGI (the "Exchange Agent"), would mail to each FFGI
Record Stockholder a form letter of transmittal, together with instructions and
a return mailing envelope (collectively, the "Exchange Materials") to
facilitate the exchange of such holder's certificates formerly representing
shares of FFGI Common Stock for UPC Common Stock and cash for any fractional
share, as provided in the Merger Agreement, provided, however, that any
Escrowed Shares to be deposited into escrow for the benefit of the Class B
Stockholders and UPC would be held as provided in the Escrow Agreement.
FFGI STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE EXCHANGE MATERIALS FROM THE EXCHANGE AGENT.
Upon receipt of the Exchange Materials, FFGI Record Stockholders
should complete the letter of transmittal in accordance with the instructions
provided and deliver such letter of transmittal, together with all stock
certificates formerly representing shares of FFGI Common Stock, to the Exchange
Agent in the return envelope provided. If the Exchange Agent shall have
received as soon as reasonably practicable thereafter a certificate and related
documentation completed in proper form from an FFGI Record Stockholder, UPC
would issue and the Exchange Agent would mail to the FFGI Record Stockholder a
certificate representing the whole number of shares of UPC Common Stock to
which such holder is entitled pursuant to the Merger Agreement, together with a
check in the amount of any cash consideration in lieu of a fractional share.
No consideration would be delivered to an FFGI Record Stockholder unless and
until such holder shall have properly delivered to the Exchange Agent
certificates formerly representing the shares of FFGI Common Stock owned by him
or her and in respect of which he or she claims payment is due or, if
applicable, such documentation and security in respect of lost or stolen
certificates as may be required by the Merger Agreement or the Exchange
Materials.
No dividend or other distribution with respect to the shares of UPC
Common Stock would be paid or delivered to the holder of any unsurrendered
certificate(s) formerly evidencing and representing shares of FFGI Common Stock
until the holder surrenders such certificate(s) in accordance with the Exchange
Materials. Upon surrender, the holder would be entitled to receive all
previously withheld dividends and distributions, without any interest thereon.
After the Effective Time of the Merger there would be no further
transfers of FFGI Common Stock recognized on FFGI's stock transfer books. If
certificates representing shares of FFGI Common Stock should be presented for
transfer after the Effective Time of the Merger, such certificates would be
returned to the presenter together with a form of letter of transmittal and
exchange instructions.
Neither UPC, FFGI, the Exchange Agent, nor any other person shall be
liable to any former FFGI Record Stockholder for any amount properly delivered
to a public official pursuant to applicable unclaimed property, escheat or
similar laws.
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If a certificate formerly representing FFGI Common Stock shall have
been lost, stolen or destroyed, the Exchange Agent would deliver the
consideration properly payable with respect to such lost, stolen or destroyed
certificate in accordance with the provisions of the Merger Agreement, but only
upon receipt of: (i) a sworn statement certifying such loss or destruction and
specifying the circumstances thereof; and (ii) a lost instrument bond in form
and with a surety satisfactory to UPC and the Exchange Agent, as required by
the Exchange Materials.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of UPC and FFGI to effect the Merger are
subject to the satisfaction of the following conditions prior to the Effective
Time of the Merger: (i) absence of any claim, action, suit, investigation or
other proceeding pending or threatened before any court or governmental agency
which presents a substantial risk of restraint or prohibition of the Merger or
the Merger Agreement or of the obtaining of material damages or other relief in
connection therewith; (ii) approval of the Merger Agreement and the
transactions contemplated thereby by the Federal Reserve and the OTS and the
expiration of any statutory waiting periods with respect thereto, which have
already occurred; and (iii) approval of the Merger Agreement, including the
Plan of Merger and Escrow Agreement, and the transactions contemplated thereby
by the FFGI Stockholders.
The obligations of UPC and Franklin Acquisition to effect the Merger
are further subject to the satisfaction by FFGI, or waiver by UPC, of the
following conditions: (i) each of the material acts, covenants and
undertakings of FFGI and of the Class B Stockholders shall have been duly
performed; (ii) each of the representations, warranties and covenants of FFGI,
Franklin Federal and the Class B Stockholders set forth in the Merger Agreement
shall, in all material respects, be true on, or complied with by, the Closing
Date; (iii) UPC shall have received certificates from the executive officers of
FFGI and Franklin Federal stating that FFGI and Franklin Federal validly exist,
that they were duly authorized to execute the Merger Agreement and to
consummate the Merger pursuant to the terms thereof and that no Class B
Stockholder attempted to exercise dissenters' rights with respect to the
Merger; (iv) there shall have been no damage to or destruction of any property
of FFGI or any material adverse change in the business, property, prospects,
operations, income or condition of FFGI; (v) FFGI and Franklin Federal shall
have afforded UPC and its representatives an opportunity to inspect the
properties, operations, books, records and other information related to FFGI
and its subsidiaries; (vi) UPC shall have received a legal opinion, dated the
Closing Date, from counsel to FFGI as to the valid existence of FFGI and
Franklin Federal and their due authorization to execute the Merger Agreement
and consummate the Merger pursuant to the terms thereof; (vii) FFGI shall not
have committed to effect any form of business combination with, or asset sale
to, any other person or entity, adopted any "poison pill" or taken any other
action the effect of which would be to materially diminish the value of FFGI to
UPC; (viii) FFGI and Franklin Federal shall have maintained certain asset and
capital covenants; (ix) each director and executive officer of FFGI and
Franklin Federal shall have entered into a non-compete agreement with UPC
substantially in the form of UPC's standard form of non-compete agreement; (x)
UPC shall have received from Price Waterhouse LLP a letter dated within five
(5) business days prior to the Closing Date stating such independent
accountants' opinion that the Merger should be accounted
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for by UPC as a pooling of interests for financial statement purposes and that
such accounting treatment is in accordance with GAAP; (xi) the registration of
the shares of UPC Common Stock with the Commission shall have become effective
under the Securities Act; (xii) UPC shall have received a letter from counsel
representing FFGI, Franklin Federal and/or the Class B Stockholders in the FFGI
Pending Litigation confirming that the Class B Stockholders would be personally
liable for all fees, costs and expenses incurred in connection with the FFGI
Pending Litigation as it relates to claims by such Class B Stockholders in
their own individual capacity; and (xiii) each Class B Stockholder shall have
executed both the Merger Agreement and the Escrow Agreement.
The obligations of FFGI to effect the Merger are further subject to
the satisfaction by UPC, or waiver by FFGI, of the following conditions: (i)
each of the material acts, covenants and undertakings of UPC and Franklin
Acquisition to be performed prior to the Closing Date shall have been duly
performed; (ii) each of the representations and warranties of UPC and Franklin
Acquisition set forth in the Merger Agreement would, in all material respects,
be true at, or complied with by, the Effective Time of the Merger and FFGI
shall have received a certificate signed by certain officers of UPC and
Franklin Acquisition to that effect; (iii) FFGI shall have received
certificates from the executive officers of UPC and Franklin Acquisition
stating that UPC and Franklin Acquisition validly exist and that they are duly
authorized to execute the Merger Agreement and to consummate the Merger
pursuant to the terms thereof; (iv) FFGI shall have received from the Exchange
Agent certificates indicating that the Exchange Agent has received and holds
certificates representing a number of shares of UPC Common Stock sufficient to
cover the amount of such stock required to be issued in connection with the
Merger, including an amount sufficient for the Escrowed Shares, as well as cash
to be paid in lieu of fractional shares; (v) FFGI shall have received a legal
opinion, dated the Closing Date, from counsel to UPC and Franklin Acquisition
as to the valid existence of FFGI and Franklin Federal and their due
authorization to execute the Merger Agreement and consummate the Merger
pursuant to the terms thereof; (vi) FFGI shall have received an opinion from
PBS that the Exchange Ratio is fair to the FFGI Stockholders from a financial
point of view and such fairness opinion shall not have been withdrawn prior to
the Closing Date; and (vii) FFGI shall have received a legal opinion from its
legal counsel that the Merger would constitute a tax-free reorganization under
Section 368 of the Code and that FFGI Stockholders holding their shares as
capital assets at the time of the Closing would not recognize any gain or loss
upon the exchange of their shares of FFGI Common Stock for UPC Common Stock at
the Closing.
No assurance can be provided as to whether all of the conditions
precedent to the Merger would be satisfied or waived by the party lawfully
permitted to do so.
REGULATORY APPROVALS
The Merger and its related transactions are subject to prior approval
by (i) the Federal Reserve under Section 3(a) of the Bank Holding Company Act,
as amended (the "Bank Holding Company Act"); and (ii) the OTS under the Home
Owners' Loan Act ("HOLA"). The Bank Holding Company Act and HOLA require that
the Federal Reserve and the OTS take into consideration, among other factors,
the financial and managerial resources and future prospects of
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the institutions and the convenience and needs of the communities they serve.
The Bank Holding Company Act and HOLA prohibit the Federal Reserve and the OTS
from approving the Merger if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize or 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 to substantially lessen competition or to tend
to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the Federal Reserve and the OTS should find that the
anti-competitive effects of the Merger are clearly outweighed by the public
interest and the probable effect of the Merger in meeting the convenience and
needs of the communities to be served. The Federal Reserve and the OTS also
have the authority to deny an application if they should conclude that the
combined organization would have an inadequate capital position or if the
acquiring organization does not comply with the requirements of the Community
Reinvestment Act of 1977, as amended (the "CRA").
Under the Bank Holding Company Act, the Merger may not be consummated
earlier than the 15th day following the date of approval by the Federal
Reserve, during which period the United States Department of Justice is
afforded an opportunity to challenge the Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the Federal
Reserve's approval unless a court should specifically order otherwise.
By letters dated June 10, 1996 and July 24, 1996, respectively, the
Federal Reserve and the OTS have approved the Merger. RECEIPT OF REGULATORY
APPROVAL OR CONSENT FROM ANY GOVERNMENTAL AGENCY DOES NOT CONSTITUTE A
RECOMMENDATION BY SUCH GOVERNMENTAL AGENCY FOR APPROVAL OF ANY OF THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. See "- - Conditions to
Consummation of the Merger" and "- - Waiver and Amendment; Termination."
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains certain restrictions on the conduct of
FFGI's business pending consummation of the Merger. In particular, the Merger
Agreement provides that, except as otherwise provided in the Merger Agreement
or as consented to by UPC in writing, FFGI may not, among other things; (i)
amend its charter or bylaws; (ii) permit any lien on, or security interest in,
any share of stock of a subsidiary of FFGI to exist; (iii) repurchase any of
its capital stock, split or otherwise subdivide its capital stock or
recapitalize in any way or declare a stock dividend with respect to the FFGI
Common Stock other than its regular semi-annual cash dividend of seventeen
cents ($0.17) per share; (iv) acquire direct or indirect control over any
person or entity except in the ordinary course of business, in connection with
internal reorganizations or in acquisitions made in FFGI's fiduciary capacity;
(v) issue or sell any FFGI Common Stock or otherwise dispose of a substantial
part of FFGI's assets or earning power; (vi) incur additional debt in excess of
$50,000 except in the ordinary course of business; (vii) increase compensation,
pay bonuses or enter into severance arrangements except in accordance with past
practices; (viii) amend any existing employment contract or enter any new
employment contract with any person having a salary in excess of $30,000 per
year unless FFGI may terminate the same at will without liability; (ix) adopt
any new, or make any material change in or termination of any existing, benefit
plan; (x) enter into
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any new lease agreement; (xi) make any capital expenditures except in the
ordinary course of business; (xii) enter any transaction other than in the
ordinary course of business; (xiii) extend (or commit to extend), or amend the
terms of, credit to any officer, director or holder of 2% or more of FFGI
Common Stock if such extension of credit would exceed 2% of the capital of
FFGI; or (xiv) register on its books any transfer of FFGI Class B Common Stock
unless such transfer is made pursuant to a valid last will and testament,
intestate succession or a valid domestic relations order. Moreover, FFGI
shall, among other things, operate in the usual, regular and ordinary course,
preserve its organization and assets, maintain its rights and franchises, keep
in full force and effect all its material contracts, use its best efforts to
retain its customer base and assist UPC in procuring all applicable regulatory
approvals.
PAYMENT OF DIVIDENDS
FFGI is prohibited under the Merger Agreement from paying dividends
on, or making any other type of distribution with respect to, the FFGI Common
Stock, with the exception of its regular semi-annual cash dividend on FFGI
Common Stock of seventeen cents ($0.17) per share, the declaration dates of
which shall be consistent with FFGI's past practice.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Closing Date, any condition to closing set forth in the
Merger Agreement may be waived by the party benefitted by that condition, or
the Merger Agreement may be amended or modified by an agreement in writing
approved by duly authorized officers of UPC and FFGI. Furthermore, UPC has the
unilateral right to revise the structure of the Merger in order to achieve tax
benefits or for any other reason which UPC deems advisable, provided, however,
that UPC shall not have the right, without the approval of the FFGI Board, to
revise the structure of the reorganization in any way which: (i) changes the
amount or nature of the consideration which the FFGI Record Holders are
entitled to receive; (ii) changes the intended tax-free effects of the Merger
to UPC, Franklin Acquisition, FFGI, the Class B Stockholders or the other FFGI
Record Holders; (iii) except as otherwise provided in the Merger Agreement,
would permit UPC to pay the consideration other than with UPC Common Stock
which has been registered with the SEC; or (iv) would be materially adverse to
the interests of FFGI or the FFGI Record Holders.
The Merger Agreement may be terminated at any time prior to the
Closing Date as follows: (i) by mutual consent of the parties; (ii) by UPC or
Franklin Acquisition if FFGI or any subsidiary of FFGI violates any covenant
related to the conduct of its business; (iii) by UPC, Franklin Acquisition or
FFGI if the Closing Date shall not have, with certain exceptions, occurred by
October 31, 1996, unless the failure should be due to actions of the party
seeking to terminate; (iv) if any governmental or regulatory approval should be
denied and not successfully appealed within certain time limits, by either
party; (v) by either party if the other party's closing conditions shall not
have been satisfied in all material respects or waived as of the Closing Date
or if the other party shall have committed a material breach which shall not
have been cured within 30 days after receiving notice of such breach; (vi) by
UPC or Franklin Acquisition if, in UPC's good faith opinion, there shall have
been a
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material adverse change in the business, assets, liabilities, prospects,
operations, condition or net worth of FFGI and its subsidiaries taken as a
whole; (vii) by UPC or Franklin Acquisition if FFGI enters any business
combination or any letter of intent or agreement with respect thereto with any
other person; or (viii) by UPC or Franklin Acquisition if FFGI enters any
formal agreement, letter of understanding or other similar arrangement with any
bank regulatory authority establishing a formal capital plan.
In the event of the valid termination of the Merger Agreement by
either UPC or FFGI, the Merger Agreement and the Escrow Agreement shall become
void, and there would be no liability on the part of either party except for
liability by any party, including the Class B Stockholders, for breach of the
Merger Agreement or for any misstatement or misrepresentation made prior to
such termination. Termination would not let them go free if the termination
triggers the option to acquire FFGI Common Stock. However, termination would
not result in the Merger Agreement and the Escrow Agreement becoming void with
respect to any provisions contained therein which specifically provide that
they would survive the termination, including, but not limited to, the
provisions granting UPC certain options and payment rights in the event of an
Acquisition Proposal.
MANAGEMENT AFTER THE MERGER
The Merger Agreement and the Plan of Merger provide that, after the
Effective Time of the Merger, FFGI's Charter and Bylaws as in effect prior to
the Effective Time of the Merger would constitute the Charter and Bylaws of
FFGI the surviving corporation, unless amended or repealed. They further
provide that, after the Effective Time of the Merger, the name of FFGI as the
surviving corporation shall remain Franklin Financial Group, Inc. Those persons
serving as directors and officers of Franklin Acquisition immediately prior to
the Effective Time of the Merger, all of whom are officers of UPC, would
continue to serve as directors or officers of the surviving corporation.
However, those persons serving as directors or officers of Franklin Federal
immediately prior to the Effective Time of the Merger would continue to serve
as directors or officers of Franklin Federal, until such time as Franklin
Federal is merged with and into Bank of East Tennessee ("BOET"), a wholly-owned
subsidiary of UPC. It is currently anticipated that Franklin Federal would be
merged into BOET on or about December 1, 1996, and the name of the merged
institution would be changed to "Union Planters Bank of the Lakeway Area."
Assuming that occurs, Charles Robinette, currently the Chairman and President
of Franklin Federal, will become the Chairman of the surviving bank. Samuel F.
Grigsby, Jr., currently director and the President and CEO of BOET, would
continue to serve as the President and CEO after the merger. It is anticipated
that the other officers and employees of Franklin Federal would continue in
their present positions, or ones substantially similar thereto, at Union
Planters Bank of the Lakeway Area, after this "secondary" merger is
consummated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
FFGI has entered into an employment agreement with Charles G.
Robinette under which Mr. Robinette serves FFGI as its President and Chief
Executive Officer. The agreement generally provides that, in the event of
either involuntary termination of employment or a change in control
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after which Mr. Robinette's employment agreement is not renewed, Mr. Robinette
would be entitled to a lump sum payment in an amount equal to the total amount
of 100% of the average annual compensation paid to Mr. Robinette during the
five years immediately prior to the change in control, subject to a 10% annual
increase based on years of service past March 1993. Currently, such payment
would be approximately $120,000. Upon consummation of the Merger, UPC plans to
renew Mr. Robinette's employment agreement under substantially the same terms
as the existing agreements, subject to any changes that may be required to
comply with applicable bank regulations and in light of the proposed merger of
Franklin Federal with and into BOET.
Currently, FFGI has a deferred compensation plan with five
participants, A.E. Jolley, Ben Jarnagin, George McGuffin (current directors),
Dewey Buchanan (a former employee) and William Hale (a former director).
Pursuant to the deferred compensation plan, a portion of the fees payable to
such persons is and has been deferred. Following consummation of the Merger,
UPC would not be obligated to make further contribution to the deferred
compensation plan. Such plan would be terminated as of the Effective Time of
the Merger and all participants would, to the extent provided under the plan
and applicable law, become fully vested in and eligible to receive benefits
under the plan. FFGI would distribute all vested accrued benefits as soon as
reasonably practicable following termination of the plan.
FFGI has adopted a 401(k) profit sharing plan in which its employees
participate. Upon consummation of the Merger, the plan would terminate and the
participants' accounts would be transferred to UPC's 401(k) Retirement Savings
Plan. Thereafter, employer contributions would be made under the terms of the
UPC Plan.
All but one member of the FFGI Board (Mr. Herbert Bacon) own Class B
Common Stock. The members of the FFGI Board that do own Class B Common Stock
(Interested Directors) own substantially all (93%) of the Class B Common Stock.
The one person who owns Class B Common Stock and who is not a director of FFGI
(Ms. Marjorie Jarnagin), is the former wife of a director of FFGI. The
Interested Directors have special interests in the Merger due to the Escrowed
Shares Provision of the Merger Agreement discussed herein, which special
interests conflict with the interests of the Class A Stockholders who do not
also own Class B Common Stock.
FFGI's Charter currently provides in Section 7(C)(2)(a) that in the
event of a merger or consolidation such as the proposed Merger, the Class A
Stockholders are to receive the same consideration for their shares of Class A
Common Stock that the Class B Stockholders receive for their shares of Class B
Common Stock. No provision is specifically set forth in FFGI's Charter as it
currently exists to compensate the Class B Stockholders for the additional
value, if any, of their shares of Class B Common Stock represented by their
right to receive the Special Dividend. Therefore, the Escrowed Shares Provision
of the Merger Agreement provides for the potential distribution of compensation
to the Class B Stockholders, all but one of whom (Ms Jarnagin) is a director of
FFGI, which is inconsistent with FFGI's current Charter. Therefore, a vote
"FOR" approval of the proposed Merger is in effect a vote to amend FFGI's
Charter to allow the Class B Stockholders to receive consideration in the
Merger to compensate them for the additional value, if any, in their Class B
Common Stock represented by the right to the Special Dividend, which the
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Class A Stockholders would not receive for their shares of Class A Common
Stock. See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS."
EMPLOYEE BENEFIT PLANS
Following the Merger, UPC would not be obligated to make further
contributions to any of the employee benefit plans or other plans of FFGI which
provide for any form of current or deferred compensation, bonus, stock option,
profit sharing, benefit, retirement, group health or insurance, incentive or
welfare for the benefit of any employee or class of employees of FFGI or any of
its subsidiaries, including Franklin Federal. Instead, all employees of FFGI
or any of its subsidiaries immediately prior to the Effective Time of the
Merger who shall continue as employees of FFGI or any of its subsidiaries after
the Effective Time of the Merger would be afforded the opportunity to
participate in any employee benefit plan or other plan maintained by UPC or any
of its subsidiaries on an equal basis with employees of UPC or any of its
subsidiaries with comparable positions, compensation and tenure. Service with
FFGI or its subsidiaries prior to the Effective Time of the Merger would not be
deemed to be service with UPC or its subsidiaries for the purpose of vesting in
such employee benefit plan of UPC or its subsidiaries.
LIMITATION ON NEGOTIATIONS
The Merger Agreement provides that FFGI and its subsidiaries shall not
(and shall use their best efforts to ensure that their respective directors,
officers, employees and advisors do not) institute, solicit or knowingly
encourage any inquiry, discussion or proposal, or participate in any discussion
or negotiation with, or provide any confidential or non-public information to,
any entity or group concerning any Acquisition Proposal, except for actions
reasonably considered by the FFGI Board, based upon the advice of outside
counsel, to be required in order for the FFGI Board to fulfill its fiduciary
obligations. FFGI must notify UPC immediately following receipt of any
Acquisition Proposal. As protection against possible violation of this
limitation, FFGI has granted UPC an option to purchase that number of shares of
FFGI Class A Common Stock and FFGI Class B Common Stock which would give UPC
nineteen percent (19%) of the total aggregate amount of all outstanding shares
of FFGI Common Stock in each such class. Such option would become exercisable,
however, only in the event and at the time that FFGI enters into a letter of
intent or agreement with respect to an Acquisition Proposal or supports or
indicates an intent to support an Acquisition Proposal other than pursuant to
the Merger Agreement. The limitation would remain in effect until, and the
option granted to UPC would expire upon the earlier of, effective termination
of the Merger Agreement or failure to consummate the Merger as a result of a
failure to satisfy any of the following conditions: 1) material inaccuracy of
the representations and warranties of UPC; 2) failure of UPC or Franklin
Acquisition to perform any material act, covenant or undertaking required under
the Merger Agreement to be performed prior to the Closing Date; 3) failure by
UPC or Franklin Acquisition to effect all corporate actions upon which
consummation of the Merger is conditioned; 4) failure to receive any applicable
government approval; 5) the occurrence of a material legal proceeding before
any court or governmental agency which presents a substantial risk of restraint
on or prohibition of the Merger; 6) determination by UPC that the Merger is
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impracticable; 7) failure of UPC's legal counsel to deliver the requisite legal
opinion; 8) determination by UPC not to consummate the Merger because of FFGI's
failure to maintain certain specified covenants; or 9) failure by UPC to
deliver to FFGI certificates verifying UPC's authority to transact the Merger.
See "--Conditions to Consummation of the Merger". These provisions may have
the effect of discouraging competing offers to acquire or merge with FFGI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS ABBREVIATED IN
NATURE AND IS INCLUDED FOR GENERAL INFORMATION ONLY. FURTHER, THE FEDERAL
INCOME TAX DISCUSSION BELOW DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE
MERGER, INCLUDING BUT NOT LIMITED TO ANY WITHHOLDING OBLIGATION, UPON FFGI
STOCKHOLDERS WHO ARE NOT RESIDENT CITIZENS OF THE UNITED STATES. ALL FFGI
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
This discussion is based on the Code, regulations and rulings now in
effect or proposed thereunder, current administrative rulings and practice, and
judicial precedent, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences discussed
herein. This discussion is also based on certain assumptions regarding the
factual circumstances that will exist at the Effective Time of the Merger,
including certain representations of UPC and FFGI. If any of these factual
assumptions should be inaccurate, the tax consequences of the Merger could
differ from those described herein. This discussion assumes that shares of
FFGI Common Stock are held as capital assets (within the meaning of Section
1221 of the Code).
Assuming the Merger occurs in accordance with the Merger Agreement,
the Merger would constitute a "reorganization" for federal income tax purposes
under Section 368(a)(1) of the Code, with the following federal income tax
consequences:
(1) FFGI Record Stockholders would recognize no gain or loss as a
result of the exchange of their FFGI Common Stock solely for shares of UPC
Common Stock received at the Closing pursuant to the Merger, except with
respect to cash received in lieu of fractional shares, if any, as discussed
below.
(2) The aggregate adjusted tax basis of the shares of UPC Common
Stock received by each FFGI Record Stockholder in the Merger (including any
fractional share of UPC Common Stock deemed to have been received, as described
in Paragraph 4 below) would be equal to the aggregate adjusted tax basis of the
shares of FFGI Common Stock surrendered.
(3) The holding period of the shares of UPC Common Stock received
by each FFGI Record Stockholder in the Merger (including any fractional share
of UPC Common Stock deemed
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to have been received, as described in Paragraph 4 below) would include the
holding period of the shares of FFGI Common Stock exchanged therefor.
(4) An FFGI Record Stockholder who receives cash in the Merger in
lieu of a fractional share of UPC Common Stock would be treated as if the
fractional share had been received in the Merger and then redeemed by UPC in
return for cash. The receipt of such cash would cause the recipient to
recognize capital gain or loss equal to the difference between the amount of
cash received and the portion of such holder's adjusted tax basis in the shares
of the UPC Common Stock allocable to the fractional share.
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL
INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FFGI STOCKHOLDER'S TAX STATUS AND
ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE
FOREGOING DISCUSSION MAY NOT APPLY TO EACH FFGI STOCKHOLDER. IN VIEW OF THE
INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH FFGI STOCKHOLDER SHOULD
CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO HIM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND
OTHER TAX LAWS.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling
of interests for accounting purposes. Under the pooling of interests method of
accounting, the assets and liabilities of FFGI would be carried at their
previously recorded amounts and, due to FFGI not being significant to UPC, only
the current year financial information will be restated as though FFGI and UPC
had been combined at the beginning of the year. Net income of UPC subsequent
to the Merger becoming effective would include the net income of FFGI and UPC
for the entire fiscal period in which the Merger is consummated.
In order for UPC to qualify for pooling of interests accounting
treatment, UPC could not issue more than ten percent (10%) of the consideration
for all of the shares of FFGI Common Stock in the form of "contingent"
consideration. The Escrowed Shares Provision is designed to meet this
requirement. UPC limited the number of Escrowed Shares that would ever be
deposited in escrow for the benefit of the Class B Stockholders to ten percent
(10%) of the aggregate number of whole shares issued in the Merger by UPC based
on the Exchange Ratio.
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EXPENSES
The Merger Agreement provides, in general, that UPC, FFGI and Franklin
Acquisition would each pay its own fees and expenses in connection with the
Merger Agreement and the transactions contemplated thereby, including fees and
expenses of its own independent accountant and counsel.
RESALES OF UPC COMMON STOCK
The shares of UPC Common Stock issued to FFGI Record Stockholders
pursuant to the Merger Agreement would be freely transferable under the
Securities Act, except for those shares of UPC Common Stock issued to any FFGI
executive officer, director or stockholder who shall be deemed to be an
"affiliate" of FFGI and, therefore, an "underwriter" with respect to the UPC
Common Stock received for purposes of Rule 145 under the Securities Act.
Affiliates may not sell their shares of UPC Common Stock acquired in connection
with the Merger except pursuant to an effective registration statement under
the Securities Act covering such shares or in compliance with Rule 145
promulgated under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to
be affiliates of FFGI generally include individuals or entities that control,
are controlled by or are under common control with FFGI and includes FFGI's
executive officers, directors and holders of ten percent (10%) or more of the
outstanding FFGI Common Stock. In addition, so that UPC would be able to
account for the Merger as a pooling of interests, affiliates of FFGI would be
prohibited from pledging on a nonrecourse basis, assigning, selling,
transferring or otherwise alienating or taking any action which would eliminate
or diminish the risk to them of owning or holding shares of UPC Common Stock
received in the Merger, or from entering into a formal or informal agreement to
do so, until UPC has published financial information reflecting the results of
combined operations of UPC and FFGI for a period of not less than thirty days.
UPC would place restrictive legends on certificates representing UPC Common
Stock issued to all persons who are deemed by UPC to be "affiliates". The form
of the restrictive legend is set forth in the Merger Agreement, which is
attached as Appendix A to this Prospectus/Proxy Statement.
DISSENTERS' RIGHTS
FFGI Stockholders have the right to dissent from the Merger and obtain
in cash the fair value of their shares of FFGI Common Stock. FFGI Class B
Stockholders, however, have entered covenants not to perfect dissenters' rights
with respect to the shares of Class B Common Stock they own or control.
In order to perfect dissenters' rights with respect to the Merger, an
FFGI Stockholder must: 1) deliver to FFGI, before the vote is taken, written
notice of his or her intent to demand payment for his or her shares of FFGI
Common Stock if the Charter Amendment or the Merger is consummated; and 2) not
vote his or her shares of FFGI Common Stock in favor of the Merger and Merger
Agreement. Subsequent to stockholder approval of the Merger and Merger
Agreement, UPC would be required under Tennessee law to send to each FFGI
Stockholder who has perfected
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<PAGE> 67
dissenters' rights in accordance with the steps disclosed above, written notice
setting forth instructions for receipt of payment for their shares. Upon
receipt of such notice, dissenting FFGI Stockholders would become entitled to
receive payment for their shares of FFGI Common Stock when they: 1) demand
payment; 2) certify that they received their shares prior to the date of the
first public announcement of UPC's and FFGI's intention to merge; and 3)
deposit with UPC certificates representing their shares of FFGI Common Stock in
accordance with the instructions set forth in the notice. A copy of the
Tennessee legislation governing the exercise of dissenters' rights is attached
to this Prospectus/Proxy Statement as Appendix C.
THE ESCROW AGREEMENT
The following information concerning the Merger, insofar as it relates
to matters contained in the Escrow Agreement, is qualified in its entirety by
reference to such Escrow Agreement, which is annexed hereto as Appendix B and
incorporated herein by reference, and to the Merger Agreement, which is annexed
hereto as Appendix A and incorporated herein by reference. FFGI Stockholders
are urged to read carefully the Escrow Agreement and the Merger Agreement.
THE ESCROWED SHARES PROVISION
UPC, FFGI and all of the Class B Stockholders have entered into the
Escrow Agreement with UPNB as the Escrow Agent, in order to establish and set
forth the rights and responsibilities of the parties with respect to the
Escrowed Shares. Pursuant to the Merger Agreement, in addition to the 0.5440
shares of UPC Common Stock to be exchanged for each share of FFGI Class A
Common Stock and Class B Common Stock, UPC will deposit into escrow that number
of shares of UPC Common Stock as would equal ten percent (10%) of the number of
whole shares UPC would be required to deliver in the Merger based on the
Exchange Ratio. This ten percent (10%) is the maximum amount of Escrowed
Shares that UPC can deposit into escrow pursuant to the Merger Agreement and
Escrow Agreement and still account for the Merger as a pooling of interests.
The following example demonstrates how UPC will determine the actual
number of shares of UPC Common Stock to be deposited with the Escrow Agent
under the Escrow Agreement.
As of the Record Date there were 712,320 shares of Class A Common
Stock outstanding and 500,000 shares of Class B Common Stock
outstanding, for a total outstanding amount of 1,212,320. Multiplying
1,212,320 by the Exchange Ratio (0.5440) equals 659,502, which itself
is therefore the maximum number of shares of UPC Common Stock that UPC
would issue in the Merger based on the Exchange Ratio. Assuming there
are no FFGI Dissenting Stockholders, then in accordance with the
Escrowed Shares Provision of the Merger Agreement, UPC would issue to
UPNB in its capacity as Escrow Agent 65,950 Escrowed Shares, all of
which would be held by the Escrow Agent for the benefit of UPC and the
Class B Stockholders pursuant to the Escrow Agreement.
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<PAGE> 68
During the period of time that the Escrowed Shares are held in escrow
by the Escrow Agent, the Escrowed Shares would participate in all dividends and
other distributions made by UPC with respect to its UPC Common Stock. The
dividends paid by UPC to the Escrow Agent on the Escrowed Shares would be
deposited by the Escrow Agent into a money market account at UPNB. All
dividends paid on the Escrowed Shares and held by the Escrow Agent, and any
earnings thereon, would continue to be held in escrow by the Escrow Agent and
would not be distributed to the Class B Stockholders, or any of them, unless
and until the Escrowed Shares, or some portion thereof, are actually
distributed by the Escrow Agent to Class B Stockholders in accordance with the
terms of the Escrow Agreement.
The Escrowed Shares would be distributed by the Escrow Agent to the
Class B Stockholders ONLY in the event that FFGI successfully resolves the FFGI
Pending Litigation, and ONLY then if the proceeds received by FFGI from the
resolution of the FFGI Pending Litigation actually exceed the FFGI Pending
Litigation Expenses. There is no assurance that FFGI will in fact obtain a
favorable resolution of the FFGI Pending Litigation. If FFGI does, however, to
the extent that the proceeds received in the resolution of the FFGI Pending
Litigation exceeds the aggregate FFGI Pending Litigation Expenses, the
remainder (the "Net FFGI Pending Litigation Proceeds") would be divided by the
closing price per share of UPC Common Stock on the NYSE on the Effective Date
of the Merger in order to determine the maximum aggregate number of Escrowed
Shares that could be distributed to the Class B Stockholders. However, the
number of Escrowed Shares that could be delivered to the Class B Stockholders
in such event would be limited to the number of Escrowed Shares deposited by
UPC with the Escrow Agent. Only those dividends received by the Escrow Agent
with respect to the Escrowed Shares actually distributed to Class B
Stockholders, and the earnings on those dividends while held in escrow, would
be distributed to the Class B Stockholders when the Escrowed Shares are
distributed, assuming they are, pursuant to the Escrow Agreement.
The following examples demonstrate how the Escrowed Shares Provision
would work in determining how many Escrowed Shares would be delivered to the
Class B Stockholders if the FFGI Pending Litigation is successfully resolved.
These examples are for illustrative purposes only and are not intended to be,
and should not be construed as, representations, projections or forecasts as to
what the value of UPC Common Stock will be on the Effective Date of the Merger,
or anytime thereafter; the amount of dividends UPC will pay on its UPC Common
Stock; the amount of earnings that will accrue on the Escrowed Shares while
held by the Escrow Agent; the amount of proceeds FFGI would receive upon
resolution of the FFGI Pending Litigation, or even if FFGI will successfully
resolve the FFGI Pending Litigation.
For purposes of these examples, the following assumptions have been
made. First, UPC deposits 65,950 shares of UPC Common Stock with the Escrow
Agent as Escrowed Shares. Second, the closing price of UPC Common Stock on
the Effective Date of the Merger was $30.00 per share. Third, the Net FFGI
Pending Litigation Proceeds (proceeds less litigation expenses incurred after
March 4, 1996) was $5 million. Fourth, the FFGI Pending Litigation is resolved
in three years. Fifth, dividends on the Escrowed Shares, and earnings on the
investment of those dividends, generated $1.25 per Escrowed Share per year.
Sixth, the market price of UPC Common Stock at the time the Escrowed Shares
were actually distributed to Class B Stockholders was $40
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per share. Finally, no Class B Stockholder defaults under the Escrow Agreement
so at the time the Escrowed Shares are set to be distributed, all 65,950
Escrowed Shares are still held in escrow.
EXAMPLE A: Based on those assumptions, and again, for illustrative
purposes only, the number of Escrowed Shares that would be distributed by the
Escrow Agent to the Class B Stockholders would be 65,950 shares. The $5
million Net FFGI Pending Litigation Proceeds would be divided by the $30
closing price per share of UPC Common Stock on the Effective Date of the Merger
to determine the maximum number of Escrowed Shares that possibly could be
distributed to Class B Stockholders. Dividing $5 million by $30 would equate
to 166,666 shares, but the maximum number of Escrowed Shares held by the Escrow
Agent that possibly could be distributed to Class B Stockholders would be
65,950. The 65,950 Escrowed Shares would have an aggregate value at the time
of distribution from escrow of $2,638,000 (65,950 X $40 market value). Since
there are 500,000 shares of Class B Common Stock outstanding, then the Class B
Stockholders would receive 0.1319 (65,950 divided by 500,000) shares of UPC
Common Stock, and approximately $0.49 (3 years times $1.25 dividends and
earnings per share per year multiplied by 0.1319) for each share of their Class
B Common Stock that the Class A Stockholders did not receive for their Class A
Common Stock. If the UPC Common Stock was worth $40 per share at that time,
then the Class B Stockholders would get approximately $5.77 additional per
share for their Class B Common Stock that the Class A Stockholders did not
receive for their Class A Common Stock in the Merger. (0.1319 X $40 = $5.28 +
.49 = $5.77).
EXAMPLE B: In this example, the Net FFGI Pending Litigation Proceeds
are assumed to be $1 million. In that case, the number of Escrowed Shares that
would be distributed would be 33,333 ($1 million divided by 30 equals 33,333).
The Escrowed Shares would have an aggregate market value at the time of
distribution from escrow of $1,333,320 (33,333 X $40 market value). The Class
B Stockholders would receive .06666 Escrowed Shares for each share of Class B
Common Stock they had (33,333 divided by 500,000). At a then current market
value of $40 per share, that equates to approximately $2.67 additional
compensation per share with an additional $0.25 in dividends and earnings
allocation. In other words, the Class B Stockholders under that situation
would receive additional compensation of approximately $2.92 per share on their
Class B Common Stock that the Class A Stockholders would not have received on
their Class A Common Stock.
QUALIFYING CLASS B STOCKHOLDERS; NO TRANSFERS
Only those persons who immediately prior to the Effective Time of the
Merger were FFGI Record Stockholders of the then outstanding FFGI Class B
Common Stock and who have not perfected dissenters' rights with respect to
their Class B Common Stock would be deemed to be Escrow Participants entitled
to rights under the Escrow Agreement, including the right to receive Escrowed
Shares or any other distribution thereunder. Consequently, if any such FFGI
Record Stockholder transfers shares of FFGI Class B Common Stock after March 4,
1996 and prior to the Effective Time of the Merger, it would be a condition
precedent to FFGI's obligation to register such transfer on its books and
records that the recipient or recipients of such transfer(s) join in the Escrow
Agreement.
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Each individual Escrow Participant's interest in the Escrowed Shares
(a "Proportionate Interest"), including earnings and distributions thereon,
would equal the percentage of the total value of the Escrowed Shares determined
by dividing (i) the number of shares of FFGI Class B Common Stock such Escrow
Participant held of record immediately prior to the Effective Time of the
Merger by (ii) the remainder after subtracting (x) the number of shares of FFGI
Class B Common Stock for which dissenters' rights have been perfected from (y)
the total number of shares of FFGI Class B Common Stock outstanding immediately
prior to the Effective Time of the Merger. For example, assuming that 500,000
shares of FFGI Class B Common Stock would be outstanding prior to the Effective
Time of the Merger, if a person owned 25,000 shares of FFGI Class B Common
Stock at the Effective Time of the Merger and dissenters' rights were not
perfected with respect to any shares, that person would become an Escrow
Participant and his Proportionate Interest would be 5% (25,000/500,000).
Proportionate Interests are not transferable except through intestate
succession, pursuant to a last will and testament or pursuant to a final
qualified domestic relations order. Should an Escrow Participant (a Class B
Stockholder) fail to pay his or her proportionate share of the FFGI Pending
Litigation Expenses, his or her interest in the Escrow Agreement would be
forfeited and his or her proportionate number of shares would be returned to
UPC, along with all earnings thereon.
DUTIES AND RIGHTS OF THE ESCROW PARTICIPANTS
As a material inducement to UPC and Franklin Acquisition to enter into
the Merger Agreement, the Class B Stockholders collectively agreed in the
Escrow Agreement to pay one-half (1/2) of the FFGI Pending Litigation Expenses,
which includes all costs and expenses incurred in connection with the FFGI
Pending Litigation on behalf of FFGI, Franklin Federal or UPC after March 4,
1996. In this regard, each individual Class B Stockholder has covenanted to
promptly pay his or her proportionate share of the one-half (1/2) of the FFGI
Pending Litigation Expenses on a semi-annual basis.
Each Escrow Participant will be required to pay his or her
Proportionate Interest of one-half of the FFGI Pending Litigation Expenses
within twenty (20) business days of receiving from UPC an invoice itemizing the
components of the FFGI Pending Litigation Expenses. As collateral for such
obligation to pay, each FFGI Class B Stockholder who may become an Escrow
Participant has granted to UPC a security interest in all of his or her rights
under the Escrow Agreement. If UPC does not timely receive an Escrow
Participant's portion of the FFGI Pending Litigation Expenses, UPC would mail
to the delinquent Escrow Participant and each of the other Escrow Participants
a reminder notice indicating the delinquent amount and demanding full and
complete payment of such amount plus a late payment fee equal to five percent
(5%) of the delinquent amount, to be received by UPC within twenty (20)
business days after the date on which the reminder notice is first sent. The
failure of UPC to receive the delinquent portion of the FFGI Pending Litigation
Expenses would result in the involuntary withdrawal of the defaulting Escrow
Participant's rights under the Escrow Agreement, in which case such
Proportionate Interest would be forfeited and returned to UPC.
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An Escrow Participant may voluntarily withdraw his or her rights under
the Escrow Agreement by giving written notice of such withdrawal to the Escrow
Agent, UPC and the law firm of McCampbell & Young, P.C. In the case of such a
voluntary withdrawal, the withdrawing Escrow Participant's Proportionate
Interest in the Escrowed Shares would be distributed to UPC upon its request
and the remaining Escrow Participants would have no right whatsoever to such
Proportionate Interest.
The effect of a withdrawal, whether voluntary or involuntary, would be
that the Escrow Participant would have no duty to pay any portion of the FFGI
Pending Litigation Expenses that accrue subsequent to the effective date of
such withdrawal and that the Escrow Participant would have no rights whatsoever
with respect to his Proportionate Interest in the Escrowed Shares or to any
earnings or distributions with respect thereto.
Each Escrow Participant shall have the right to instruct the Escrow
Agent how to vote the portion of the Escrow Shares equal to his or her
Proportionate Interest.
DUTIES AND RIGHTS OF THE ESCROW AGENT
It shall be the duty of the Escrow Agent to: 1) hold the Escrowed
Shares solely for the benefit of UPC and the FFGI Class B Stockholders; 2)
refrain from issuing a certificate or certificates representing a Proportionate
Interest in the Escrow Account; 3) refrain from recognizing or registering the
transfer or alienation of any right or interest of any Escrow Participant with
respect to the Escrow Agreement, except as set forth specifically in the Escrow
Agreement; 4) accept cash dividends and other distributions made by UPC on the
Escrowed Shares and deposit such cash dividends in a money market account; 5)
withhold and report taxes assessed against the assets of the Escrow Account; 6)
provide a written report to each Escrow Participant, other than those who have
exercised withdrawal rights, on a quarterly basis; 7) for each Escrow
Participant's Proportionate Interest in the Escrowed Shares, vote the Escrowed
Shares as directed by that Escrow Participant; and 8) make distributions
pursuant to the terms and conditions of the Escrow Agreement. The parties to
the Escrow Agreement have agreed that the Escrow Agent would have no obligation
or liability under the Escrow Agreement except to perform these duties.
In exchange for the performance of its duties under the Escrow
Agreement, the Escrow Agent will receive an escrow fee in the amount of $8,000
per year. Such fee will be deemed an FFGI Pending Litigation Expense.
CERTAIN OTHER RELATED MATTERS
In executing the Escrow Agreement, the FFGI Class B Stockholders, in
their individual capacities and not jointly, warranted to UPC, the Escrow
Agent, FFGI and Franklin Federal that: (i) as of the Effective Time of the
Merger, he or she would own, free and clear of any lien or encumbrance of any
nature whatsoever, the specific number of shares of FFGI Class B Common Stock
set forth next to his or her name in Exhibit A to the Escrow Agreement, which
is attached to this Prospectus/Proxy Statement as Appendix B; (ii) he or she
has not entered into any contract or
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agreement of any nature, other than the Merger Agreement, pursuant to which he
or she has agreed to sell, transfer, assign, pledge, encumber or otherwise
alienate any shares of FFGI Class B Common Stock to any third party, other than
by a last will and testament or qualified domestic relations order; (iii) after
the date of the Escrow Agreement and prior to the earlier of the Effective Time
of the Merger or the effective termination of the Merger Agreement, he or she
will not sell, transfer, assign, pledge, encumber or otherwise alienate in any
manner, or enter an agreement to alienate in any manner, any shares of FFGI
Class B Common Stock that he or she owns or controls or any rights he or she
may have under the Escrow Agreement, other than by a last will and testament, a
qualified domestic relations order or pursuant to the terms of the Escrow
Agreement; (iv) he or she has full power and authority to execute and deliver
the Escrow Agreement; (v) his or her execution and delivery of the Escrow
Agreement, and agreement to be bound by its terms, does not and will not
violate any term, or constitute a default, under any material contract,
agreement, instrument, lien or understanding pursuant to which he or she is
bound which could result in the imposition of a lien or encumbrance of any
nature whatsoever upon any share of FFGI Class B Common Stock or any interest
of such FFGI Class B Stockholder under the Merger Agreement or the Escrow
Agreement; (vi) all consents, approvals and authorities required for his or her
execution and delivery of the Escrow Agreement have been obtained and were in
full force and effect as of the date of the Escrow Agreement; and (vii) he or
she has received no notice of any nature whatsoever that any third party has
objected to, or intends to object to, his or her execution and delivery of the
Escrow Agreement or that any third party claims, or may claim, any interest of
any nature whatsoever with respect to any shares of FFGI Class B Common Stock
owned or controlled by such FFGI Class B Stockholder or to any right of such
FFGI Class B Stockholder under the Merger Agreement or the Escrow Agreement.
The Escrow Agreement may be modified only in writing signed by FFGI
and each individual FFGI Class B Stockholder or Escrow Participant who has not
exercised his or her right of withdrawal. The Escrow Agreement is incorporated
by reference into the Merger Agreement and Plan of Merger.
COMPLETED AND PENDING LITIGATION
Completed Litigation. In January 1989, Franklin Federal, by agreement
with the Federal Home Loan Bank Board (the "FHLBB") and the Federal Savings and
Loan Insurance Corporation ("FSLIC"), was converted by a supervisory merger
from a mutual to a stock form of ownership by a capital contribution from FFGI
in the amount of $5.0 million. At the time of the conversion, Franklin Federal
had a negative net worth of $9.4 million, which was classified upon acquisition
by FFGI as "supervisory goodwill" of Franklin Federal and permitted to be
treated as regulatory capital and to be amortized over a 25 year period.
Subsequently, in August 1989, Congress passed the Financial
Institutions Reform and Recovery and Enforcement Act ("FIRREA") which required,
among other things, new capital requirements and the phase out of supervisory
goodwill as part of regulatory capital by January 1, 1995. In June 1990, FFGI,
Franklin Federal and certain of FFGI's stockholders filed a complaint in the
Federal District Court for the Eastern District of Tennessee seeking to enjoin
the OTS and the
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Federal Deposit Insurance Corp. (the "FDIC"), the successor in interest to the
FSLIC, from appointing a conservator and/or receiver for Franklin Federal and
from taking any action inconsistent with the parties' agreements entered into
at the time of the voluntary supervisory conversion. As a result, in July
1990, the Federal District Court held that Congress, in FIRREA, preserved
rather than abrogated the parties' agreement and entered a permanent injunction
enjoining the OTS from excluding supervisory goodwill from Franklin Federal's
regulatory capital calculations.
On appeal, however, in March 1991, the United States Court of Appeals
for the Sixth Circuit reversed the Federal District Court's decision and
dissolved the permanent injunction. In so doing, the Court of Appeals held
that FIRREA overruled any agreement between the parties and stated that, if
there was a contract between the parties, Congress may have "effected a taking"
through the enactment of FIRREA.
The FFGI Pending Litigation. In October 1992, FFGI, Franklin Federal
and certain of FFGI's stockholders filed suit commencing the FFGI Pending
Litigation, which is captioned Franklin Financial Group, Inc., et al. v.
United States of America, Civil Action No. 92-7397 (U.S. Claims Court). In the
FFGI Pending Litigation, the plaintiffs allege breach of contract and an
unconstitutional taking of property. The plaintiffs seek unspecified monetary
damages, attorneys' fees and court costs.
Following the Merger, UPC would manage the FFGI Pending Litigation on
behalf of FFGI and Franklin Federal. Such litigation management would include,
but not be limited to, compliance with the engagement letter between FFGI and
current counsel; hiring and retention of counsel; approval of expenses,
consultants and experts; and prosecution of the litigation with the intention
of achieving the best feasible result therein. Except to the extent that it
commits intentional conscious fraud in connection with the FFGI Pending
Litigation, UPC would have no liability to any party for any error or omission
in connection with the litigation. Furthermore, each FFGI Class B Stockholder
has released UPC, the Escrow Agent, FFGI, Franklin Federal and their respective
directors, officers, employees, agents and representatives from any and all
liability or responsibility should the execution and delivery of the Escrow
Agreement or Merger Agreement adversely affect any claims they may have in the
FFGI Pending Litigation.
Current Status of the FFGI Pending Litigation. For the past several
years, there has been little action taken with respect to the FFGI Pending
Litigation while similar lawsuits were tried before the federal courts and
appealed to the United States Supreme Court. On July 1, 1996, the United
States Supreme Court ruled in U.S. v. Winstar Corp., et al., 13S L.Ed.2d 964
(1996), that the United States could be liable for breach of contract resulting
from regulatory action taken by various bank regulatory agencies that limited
or eliminated the ability of federal savings associations to include
"supervisory goodwill" in their capital calculations for compliance with
regulatory capital minimums. Until the Winstar decision, it was unclear
whether the United States could be relieved of all liability based on a number
of defenses asserted by the government. It is now anticipated that the FFGI
Pending Litigation will move forward as FFGI attempts to prove that it had an
enforceable contractual right to include "supervisory goodwill" in its capital
calculations and that it was actually damaged by the enactment and enforcement
of FIRREA. While FFGI
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believes it had a contractually enforceable right to include supervisory
goodwill in its capital calculations, that issue has not been litigated. FFGI
is currently analyzing various theories to support a damages claim but is not
now in a position to provide an estimate of its likelihood of success in the
litigation. While FFGI believes that it can prove these issues, there is no
guarantee that it will be successful in resolving the FFGI Pending Litigation.
Current expectations are that it may take several years for the FFGI Pending
Litigation to be resolved. It may not take that long or it may take longer.
PRIVATE PLACEMENT OF THE CLASS B SHARES
Because of the Court of Appeals' ruling that FIRREA overruled any
agreements between Franklin Federal, FFGI, the FHLBB and the FDIC, the negative
net worth of Franklin Federal that resulted from its conversion to a stock form
of ownership was no longer treated as supervisory goodwill. Accordingly,
Franklin Federal was not in compliance with regulatory capital requirements as
revised by FIRREA. To bring Franklin Federal into compliance with FIRREA's
capital requirements, FFGI completed a private placement in March 1993 in which
it issued Class B Common Stock to the Class B Stockholders. Concurrently with
this private placement, FFGI's Charter was amended and restated on August 26,
1993 to provide that, if FFGI receives proceeds from the FFGI Pending
Litigation, the FFGI Board would be authorized and required, to the extent
permitted by applicable law and regulations, to declare and pay the Special
Cash Dividend to the Class B Stockholders to the exclusion of the Class A
Stockholders.
[This space left blank intentionally]
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THE FFGI CLASS B STOCKHOLDERS
The FFGI Class B Stockholders, each of whom received his or her shares
in the private placement, and the number of shares of Class B Common Stock
owned by each, are identified below.
<TABLE>
<CAPTION>
Number of Shares of FFGI Class B
FFGI Class B Stockholders Common Stock Owned
------------------------- --------------------------------
<S> <C>
George O. Haggard, Jr.* 72,500
Ben B. Jarnagin*
36,250
Marjorie C. Jarnagin 36,250
Richard C. Jessee*
50,000
A. Eugene Jolley* 100,000
Jean S. Keener* 50,000
George B. McGuffin*
145,000
Charles G. Robinette*
10,000
--------
Total 500,000
=======
</TABLE>
*Also a director of FFGI.
Each of these individual FFGI Class B Stockholders is a party to the
Merger Agreement and the Escrow Agreement. In executing such agreements, each
agreed to neither sell nor transfer his or her Proportionate Interest in the
Escrowed Shares, except through intestate succession, pursuant to a last will
and testament, pursuant to a final qualified domestic relations order or upon
failure to pay his or her share of the FFGI Pending Litigation Expenses.
Furthermore, in executing such agreements, each has covenanted that he or she
will not perfect dissenters' rights with respect to his or her shares of Class
B Common Stock in connection with a vote on the proposed Merger.
CERTAIN REGULATORY CONSIDERATIONS
The following discussion sets forth certain of the material elements
of the regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to UPC. For additional
information regarding community reinvestment,
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transactions with affiliates, brokered deposits, safety and soundness
standards, and depositor preference, see Part I, Item 1 of UPC's Annual Report
on Form 10-K for the year ended December 31, 1995, under the caption
GOVERNMENTAL SUPERVISION AND REGULATION OF FINANCIAL INSTITUTIONS which
information is hereby incorporated by reference in this Prospectus/Proxy
Statement.
GENERAL
UPC is a bank holding company registered with the Federal Reserve
under the BHC Act. As such, UPC and its non-bank subsidiaries are subject to
the supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve. In addition, as savings and loan holding
companies, both UPC and FFGI are registered with the OTS under the HOLA and are
subject to regulation, supervision, examination, and reporting requirements of
the OTS.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company. Similar federal statutes require savings and loan holding
companies and other companies to obtain the prior approval of the OTS before
acquiring direct or indirect ownership or control of a savings association.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint
of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of the
community to be served. Consideration of financial resources generally focuses
on capital adequacy, and consideration of convenience and needs issues includes
the parties' performance under the Community Reinvestment Act of 1977, as
amended (the "CRA"), discussed below and in Part I, Item 1 of UPC's Annual
Report on Form 10-K.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that UPC and any other bank holding company
located in Tennessee may now acquire a bank located in any other state, and any
bank holding company located outside of Tennessee may lawfully acquire any
Tennessee-based bank, regardless of state
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law to the contrary, in either case subject to certain deposit-percentage,
aging requirements, and other restrictions. The Interstate Banking Act also
generally provides that, after June 1, 1997, national and state-chartered banks
may branch interstate through acquisitions of banks in other states. By
adopting legislation prior to that date, a state has the ability either to "opt
in" and accelerate the date after which interstate branching is permissible or
"opt out" and prohibit interstate branching altogether. As of the date of this
Prospectus/Proxy Statement, Tennessee has not "opted in" nor "opted out."
Assuming no state action prior to June 1, 1997, UPC would be able to
consolidate all of its bank subsidiaries into a single bank with interstate
branches following that date, however its present intention is to maintain
separately chartered regional banks to serve each of UPC's significant
geographical service areas.
The BHC Act generally prohibits UPC from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity
is permissible, the Federal Reserve must consider whether the performance of
such an activity reasonably can 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. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act
does not place territorial limitations on permissible non-banking activities of
bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a holding company or its subsidiaries to terminate any activity
or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness, or stability of any bank subsidiary of that bank holding company.
Each of the banking and thrift subsidiaries of UPC is a member of the
Federal Deposit Insurance Corporation (the "FDIC"), and as such, its deposits
are insured by the FDIC to the maximum extent provided by law. Each such
subsidiary is also subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations, and each is
supervised and examined by one or more state or federal bank regulatory
agencies.
All of UPC's Banking Subsidiaries that are state-chartered banks which
are not members of the Federal Reserve System, are subject to regulation,
supervision, and examination by the FDIC and the state banking authorities of
the states in which they are located. The banking subsidiaries of UPC that are
national banking associations are subject to regulation, supervision, and
examination by the OCC and the FDIC. The thrift subsidiaries of UPC are
subject to regulation, supervision, and examination by the OTS and the FDIC.
The federal banking regulator for each of
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the banking and thrift subsidiaries of UPC, as well as the appropriate state
banking authorities in the case of those depository institution subsidiaries
that are state-chartered, regularly examine the operations of each of the
banking and thrift subsidiaries of UPC and are given authority to approve or
disapprove mergers, consolidations, the establishment of branches, and similar
corporate actions. The federal and state banking regulators also have the
power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
PAYMENT OF DIVIDENDS
UPC and FFGI are legal entities separate and distinct from their
banking, thrift, and other subsidiaries. The principal sources of cash flow of
both UPC and FFGI, including the cash flow required to pay dividends to their
respective stockholders, are dividends and management fees received from their
banking and thrift subsidiaries. There are statutory and regulatory
limitations on the payment of dividends by these depository-institution
subsidiaries to UPC and FFGI, as well as by UPC and FFGI to their stockholders.
All of UPC's Banking Subsidiaries are subject to the respective laws
and regulations of the states in which they are chartered as to the payment of
dividends. Each national banking association subsidiary of UPC is required by
federal law to obtain the prior approval of the OCC for the payment of
dividends if the total of all dividends declared by the bank in any year would
exceed the total of (i) such bank's net profits (as defined and interpreted by
regulation) for that year, plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. In addition, national banks may lawfully pay only
dividends to the extent that their retained net profits (including the portion
transferred to surplus) exceed statutory bad debts (as defined by regulation).
If, in the opinion of its federal banking regulator, a bank or thrift
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "--Prompt
Corrective Action." Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
At June 30, 1996, under dividend restrictions imposed under federal
and state laws, the banking and thrift subsidiaries of UPC, without obtaining
governmental approvals, could have lawfully declared aggregate dividends to UPC
of approximately $49.0 million.
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The payment of dividends by UPC and FFGI and their banking and thrift
subsidiaries may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines.
CAPITAL ADEQUACY
UPC, FFGI, and their respective banking and thrift subsidiaries are
required to comply with the capital adequacy standards established by the
Federal Reserve and OTS in the case of UPC and FFGI, respectively, and by the
appropriate federal banking regulator in the case of each of their banking and
thrift subsidiaries. There are two basic measures of capital adequacy for bank
holding companies that have been promulgated by the Federal Reserve: a
risk-based measure and a leverage measure. All applicable capital standards
must be satisfied for a bank holding company to be considered to be
"well-capitalized."
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weighting.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio ("Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
one-half of Total Capital must consist of common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a
limited amount of loan loss reserves ("Tier 2 Capital"). At June 30, 1996,
UPC's consolidated Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital
Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 16.85%
and 13.19%, respectively, and FFGI's consolidated Risk-Based Capital and Tier 1
Risk-Based Capital Ratios were 14.30% and 13.67% respectively.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3.0% for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 100
to 200 basis points. UPC's and FFGI's respective Leverage Ratios at June 30,
1996, were 8.49% and 8.63%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a "tangible
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Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion or new activities.
Each of UPC's and FFGI's banking and thrift subsidiaries is subject to
risk-based and leverage capital requirements adopted by its federal banking
regulator, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. Each of the banking and thrift
subsidiaries was deemed to be "well-capitalized" under applicable capital
guidelines as of June 30, 1996. Neither UPC, FFGI, nor any of their banking
and thrift subsidiaries has been advised by any federal banking agency of any
specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank (or thrift) to
a variety of enforcement remedies, including issuance of a capital directive,
the termination of deposit insurance by the FDIC, a prohibition on the taking
of brokered deposits, and certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve, the OCC, and the FDIC have,
pursuant to FDICIA, proposed an amendment to the risk-based capital standards
that would calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures. The OTS has already included an
interest-rate risk component in its risk-based capital guidelines for savings
associations that it regulates.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, UPC is expected to act as a source of
financial strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, UPC may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness
of such banks. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a banking subsidiary would be assumed by the bankruptcy
trustee and entitled to priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as
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the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance. The FDIC's claim for damages is
superior to claims of shareholders of the insured depository institution or its
holding company, but is subordinate to claims of depositors, secured creditors,
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institution. The banking and thrift subsidiaries
of UPC and FFGI are subject to these cross-guarantee provisions. As a result,
any loss suffered by the FDIC in respect of any of these subsidiaries would
likely result in assertion of the cross-guarantee provisions, the assessment of
such estimated losses against the banks' or the thrifts' depository institution
affiliates, and a potential loss of UPC's investments in such other banking and
thrift subsidiaries.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of "prompt corrective action" to resolve
the problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the appropriate banking regulator to
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation
the relevant capital level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital Ratio of 10% or
greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be "well capitalized." An
institution with a Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be "adequately capitalized." A depository institution
that has a Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be "undercapitalized." A depository institution that has a
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio
of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
"significantly undercapitalized," and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its
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appropriate federal banking agency. Under FDICIA, a bank holding company must
guarantee that a subsidiary depository institution will meet its capital
restoration plan, subject to certain limitations. The obligation of a
controlling bank holding company under FDICIA to fund a capital restoration
plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's
assets or the amount required to meet regulatory capital requirements. An
undercapitalized institution is also generally prohibited from increasing its
average total assets, making acquisitions, establishing any branches, or
engaging in any new line of business, except in accordance with an accepted
capital restoration plan or with the approval of the FDIC. In addition, the
appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to, or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At June 30, 1996, all of the banking and thrift subsidiaries of both
UPC and FFGI had the requisite capital levels to qualify as "well capitalized."
FDIC INSURANCE ASSESSMENTS
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the categories described
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above under "Prompt Corrective Action," with the undercapitalized category
including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance funds (which may include,
if applicable, information provided by the institution's state supervisor). An
institution's insurance assessment rate is then determined based on the capital
category and supervisory category to which it is assigned. Under the final
risk-based assessment system, as well as the prior transitional system, there
are nine assessment risk classifications (i.e., combinations of capital groups
and supervisory subgroups) to which different assessment rates are applied.
Assessment rates for members of both the BIF and the SAIF for the first half of
1995, as they had been during 1994, ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period
of time.
Once the designated ratio for the BIF was reached, which appears to
have occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. More recently, on November 14, 1995, the FDIC announced
that, beginning in 1996, it would reduce the deposit insurance premiums for BIF
members in the highest capital and supervisory categories to $2,000 per year,
regardless of deposit size. The FDIC has also elected to retain the existing
assessment rate of 23 to 31 basis points for SAIF members for the foreseeable
future given the undercapitalized status of that insurance fund.
Several proposed bills have been introduced into the United States
legislature, the main purpose of which is to provide additional capitalization
of the SAIF and to provide funds to pay interest and/or principal on bonds
issued to finance governmental costs associated with the savings and loan
industry. A common feature of the proposed legislation is a one-time payment
to the SAIF and BIF by both savings associations and banks. The consideration
of these proposed bills is ongoing, and at this time it is impossible to state
with accuracy the amounts, if any, UPC and FFGI, or any of their subsidiaries,
will be required to pay in connection with any such legislation should it be
passed, or the effect such payments, if any, will have on the financial
condition of UPC or FFGI. See "SUMMARY--Recent Developments Affecting
UPC--Earnings Considerations Relating to Potential Special Regulatory
Assessment".
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order, or condition imposed by
the FDIC.
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PROPOSED LEGISLATION
Because of concerns relating to the competitiveness and the safety and
soundness of the industry, the Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and competitive
relationships of the nation's financial institutions. Among such bills are
proposals to combine banks and thrifts into a unified charter, to alter the
statutory separation of commercial and investment banking, and to further
expand the powers of depository institutions, bank holding companies, and
competitors of depository institutions. It cannot be predicted whether or in
what form any of these proposals will be adopted or the extent to which the
business of UPC or FFGI may be affected thereby.
DESCRIPTION OF UPC COMMON AND PREFERRED STOCK
UPC's Charter currently authorizes the issuance of 100,000,000 shares
of common stock having a par value of $5.00 per share (the "UPC Common Stock")
and 10,000,000 shares of preferred stock having no par value (the "UPC
Preferred Stock"). As of July 31, 1996, 46,129,307 shares of UPC Common Stock
were issued and outstanding and approximately 1,107,000 shares were subject to
issuance through the exercise of options granted pursuant to UPC's 1992 and
1983 Stock Option Plans and other employee, officer and director benefit plans;
approximately 502,000 shares were authorized for issuance pursuant to said
plans but not yet subject to option grants or otherwise issued; and
approximately 4,758,492 shares were authorized for issuance and reserved for
conversion of certain outstanding shares of UPC Preferred Stock. In addition,
as of July 31, 1996, 3,489,336 shares of UPC's 8% Cumulative, Convertible
Preferred Stock, Series E (the "Series E Preferred Stock") were issued and
outstanding. As of July 31, 1996, none of UPC's authorized shares of Series A
Preferred Stock were issued and outstanding nor is management aware of the
existence of circumstances from which it may be inferred that such issuance is
imminent. THE CAPITAL STOCK OF UPC DOES NOT REPRESENT OR CONSTITUTE A DEPOSIT
ACCOUNT AND IS NOT INSURED BY THE FDIC, THE BIF, THE SAIF OR ANY GOVERNMENTAL
AGENCY.
UPC COMMON STOCK
General. Shares of UPC Common Stock may be issued at such time or
times and for such consideration (not less than the par value thereof) as the
UPC Board may deem advisable, subject to such limitations as may be set forth
in the laws of the State of Tennessee, UPC's Charter or Bylaws or the rules of
the NYSE. Union Planters National Bank, a wholly-owned subsidiary of UPC, is
the Registrar, Transfer Agent and Dividend Disbursing Agent for shares of UPC
Common Stock. Its street address is Union Planters National Bank, Corporate
Trust Department, 6200 Poplar Avenue, Third Floor, Memphis, Tennessee 38119.
Its mailing address is P.O. Box 387, Memphis, Tennessee 38147.
Dividends. Subject to the preferential dividend rights applicable to
outstanding shares of the UPC Preferred Stock and subject to applicable
requirements, if any, with respect to the setting aside
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of sums for purchase, retirement or sinking funds, if any, for all outstanding
UPC Preferred Stock, the holders of the UPC Common Stock are entitled to
receive, to the extent permitted by law, only such dividends as may be declared
from time to time by the UPC Board.
UPC has the right to, and may from time to time, enter into borrowing
arrangements or issue other debt instruments, the provisions of which may
restrict payment of dividends and other distributions on UPC Common Stock and
UPC Preferred Stock; however, UPC has no such arrangements in effect at the
date hereof.
Liquidation Rights. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of UPC, after
distribution in full of the preferential amounts required to be distributed to
the holders of UPC Preferred Stock, holders of UPC Common Stock will be
entitled to receive all of the remaining assets of UPC, of whatever kind,
available for distribution to stockholders ratably in proportion to the number
of shares of UPC Common Stock held. The UPC Board may distribute in kind to
the holders of UPC Common Stock such remaining assets of UPC or may sell,
transfer or otherwise dispose of all or any part of such remaining assets to
any other person or entity and receive payment therefor in cash, stock or
obligations of such other person or entity, and may sell all or any part of the
consideration so received and distribute any balance thereof in kind to holders
of UPC Common Stock. Neither the merger or consolidation of UPC with or into
any other corporation, nor the merger of any other corporation into UPC, nor
any purchase or redemption of shares of stock of UPC of any class shall be
deemed to be a dissolution, liquidation or winding-up of UPC for purposes of
this paragraph.
Because UPC is a holding company, its right and the rights of its
creditors and stockholders, including the holders of UPC Preferred Stock and
UPC Common Stock, to participate in the distribution of the assets of a
subsidiary of UPC in connection with the subsidiary's liquidation or
recapitalization may be subject to prior claims of such subsidiary's creditors
except to the extent that UPC itself may be a creditor having recognized claims
against such subsidiary.
For a further discussion of UPC Common Stock, see "EFFECT OF MERGER ON
RIGHTS OF FFGI STOCKHOLDERS."
UPC PREFERRED STOCK
Series A Preferred Stock. UPC's Charter was amended on July 18, 1996
to increase the number of Series A Preferred Stock authorized and currently
provides for the issuance of up to 750,000 shares (subject to adjustment by
action of the UPC Board) of Series A Preferred Stock under certain
circumstances involving a potential change in control of UPC. None of such
shares are outstanding and management is aware of no facts suggesting that
issuance of such shares may be imminent. The Series A Preferred Stock is
described in more detail in UPC's Registration Statement on Form 8-A dated
January 19, 1989, and filed February 1, 1989 (Commission File No. 0-6919) which
is incorporated by reference herein. On July 18, 1996 the UPC Board authorized
the amendment of UPC's Charter to designate an additional 500,000 shares of
Series A Preferred Stock. The amendment will become effective upon filing with
the Tennessee Secretary of State.
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Series E Preferred Stock. 3,489,336 shares of Series E Preferred
Stock were outstanding as of July 31, 1996. Up to 317,458 shares of Series E
Preferred Stock are expected to be issued upon consummation of UPC's pending
acquisition of ENB, if and when adverse claims to ENB's stock shall have been
resolved to UPC's satisfaction in pending court proceedings. See
SUMMARY--Recent Developments--Other Pending Acquisitions." All shares of
Series E Preferred Stock have a stated value of $25.00 per share. Dividends
are payable at the rate of $0.50 per share per quarter and are cumulative. The
Series E Preferred Stock is convertible at the election of the holder at the
rate of 1.25 shares of UPC Common Stock for each share of Series E Preferred
Stock. The Series E Preferred Stock is not subject to any sinking fund
provisions and has no preemptive rights. Such shares have a liquidation
preference of $25.00 per share plus unpaid dividends accrued thereon and, at
UPC's option and with the prior approval of the Federal Reserve, are subject to
redemption by UPC at any time or from time to time after March 31, 1997 at a
redemption price of $25.00 per share plus any unpaid dividend. Holders of
Series E Preferred Stock have no voting rights except as required by law and in
certain other limited circumstances.
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of UPC's Charter and Bylaws and certain provisions
of Tennessee law may have an anti-takeover effect in that they could prevent,
discourage or delay a change in control of UPC. The following summary briefly
describes certain of those provisions. The summary is not intended to be
complete and is qualified in its entirety by reference to UPC's Charter and
Bylaws and to applicable Tennessee law.
CHARTER AND BYLAW PROVISIONS
Pursuant to UPC's Charter, the directors of UPC are elected for
three-year terms of office, and approximately one-third of the members of the
UPC Board are up for election each year. The Bylaws also provide that the
affirmative vote of the holders of 66% of the outstanding shares of UPC Common
Stock is required to remove any or all of the directors of UPC.
The Charter requires the affirmative votes of the holders of 66 2/3%
of the outstanding shares for approval of a merger, consolidation or a sale or
lease of all or substantially all of the assets of UPC if the other party to
the transaction is a beneficial owner of 10% or more of the outstanding shares
of UPC. The Charter also requires the affirmative votes of the holders of 66
2/3% of the outstanding stock to change the number, election and classification
of directors; to approve certain transactions as described above; or to amend
certain other provisions of the Charter.
SHARE PURCHASE RIGHTS PLAN
In 1989 the UPC Board adopted a Share Purchase Rights Plan and
distributed a dividend of one Preferred Share Unit Purchase Right (a "Right")
for each outstanding share of UPC Common Stock. Moreover, one Right was
required to be, automatically and without further action by UPC, distributed
with respect to each share of UPC Common Stock issued thereafter. The Rights
are
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generally designed to deter coercive takeover tactics and to encourage all
persons interested in potentially acquiring control of UPC to treat each
stockholder on a fair and equal basis. Each Right trades in tandem with the
share of UPC Common Stock to which it relates until the occurrence of certain
events indicating a potential change in control of UPC. Upon the occurrence of
such an event, the Rights would separate from UPC Common Stock and each holder
of a Right (other than the potential acquiror) would be entitled to purchase
certain equity securities at prices below their market value. UPC has
authorized 750,000 shares of Series A Preferred Stock for issuance under the
Share Purchase Rights Plan, but no shares have been issued as of the date of
this Prospectus/Proxy Statement. Until a Right is exercised, the holders
thereof, as such, will have no rights as stockholders of UPC and, consequently,
will have no right to vote or to receive dividends with respect thereto.
PROVISIONS OF THE TENNESSEE CODE
As a Tennessee corporation, UPC is or could be subject to various
legislative acts set forth in Chapter 35 of Title 48 of the Tennessee Code
which impose certain restrictions on business combinations including, but not
limited to, combinations with interested stockholders similar to those
described above.
The Tennessee Business Combination Act (the "Tennessee BCA") generally
prohibits a "business combination" (generally defined to include mergers, share
exchanges, sales and leases of assets, issuances of securities, and similar
transactions) by UPC or a subsidiary with an "Interested Shareholder"
(generally defined as any person or entity which beneficially owns 10% or more
of the voting power of any class or series of UPC's stock then outstanding)
within five years after the person or entity becomes an Interested Shareholder
unless the business combination or the transaction pursuant to which the
Interested Shareholder became such was approved by the UPC Board before the
Interested Shareholder became such and the business combination satisfies any
other applicable requirements imposed by law or by UPC's Charter or Bylaws.
The Tennessee BCA also severely limits the extent to which UPC or any of its
officers or directors can be held liable for resisting any business combination.
The Tennessee Control Share Acquisition Act (the "Tennessee CSAA")
restricts the voting powers of shares acquired by a party once a specific level
of control is acquired unless certain conditions are met. Specifically, the
Tennessee CSAA provides that "Control Shares" will not have the voting rights
to which they normally would be entitled unless approved by the other
shareholders at an annual or special meeting. "Control shares" are shares
that, in the absence of the Tennessee CSAA, would give the acquiror voting
power within any of the following ranges of all of the voting power of UPC: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more.
The provisions described above might be deemed to make UPC a less
attractive candidate for acquisition by another company than would otherwise be
the case in the absence of such provisions. For example, if another company
should seek to acquire a controlling interest of less than 66 2/3% of the
outstanding shares of UPC Common Stock, the acquiror would not thereby
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obtain the ability to replace a majority of the UPC Board until at least the
second annual meeting of stockholders following the acquisition. Furthermore,
the acquiror would not obtain the ability immediately to effect a merger,
consolidation or other similar business combination unless certain conditions
were met. As a result, UPC's stockholders may be deprived of opportunities to
sell some or all of their shares at prices that represent a premium over
prevailing market prices. The provisions described above also may make it more
difficult for UPC's stockholders promptly to replace the UPC Board or
management, even if the holders of a majority of the UPC Common Stock believe
that such replacement is in the best interest of UPC. As a result, such
provisions may tend to perpetuate the incumbent UPC Board and management.
EFFECT OF MERGER ON RIGHTS OF FFGI STOCKHOLDERS
At the Effective Date of the Merger, FFGI Record Stockholders
automatically will become holders of UPC Common Stock and their rights as such
will be determined by the Tennessee BCA and by UPC's Charter and Bylaws. The
following is a summary of the material differences between the rights of
holders of UPC Common Stock and the rights of holders of FFGI Common Stock.
REMOVAL OF DIRECTORS
Under FFGI's Amended and Restated Charter, a director of FFGI may be
removed only with cause by the vote of the holders of a majority of the shares
entitled to vote for the election of directors.
In contrast, UPC's Bylaws provide that directors may be removed with
or without cause by vote of the holders of 66 2/3% or more of the outstanding
shares entitled to vote in the election of directors.
REQUIRED STOCKHOLDER VOTES
Since FFGI's Charter is silent on the matter, Tennessee law provides
that the vote of the holders of a majority of the outstanding common stock of
FFGI (both Class A and Class B) shall be required to approve any merger,
consolidation or other business combination to which FFGI is a party. The UPC
Charter provides that the vote of the holders of 66 2/3% or more of the shares
entitled to vote shall be required to approve any merger or consolidation of
UPC with or into any other corporation or the sale, lease, exchange or other
disposition of substantially all of UPC's assets, if on the date of execution
of a binding agreement providing for such merger, sale or other disposition,
the corporation, person or entity into which UPC would be merged or to which
its assets would be sold is the beneficial owner of 10% or more of the
outstanding capital stock of UPC. Otherwise, to the extent the consent of UPC
stockholders is required under Tennessee law, the affirmative vote of a
majority of stockholders would be required under Tennessee law and UPC's Charter
to approve a merger, consolidation, or other business combination to which UPC
is a party.
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ELECTION OF DIRECTORS
UPC's Charter provides for a classified board of directors consisting
of three classes with staggered terms of three years each. Therefore, UPC
stockholders are entitled to elect only one class, i.e., approximately
one-third (1/3) of directors annually. To increase the number of UPC's
directors, 66 2/3% of the directors then sitting on the UPC Board must concur.
In contrast, FFGI's directors are elected annually to serve terms of one year.
AMENDMENT OF CHARTER
For amendment of certain provisions of UPC's Charter regarding the
election of directors, the approval of certain mergers, consolidations or
similar transactions and to certain other matters, the affirmative vote of 66
2/3% of the outstanding shares of UPC voting shares is required. For amendment
of other provisions of the FFGI Charter, the affirmative vote of a majority of
the votes eligible to be cast is required, in some cases with each class of
common stock voting separately.
SHARE PURCHASE RIGHTS PLAN
As described above under "CERTAIN PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT--Share Purchase Rights Plan," UPC Common Stock has
attached Rights, which may deter certain takeover proposals. FFGI does not
have a rights plan.
LIMITATIONS ON CHANGES IN CONTROL
As described above under "CERTAIN PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT--Provisions of the Tennessee Code," UPC is subject under
Tennessee law to restrictions regarding changes in control. As a
federally-chartered savings bank headquartered in Tennessee, these provisions
are not currently applicable to FFGI, since there is no similar provision under
applicable federal law.
MARKET PRICES OF UPC AND FFGI COMMON STOCK
UPC COMMON STOCK
The UPC Common Stock is listed on the NYSE under the symbol "UPC".
The following table sets forth for the periods indicated the high and low
closing sale prices of the UPC Common Stock on the NYSE and the cash dividends
declared per share of UPC Common Stock for the periods indicated:
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<TABLE>
<CAPTION>
PRICE RANGE CASH DIVIDENDS
------------------------------ DECLARED PER
HIGH LOW SHARE
------ ------ --------------
<S> <C> <C> <C>
1996
First Quarter $31.75 $29.00 $0.27
Second Quarter 31.25 29.63 0.27
Third Quarter
Through August 26, 1996 33.13 28.63 0.27
-----
Total $0.81
=====
1995
First Quarter $24.50 $20.88 $0.23
Second Quarter 28.13 23.13 0.25
Third Quarter 30.75 26.13 0.25
Fourth Quarter 32.25 29.63 0.25
-----
Total $0.98
=====
1994
First Quarter $26.25 $23.13 $0.21
Second Quarter 28.75 24.75 0.21
Third Quarter 26.00 23.50 0.23
Fourth Quarter 24.50 19.63 0.23
-----
Total $0.88
=====
</TABLE>
On August 26, 1996, the last sale price of UPC Common Stock as
reported on the NYSE was $32.50 per share.
The holders of UPC Common Stock are entitled to receive dividends
when, as and if declared by the UPC Board out of funds legally available
therefor. Although UPC currently intends to continue to pay quarterly cash
dividends on the UPC Common Stock, there can be no assurance that UPC's
dividend policy will remain unchanged after completion of the Merger. The
declaration and payment of dividends thereafter will depend upon business
conditions, operation results, capital and reserve requirements, and the UPC
Board's consideration of other relevant factors.
UPC is a legal entity separate and distinct from its subsidiaries and
its revenues depend in significant part on the payment of dividends and fees
from its subsidiary depository institutions. UPC's subsidiary depository
institutions are subject to certain legal restrictions on the amount of
dividends they are permitted to pay. See "CERTAIN REGULATORY
CONSIDERATIONS--Payment of Dividends."
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FFGI COMMON STOCK
As of July 31, 1996, the outstanding shares of FFGI Class A Common
Stock were held by approximately 280 holders of record and the outstanding
shares of FFGI Class B Common Stock were held by eight (8) holders of record.
The FFGI Common Stock is not publicly traded and no established market exists
for shares of FFGI Common Stock.
In each of its past two fiscal years FFGI paid a cash dividend, on a
semi-annual basis, of seventeen cents ($0.17) per share. The Merger Agreement
prohibits FFGI from paying any dividends other than this regular semi-annual
cash dividend. See "THE MERGER--Payment of Dividends." The amount of
dividends that FFGI may pay are further restricted by certain regulations of
the OTS and by certain provisions of the Code. See "CERTAIN REGULATORY
CONSIDERATIONS--Payment of Dividends" and "BUSINESS OF FFGI--Taxation."
BUSINESS OF FFGI
FFGI is a one-institution holding company and is the sole stockholder
of Franklin Federal. FFGI has its main office at 622 West First North Street,
Morristown, Tennessee. Franklin Federal is a $137.7 million savings bank with
its main office at 622 West First North Street, Morristown, Tennessee and three
branch offices located in Morristown, Jefferson City, and Newport, Tennessee.
In addition, Franklin Federal has three wholly owned subsidiaries: Colonial
Loan Association, with offices in Morristown, Jefferson City, and Knoxville,
Tennessee; Colonial Standard Title, with one office in Morristown, Tennessee;
and Franklin Insurance Group, with one office in Morristown, Tennessee.
Tables referred to in this section which are not set forth immediately
following the reference are presented at the end of this section. Stockholders
are urged to review the tables referred to herein concurrently with their
review of the textual disclosure contained in this section.
GENERAL
FFGI was incorporated under the laws of the State of Tennessee on
January 24, 1984, for the purpose of becoming a savings and loan holding
company for Franklin Federal. Prior to January, 1989, Franklin Federal, then
known as Morristown Federal Savings and Loan Association ("Morristown
Federal"), was a federal mutual savings and loan association, which was
initially chartered in 1935. In January 1989, FFGI acquired all of the
outstanding capital stock of Franklin Federal in connection with its conversion
from a mutual to stock form of ownership pursuant to a voluntary supervisory
conversion approved by the FHLBB, the predecessor agency to the OTS.
At the time of the acquisition, Morristown Federal's liabilities
exceeded its assets by approximately $9.4 million. Morristown Federal's
negative net worth was primarily the result of substantial operating losses
caused by the combined effects of high interest rates in the early 1980's and
the losses associated with the sales of certain below market rate loans at a
discount. Those
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losses were being deferred and recognized over the life of the loans until 1989
when Franklin Federal was required to prepare its financial statements in
accordance with generally accepted accounting principles ("GAAP"), which
required immediate recognition of the loss.
In order to raise capital, management of Morristown Federal elected to
pursue a voluntary supervisory conversion. By agreement with the FHLBB and the
FSLIC in 1989, Morristown Federal was converted from a mutual to stock form in
exchange for a capital contribution by FFGI of $5 million. Pursuant to such
agreement, the $9.4 million negative net worth of Morristown Federal was
classified upon acquisition by FFGI as "supervisory goodwill" of Franklin
Federal to be treated as regulatory capital to be amortized over a 25-year
period. Pursuant to a forbearance letter from the FHLBB to Franklin Federal,
all statutory and regulatory requirements regarding the amortization of the
supervisory goodwill were waived.
In August 1989, Congress passed the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA"), which required, among other things,
savings associations such as Franklin Federal to have a minimum level of
tangible capital, exclusive of supervisory goodwill, of at least 1.5% of total
assets. FIRREA also imposed other capital requirements on savings
associations, and required the phase-out of all supervisory goodwill from
regulatory capital by January 1, 1995. As a result of the passage of FIRREA
and the promulgation of regulations by the OTS pursuant thereto, Franklin
Federal did not comply with the new regulatory capital requirements, primarily
because of its inability to include supervisory goodwill in the calculation of
tangible and core capital. Also as a result of FIRREA, FFGI was required to
amortize the goodwill for GAAP purposes over a twelve-year period rather than
the 25-year period referenced above.
In June 1990, FFGI, its stockholders, and Franklin Federal filed a
complaint in the Federal District Court for the Eastern District of Tennessee
seeking to enjoin the OTS and the Federal Deposit Insurance Corporation
("FDIC"), as successor to FSLIC, from appointing a conservator or receiver for
Franklin Federal and from taking any action inconsistent with the parties'
agreements entered into at the time of the voluntary supervisory conversion.
In July, 1990, the Federal District Court held that FIRREA did not abrogate the
parties' agreements and entered a permanent injunction enjoining the OTS from
excluding supervisory goodwill from Franklin Federal's regulatory capital. In
March, 1991, the United States Court of Appeals for the Sixth Circuit reversed
the District Court decision and dissolved the permanent injunction. The Court
of Appeals held that FIRREA overruled any agreement between the parties and
that, if there was a contract between the parties, Congress may have "effected
a taking" through the adoption of FIRREA.
As a result of the Court of Appeals' decision, Franklin Federal was
not in compliance with FIRREA's new capital requirements. Accordingly,
Franklin Federal submitted a capital plan which was approved by the OTS on June
19, 1992. Simultaneous therewith, Franklin Federal consented to a capital
directive issued by the same agency. The capital directive required, among
other things, that Franklin Federal comply with the capital plan and receive
capital infusions of $500,000 each no later than June 30, 1992, and January 31,
1993, and further that Franklin would initiate an offering of securities no
later than March 31, 1993 to raise funds, to increase Franklin Federal's
tangible capital to not less than 3% of total assets by June 30, 1993.
Franklin Federal complied
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with all elements of the capital plan and the capital directive, the
culmination of which was a public offering in August of 1993, at which time
$5,661,341.60 of capital was raised through the sale of 707,811 shares of FFGI
Class A Common Stock at a price of $8.50 per share. By letter, dated May 4,
1993, the OTS advised the Board of Directors of Franklin Federal that all
capital requirements had been satisfied.
As of June 30, 1996, the tangible capital of Franklin Federal was
$12.0 million, or 8.7% of total tangible assets.
The principal business of Franklin Federal is to provide financial
services through an array of varied products to its customers in Hamblen,
Jefferson, and Cocke Counties, Tennessee and the additional communities defined
as the institution's primary service area. Savings deposits, checking
accounts, and other time deposits are obtained from businesses and the general
public. Those funds are invested in loans for one-to-four family dwellings,
commercial real estate, commercial and consumer loans. Excess funds are
invested in U. S. Treasury obligations, U. S. agency obligations, and
tax-exempt bank qualified municipal investments. In addition, through its
wholly owned subsidiaries, Franklin Federal is engaged in the finance, loan
closing and title insurance business, and the business of the sale of general
lines of insurance. Franklin Federal derives its income largely from interest
and fees associated with its lending and investment activities and the income
from its wholly-owned subsidiaries. The institution's principal expenses are
the interest paid for deposits and operating expenses.
ASSET/LIABILITY MANAGEMENT
The term "rate sensitivity" refers to those assets and liabilities
which are "sensitive" to fluctuations in rates and yields. An asset or
liability is interest rate sensitive within a specific time period if it will
mature or reprice within that time period. Savings institutions have
historically operated in a mismatched position with their liabilities being
greatly more interest-sensitive than their assets. FFGI is attempting, through
investments in adjustable rate mortgages, consumer loans, commercial real
estate loans and short-term investments, and the origination of long-term,
fixed-rate loans intended to be eligible for sale in the secondary market, to
achieve a better match between its assets and liabilities in terms of both
interest rate volatility and maturities.
In recent years, Franklin Federal has restructured its loan portfolio
to obtain a 50-50 mix between one-to-four family residential loans and
consumer/commercial loans. This change in lending philosophy has altered the
balance sheet of the company from that of a traditional thrift to a mix that is
more associated with a commercial bank. This change in the balance sheet of
the company has had a positive impact on earnings and on the asset/liability
management of the company in that the commercial/consumer loans are of shorter
duration and they have repricing schedules that are shorter than the typical
home loans. Most of Franklin's one-to-four family home loans are adjustable
and most of the long-term fixed rate mortgage loans are resold in the secondary
market and are not held on the balance sheet of the company.
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The matching of FFGI's assets and liabilities may be analyzed by
examining the extent to which its assets and liabilities are interest rate
sensitive and by monitoring the expected effects of interest rate changes on
its net portfolio value. If FFGI's assets mature or reprice more quickly or to
a greater extent than its liabilities, its net portfolio value and net interest
income would tend to increase during periods of rising interest rates but
decrease during periods of falling interest rates. If FFGI's assets mature or
reprice more slowly or to a lesser extent than its liabilities, FFGI's net
portfolio value and net interest income would tend to decrease during periods
of rising interest rates but increase during periods of falling interest rates.
The OTS requires FFGI to measure its interest rate risk by computing estimated
changes in the net present value of its cash flows from assets, liabilities and
off-balance sheet items ("NPV") in the event of a range of assumed changes in
market interest rates. These computations estimate the effect on FFGI's NPV of
sudden and sustained 1% to 4% increases and decreases in market interest rates.
The FFGI Board has adopted an interest rate risk policy which establishes
maximum decreases in FFGI's estimated NPV of 25%, 35%, 45% and 55% in the event
of 1%, 2%, 3% and 4% increases and decreases in market interest rates,
respectively. At September 30, 1995, based on information provided by the OTS,
it was estimated that FFGI's NPV would decrease 4%, 10%, 17% and 26% and
increase 2%, 3%, 5% and 10% in the event of 1%, 2%, 3% and 4% increases and
decreases in market interest rates, respectively. These calculations indicate
that FFGI's net portfolio value could be adversely affected by increases in
interest rates but could be favorably affected by decreases in interest rates.
These calculations indicate that FFGI would not be deemed to have more than a
normal level of interest rate risk under risk-based regulatory capital
requirements. See "--Regulation--Regulatory Capital Requirements." Changes in
interest rates also may affect FFGI's net interest income, with increases in
rates expected to decrease income and decreases in rates expected to increase
income, as FFGI's interest-bearing liabilities would be expected to mature or
reprice more rapidly than Franklin Federal's interest-earning assets.
While management does not expect current interest rates to have a
material adverse effect on FFGI's NPV or net interest income in the future,
management cannot predict future interest rates or their effects on FFGI's NPV
or net interest income. Computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, prepayments and deposit run-offs and should
not be relied upon as indicative of actual results. Certain shortcomings are
inherent in such computations. Although certain assets and liabilities may
have similar maturity or periods of repricing they may react at different times
and in different degrees to changes in the market interest rates. The interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while rates on other types of assets and
liabilities may lag behind changes in market interest rates. Certain assets,
such as adjustable rate mortgages, may have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, prepayments and early withdrawal levels
could deviate significantly from those assumed in making calculations set forth
above. Additionally, an increased credit risk may result as the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
The FFGI Board is responsible for reviewing FFGI's asset/liability
policies. The Board reviews interest rate risk and trends, as well as
liquidity and capital ratios and requirements, at least
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monthly. FFGI's management is responsible for administering the policies and
determinations of the FFGI Board with respect to FFGI's asset/liability
goals and strategies. Management expects that FFGI's asset and liability
policies and strategies will continue as described above so long as competitive
and regulatory conditions in the financial institution industry and market
interest rates continue as they have in recent years.
Table 1, FFGI's Interest Rate Sensitivity of Net Portfolio Value
(NPV), reflects Franklin Federal's NPV and NPV as a percentage of the present
value of its assets assuming a 100 to 400 basis point ("bp") increase or
decrease in interest rates, as of September 30, 1995.
Table 2, FFGI's Average Balances, Interest and Average Yields and
Rates, presents for the years ended September 30, 1993, 1994 and 1995 the total
dollar amount of interest income from average interest-earning assets and the
resulting yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances shown are monthly average balances.
Table 3, Yields Earned and Rates Paid, sets forth (on a consolidated
basis) for the years ended September 30, 1993, 1994 and 1995 the weighted
average yields earned on Franklin Federal's assets, the weighted average
interest rates paid on Franklin Federal's liabilities and the net yield on
interest-earning assets.
Table 4, Rate/Volume Analysis, sets forth certain information
regarding changes in interest income and interest expenses of FFGI for the
years ended September 30, 1993, 1994 and 1995. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes in volume (changes in volume multiplied by prior year's
rate), rates (changes in rate multiplied by prior year's volume) and
rate/volume (changes in rate multiplied by the changes in volume).
LENDING ACTIVITIES
General. The lending focus for Franklin Federal, historically, has
been the origination of conventional, first mortgage, single-family,
consumer/commercial and commercial real estate loans in Franklin Federal's
primary service area. In addition, Franklin Federal makes 30-year fixed rate
loans for sale in the secondary market and government insured loans, neither of
which remain in the institution's portfolio.
As discussed herein under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
FFGI--Asset/Liability Management," during the last few years changes have been
made in the loan portfolio to increase the sensitivity to increases in interest
rates. Accordingly, at June 30, 1996, the institution held total mortgage
loans of $47.9 million, of which $12.7 million were fixed rate loans and $30.7
million were adjustable rate loans and $4.5 million were short-term
construction loans. At the same date, the institution's installment
consumer/commercial loans totaled $47.2 million. These loans have
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allowed the institution to shorten the term of Franklin Federal's assets and to
insulate the company from drastic changes in its net interest margin due to
interest rate volatility.
The loans-to-one-borrower limits applicable to national banks apply to
savings institutions in the same manner and to the same extent. With certain
exceptions, loans and extensions of credit to a person outstanding at one time
and not fully secured shall not exceed 15% of the unimpaired capital and
surplus of the savings institution. Loans and extensions of credit fully
secured by readily marketable collateral may comprise an additional 10% of
unimpaired capital and surplus. At June 30, 1996, the maximum amount which
Franklin Federal ordinarily could have loaned to one borrower and the
borrower's related entities was approximately $1.7 million.
Federal regulations limit the amount which federally-chartered thrift
institutions may lend in relationship to the appraised value of the real estate
securing the loan, as determined by an appraisal at the time of loan
origination. Franklin Federal's lending policies generally limit the maximum
loan-to-value ratio on residential mortgage loans to 80% of the lesser of the
appraised value or purchase price, with the condition that private mortgage
insurance and an escrow account for taxes and insurance is required on any home
loans with loan-to-value ratios in excess of 80%. The loan-to-value ratio,
maturity, and other provisions of the loans made by FFGI have generally
reflected the policy of making less than the maximum loan permissible under
applicable regulations, in accordance with sound lending practices, market
conditions, and underwriting standards established by Franklin Federal.
Table 5, Loan Portfolio Analysis, sets forth the composition of FFGI's
and Franklin Federal's loan portfolio as of September 30, 1993, 1994 and 1995.
Residential Loans. The primary lending activity of FFGI has been the
origination of conventional loans to enable borrowers to purchase existing
homes or refinance existing mortgages. Mortgage loans made by Franklin Federal
are generally long-term loans, amortized on a monthly basis, with principal and
interest due each month. The initial contractual loan payment period for
residential loans typically ranges from 15 to 30 years. Franklin Federal's
experience indicates that real estate loans generally remain outstanding for
significantly shorter periods than their contractual terms. Borrowers may
refinance or prepay loans at their option, subject to any prepayment penalty
provisions included in the note. FFGI requires mortgage title insurance on all
mortgage loans and hazard insurance at least in an amount covering replacement
value.
FFGI has offered renegotiable rate mortgages and adjustable rate
mortgages that have rate adjustments each year based upon the One-Year Treasury
Bill rate adjusted to a constant maturity. The interest rates on most of these
mortgages are adjustable once a year with limitations on upward adjustments of
2% per year and 6% over the life of the loan. The majority of these loans have
ceilings of 14.5% for the life of the loan.
Because of market demands, Franklin Federal continues to originate
long-term fixed rate residential loans. However, Franklin Federal generally
does not retain these loans in its portfolio but rather packages them in
accordance with the guidelines of the FHLMC for immediate resale in
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<PAGE> 97
the secondary market. All such loans are sold on a non-recourse basis.
Franklin Federal continues to service almost all loans sold in the secondary
market and, as of June 30, 1996, was servicing $20.0 million of loans sold.
Commercial Real Estate and Commercial Business Loans. Franklin
Federal originates and participates in commercial real estate loans, including
multi-family apartment projects and commercial business loans. These loans are
typically secured by improved real estate and, on occasion, purely commercial
business loans are granted secured by non-real estate collateral, including
accounts receivable and inventory. Permanent commercial loans are made in
amounts up to 80% of the appraised value of the related real estate and
generally have 10 to 15-year terms with interest rates that adjust with the
prime rate or on an annual or every 3-year basis. Management has limited these
loans to the Eastern Tennessee area.
Franklin Federal attempts to obtain personal guaranties for most
commercial real estate and business loans. Personal inspections of the real
estate and interviews with borrowers are used to supplement the accuracy of
appraisal information.
The aggregate amount of loans which a federal savings institution may
make on the security of liens on non-residential real property may not exceed
400% of the institutions's regulatory capital.
Consumer and Other Loans. The consumer loans granted by Franklin
Federal have included loans on automobiles, boats, and other consumer goods,
loans secured by savings accounts and signature loans. Most consumer loans
have up to a five-year term and a fixed interest rate. Franklin Federal has
originated second mortgage loans for home improvement and other purposes.
These loans generally have an amortization of ten years, with a call provision
at the end of five years. Franklin Federal generally limits the loan-to-value
ratios on its secured consumer loans to 65% to 80% of collateral value
depending on the type of collateral securing the loan. As of June 30, 1996,
consumer loans outstanding totaled $26 million, or approximately 26%, of the
savings bank's total loan portfolio. Franklin Federal believes that the
shorter term and the normally higher interest rates available on various types
of consumer loans have been helpful in maintaining a profitable spread between
Franklin Federal's average loan yield and its cost of funds. Such loans,
however, pose a greater risk of collectibility.
Table 6, Loan Maturity and Repricing, sets forth certain information
at September 30, 1995 regarding the dollar amount of principal repayments
becoming due during the periods indicated for loans. The table does not
include any estimate of prepayments which significantly shorten the average
life of all loans and may cause actual repayment experience to differ from that
shown in the table. Demand loans having no stated schedule of repayments and
no stated maturity are reported as due in one year or less.
Table 7, Outstanding Long-Term Loans, sets forth the dollar amount of
all of Franklin Federal's loans at September 30, 1995 due after September 30,
1996 which have fixed interest rates and have floating or adjustable interest
rates.
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Loan Solicitation. Loans are derived primarily from the general
reputation of Franklin Federal in the communities that it serves and referrals
from current customers. In addition, officers of Franklin Federal continually
call on current customers and potential customers in the community.
Various loan officers have varying degrees of loan authority; however
all loans in excess of $200,000 are referred to the full Board of Directors for
action.
Upon receipt of a loan application from a prospective borrower, a
credit report and various verifications are ordered to verify the specific
information relating to the applicant, the applicant's employment, and the
applicant's income. An appraisal of the real estate intended to secure the
proposed loan is performed by an independent fee-based appraiser. The loan
officers prepare, internally, cash flow analysis and debt ratio calculations
which are a part of the institution's credit policies in order to assist in the
credit decision process.
Loan applicants are promptly notified of the decision of Franklin
Federal in person or in writing. The approval includes the terms, conditions,
amount, interest rate, amortization, and any other data pertinent to the loan.
Depending on the circumstances, proof of insurance is required on secured loans
and title insurance, or an attorney's title opinion are required on loans
secured by real estate.
Loan Origination. In addition to interest earned on loans, Franklin
Federal receives loan origination fees or "points" for originating loans. Loan
points are a percentage of the principal amount of a mortgage loan which are
charged to the borrower for creation of the loan. The volume of loan
origination and commitment fees vary with the volume and type of loans and
mortgage markets, which in turn respond to the demand for and availability of
money. Generally accepted accounting principles limit immediate recognition of
loan origination fees as revenues and require that such income (net of certain
loan origination costs) for each loan be amortized over the contractual life of
such loans. Franklin Federal recognized other loan fees and service charges of
$272,000, $177,000 and $137,000 for the years ended September 30, 1993, 1994,
and 1995, respectively, as an offset to compensation and benefits expense.
FFGI also receives other fees and charges relating to existing loans,
including late charges and other fees collected in connection with a change in
borrower or other loan modification.
[This space left blank intentionally]
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<PAGE> 99
LOAN ORIGINATIONS, PURCHASES AND SALES
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended Sept. 30,
---------------------------------------
1993 1994 1995
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans at beginning of period $ 65,164 $ 75,965 $ 88,999
--------- --------- ---------
Loans originated:
Single family residential $ 18,241 $ 24,936 $ 14,327
Multi-family residential and
commercial real estate 2,596 6,928 9,872
Land loans 21 246 646
Consumer 14,436 13,609 26,364
Commercial business loans 3,355 4,781 6,176
--------- --------- ---------
Total loans originated 38,649 50,500 57,385
--------- --------- ---------
Participation loans purchased 82 65 181
Participation loans sold (5,040) (7,069) (800)
Mortgage loan principal repayments (10,790) (11,093) (16,794)
Other repayments (12,100) (19,369) (27,829)
--------- --------- ---------
Net other loan activity (27,848) (37,466) (45,242)
--------- --------- ---------
Total gross loans at end of period $ 75,965 $ 88,999 $ 101,142
========= ========= =========
</TABLE>
Collection Procedures. Franklin Federal's collection procedures
provide that collection notices are mailed when an account is fifteen days past
due. Telephone contact starts shortly before the loan is thirty days past due.
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<PAGE> 100
After becoming thirty days past due, the loan is worked by telephone.
Field calls are made when the account passes forty-five days past due. If the
loan continues in a delinquent status for ninety days, foreclosure,
repossession, or other legal proceedings are initiated as circumstances warrant.
Non-Performing Assets. Loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is doubtful. Residential and commercial
mortgage loans and commercial business loans are placed on a non-accrual status
when either principal or interest is 90 days or more past due unless they are
adequately secured and there is reasonable assurance of full collection of
principal and interest. Consumer loans generally are charged off when the loan
becomes over 120 days delinquent. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
Real estate acquired by Franklin Federal as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold. When such property is acquired, it is carried at the lower
of cost or fair value, less estimated selling costs.
Table 8, Nonperforming Assets, sets forth information with respect to
nonperforming assets at September 30, 1991, 1992, 1993, 1994 and 1995 and at
June 30, 1996. At such dates, Franklin Federal had no restructured loans
within the meaning of Statement of Financial Accounting Standards ("SFAS") No.
15.
Table 9, Allowances for Possible Loan Losses, sets forth an analysis
of allowance for possible loan losses for the periods indicated.
Table 10, Allowances for Loan Losses by Loan Category, sets forth the
breakdown of the allowance for loan losses by loan category for the years ended
September 30, 1991, 1992, 1993, 1994 and 1995 and for the nine months ended
June 30, 1996.
Federal regulations require insured institutions to classify their
assets on a regular basis. Under the regulations, assets are subject to
evaluation under a classification system that has three categories: (a)
Substandard, (b) Doubtful and (c) Loss. The regulations also create a Special
Mention designation, described as assets which do not currently expose an
insured institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention.
An asset is classified as Substandard if it is determined to involve a
distinct possibility that the insured institution could sustain some loss if
deficiencies associated with the loan, such as inadequate documentation, are
not corrected. An asset is classified as Doubtful if full collection is highly
questionable or improbable. An asset is classified as Loss if it is considered
uncollectible, even if a partial recovery could be expected in the future.
Assets classified as Substandard or Doubtful require the institution to
establish general allowances for loan losses. If an asset or
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portion thereof is classified Loss, the insured institution must either
establish specified allowances for loan losses in the amount of 100 percent of
the portion of the asset classified as Loss, or charge off such amount.
Table 11, Asset Classification, sets forth the aggregate amounts of
Franklin Federal's classified assets, general and specific loss allowances and
charge-offs for the years ended September 30, 1994 and 1995 and for the nine
months ended June 30, 1996.
RESERVES FOR LOSSES ON LOANS AND REAL ESTATE
In making loans, Franklin Federal recognizes the fact that credit
losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a secured loan, the quality of
the security of the loan.
It is management's policy to maintain reserves for estimated losses on
loans and real estate acquired. Such reserves are based on, among other
things, estimates of the historical loan loss experience, evaluation of
economic conditions in general and in various sectors of Franklin Federal's
customer base, and periodic reviews of loan portfolio quality by Franklin
Federal personnel. Specific reserves will be provided for individual loans
where the ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the security of the loan or guarantees,
if applicable. At June 30, 1996, the balance in the allowance for possible
loan losses amounted to $713,000.
INVESTMENT ACTIVITIES
Interest income from investment securities provides the second largest
source of income for Franklin Federal after the interest received on loans. On
June 30, 1996, Franklin's total investment portfolio consisted of $27.8 million
in U. S. Treasury securities, various governmental agency obligations and bank
qualified municipal bonds. At that time, the total portfolio yielded 6.41%,
while the average maturity of the government securities was one (1) year and
three (3) months; the federal agency obligations eleven (11) years and nine (9)
months; and the municipal securities nine (9) years and six (6) months.
Investment decisions are made by the President of Franklin Federal within
policies established by the Board of Directors. Portfolio reports and reports
of purchases and sales are presented to the Board monthly.
The institution has not engaged in any hedging or high risk derivative
investment activity.
Table 12, Mortgage-Backed Securities, sets forth certain information
with respect to mortgage-backed securities at September 30, 1993, 1994 and 1995.
Table 13, Investment Securities Portfolio, sets forth Franklin
Federal's investment securities portfolio at September 30, 1993, 1994 and 1995.
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Table 14, Maturities and Weighted Average Yields of Debt Securities,
sets forth the maturities and weighted average yields of Franklin Federal's
debt securities at September 30, 1995.
SOURCES OF FUNDS
General. Savings accounts and other types of deposits have
traditionally been an important source of Franklin Federal's funds for use in
lending and for other general business purposes. In addition to savings
accounts, Franklin Federal derives funds from loan repayments, from loan sales
and from operations. The availability of funds from loan sales is influenced
by general interest rates and other market conditions. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows vary and
are influenced by prevailing interest rates and money market conditions.
Deposits. Deposits are attracted principally from within Franklin
Federal's primary market area, Hamblen, Jefferson, and Cocke Counties in
Tennessee. Franklin Federal offers a broad selection of deposit instruments,
including NOW accounts, money market deposit accounts, regular passbook savings
accounts, term certificate accounts and retirement savings plans. Deposit
account terms vary, the principal differences being the minimum balance
required, the time period that the funds must remain on deposit and the
interest rate. To date, Franklin Federal has not obtained any funds through
brokered deposits. The deregulation of various federal controls in insured
deposits has allowed Franklin Federal to be more competitive in obtaining funds
and has given it more flexibility to meet the threat of net deposit outflows.
While the deregulation of rates payable on deposits has allowed FFGI to be
competitive in the acquisition and retention of funds, it has also resulted in
a more volatile cost of funds.
Interest rates paid, maturity terms and withdrawal penalties are
established by Franklin Federal on a periodic basis. Determination of rates
and terms are predicated on funds acquisition, liquidity requirements, rates
paid by competitors and growth goals.
Table 15, Deposit Activities, summarizes the deposit activities of
Franklin Federal for the years ended September 30, 1993, 1994 and 1995.
Table 16, Deposit Balances, sets forth information concerning Franklin
Federal's deposits in the various types of deposit programs offered at
September 30, 1995.
The following paragraphs set forth a description of the more
significant types of deposit accounts offered by Franklin Federal.
NOW Accounts, Super NOW and VIP Accounts. Regular NOW
accounts, senior citizen NOW accounts, and VIP accounts are the types
of transaction accounts offered by FFGI. Funds may be invested in and
withdrawn from NOW accounts which are similar to interest-bearing
checking accounts. Senior citizen direct deposit accounts do not
require a minimum balance. Franklin Federal has offered and actively
marketed NOW accounts since 1981. Franklin Federal began offering VIP
accounts in 1989.
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The NOW account and the VIP account are available only to
individuals, non-profit organizations, and governmental units.
Passbook Savings. The minimum balance required to invest in
passbook savings is $100. Interest is compounded daily, from the date
of deposit to the date of withdrawal, and credited quarterly.
Money Market Deposit Accounts. The main features of Franklin
Federal's Money Market Deposit Account include the following: (1)
$2,500 minimum balance (interest rate drops to NOW account rate if the
balance drops below the minimum balance required); (2) no limit on the
rate the Bank can pay on the account; (3) six preauthorized or
automatic third party transfers (e.g. to cover a monthly loan payment)
are permitted, three of which may be in the form of checks; (4) no
restrictions on the size and frequency of withdrawals by mail or in
person; (5) no restriction on additional deposits to the accounts; and
(6) no minimum maturity or early withdrawal penalty.
Certificates of Deposit. FFGI currently offers certificates
of deposit with terms ranging from sixty days to four years. The
minimum opening balance for certificates maturing in 60 days to 182
days is $2,500. The minimum opening balance for 12 to 48 month
certificates is $1,000 and rates are set weekly by Franklin Federal's
management with the approval of the President, and are fixed for the
term of the certificates. All certificates of deposit carry a penalty
for early withdrawal. Interest is compounded at maturity on the
60-182 day certificates. Monthly checks are offered on accounts with
a minimum balance of $5,000. The interest may also be transferred to
an existing account. Interest may be credited quarterly or paid by
check quarterly or monthly to CDs with a one-year or longer term.
Interest on all other certificates may be mailed or credited
to an existing account quarterly or mailed monthly if the $1,000
minimum balance requirement is met.
Jumbo Certificates. Franklin Federal offers negotiated rate
"Jumbo" certificates for terms of six months and one year in minimum
amount of $99,000. Shorter or longer terms are available and may be
negotiated. Management anticipates that certain of Franklin Federal's
jumbo certificates are rate-sensitive and might not be renewed upon
the expiration of their terms in the event another depository
institution were to offer higher interest rates.
Retirement Accounts. FFGI offers certificates with terms of
18 months or 30 months. The interest rates are set periodically by
management on these accounts. The certificates can be established
with a minimum deposit of $1,000. The penalty is waived when the
customer reaches the age of 59-1/2.
Disclosure setting forth the time deposits of Franklin Federal
classified by rates as of September 30, 1994 and 1995 is presented in Note 9 to
FFGI's consolidated financial statements for
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the years ended September 30, 1994 and 1995 and the nine months ended June 30,
1996, which are attached to this Prospectus/Proxy Statement as Appendix E.
Table 17, Amount and Maturities of Time Deposits, sets forth the
amount and maturities of Franklin Federal's time deposits at September 30, 1995.
The following table indicates the aggregate amount of certificates of
deposit with a minimum denomination of $100,000 by time remaining until
maturity, as of September 30, 1995.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
--------------- --------------
(In thousands)
<S> <C>
Three months or less 3,592
Three through six months 3,011
Six through twelve months 4,764
Over twelve months 5,618
--------
Total $ 16,985
========
</TABLE>
Table 18, Deposit Flow, sets forth the balances and the changes in
dollar amounts of savings deposits in the various types of deposit accounts
offered by Franklin Federal at September 30, 1993, 1994 and 1995.
In the unlikely event of liquidation of Franklin Federal, savings
account holders will be entitled to full payment of their savings accounts
prior to any payment being made to the holders of capital stock. Substantially
all of Franklin Federal's savings account holders are residents of the State of
Tennessee.
Borrowings. Savings deposits are the primary source of funds of
Franklin Federal's lending and investment activities and for its general
business purposes. Franklin Federal, if the need arises, may rely on advances
from the Federal Home Loan Bank (the "FHLB") of Cincinnati to supplement its
supply of lendable funds and to meet deposit withdrawal requirements. The FHLB
has served as Franklin Federal's primary borrowing source. Advances from the
FHLB are typically secured by Franklin Federal's stock in the FHLB and a
portion of Franklin Federal's first mortgage loans. At June 30, 1996, Franklin
Federal had $9.8 million of FHLB advances outstanding. See Note 10 of the Notes
to FFGI's Consolidated Financial Statements, attached hereto as Appendix E.
The FHLB of Cincinnati functions as a central reserve bank providing
credit for thrift institutions. As a member, Franklin Federal is required to
own capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and certain of its home mortgages and other assets
(principally, securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different programs. Each credit program
has its own interest rate and range of
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maturities. Depending on the program, limitations on the amount of advances
are based either on a fixed percentage of Franklin Federal's net worth or on
the FHLB's assessment of Franklin Federal's creditworthiness.
Table 19, Short-Term Borrowings, sets forth certain information
regarding short-term borrowings by Franklin Federal at the end of and during
the years ended September 30, 1993, 1994 and 1995.
Table 20, Capital Position, presents Franklin Federal's capital
position at September 30, 1995.
SUBSIDIARY ACTIVITY
Franklin Federal has three wholly-owned subsidiaries which diversify
the company's revenue stream and provide services to customers not ordinarily
provided by a savings bank.
Colonial Loan Association ("Colonial Loan") is a finance company
operation with offices in Morristown, Jefferson City, and Knoxville, Tennessee.
Colonial Loan has $13.3 million in total assets and $13.1 million in loans,
virtually all of which are automobile and consumer in nature. Colonial Loan
earned $742,148 in the nine months ended June 30, 1996.
Colonial Standard Title Company ("Colonial Title") is located in
Morristown and is engaged in closing real estate loans and issuing title
insurance. At June 30, 1996, Colonial Title had earned $37,919 net of tax.
Franklin Insurance Group ("Franklin Insurance"), located in
Morristown, Tennessee, is a general insurance agency engaged in the sale of
property, casualty, auto, home, life, and annuity insurance products. As of
June 30, 1996, Franklin Insurance had earned $19,331 net of tax.
PERSONNEL
As of June 30, 1996, Franklin Federal had forty-four (44) full-time
employees and ten (10) part-time employees. The employees are not represented
by a collective bargaining agreement. Management believes its relationship
with its employees is good. As of June 30, 1996, Franklin Federal's
subsidiaries had twenty (20) full time employees.
COMPETITION
Franklin Federal experiences strong competition in all its service
areas. Commercial banks, savings banks, credit unions, brokerage firms,
mortgage bankers, and insurance companies all offer products comparable to
those offered by Franklin Federal. There is a trend in the financial services
industry to treat products purely as commodities. Franklin Federal is able to
compete effectively by offering quality customer service which differentiates
our products and services from those of our competitors.
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TAXATION
Thrift institutions such as Franklin Federal are subject to the
provisions of the Internal Revenue Code of 1986 (the "Code") in the same
general manner as other corporations. However, by meeting certain definitional
tests and other conditions prescribed by the Code, thrift institutions may
benefit from special deductions for annual additions to tax bad debt reserves
with respect to loans. For purposes of the bad debt reserve deduction, loans
are separated into "qualifying real property loans," which generally are loans
secured by interests in improved real property, and "nonqualifying loans,"
which are all other loans. The bad debt reserve deduction with respect to
nonqualifying loans must be based on actual loss experience. The bad debt
reserve deduction with respect to qualifying real property loans may be based
upon actual loss experience ("the experience method") or a percentage of
taxable income determined without regard to such deduction (the "percentage of
taxable income method"). The Tax Reform Act of 1986 (the "1986 Act")
eliminated a third method of computation, the percentage of outstanding loan
balances method, effective for taxable years beginning after December 31, 1986.
Franklin Federal has historically used the experience method.
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans is computed as a percentage, which
Congress has reduced from as much as 60% in prior years to 8% of the thrift's
taxable income, with certain adjustments, effective for taxable years beginning
after 1986. The allowable deduction under the percentage of taxable income
method for taxable years beginning before 1987 was scaled downward in the event
that less than 82% of the total dollar amount of the assets of an institution
qualified within certain designated categories. The 1986 Act eliminated this
scale down provision and, for years after 1986, the maximum deduction may be
taken as long as not less than 60% of the total dollar amount of the assets of
an institution falls within such categories. If the amount of qualifying
assets falls below 60%, the institution would get no deduction and could be
required to recapture, generally over a period of up to four years, its
existing bad debt reserves (although net operating loss carry forwards could be
used to offset such recapture). As of June 30, 1996, Franklin Federal's
qualifying assets were in excess of 60% of total assets and it is anticipated
that they will remain so in the foreseeable future.
The bad debt deduction under the percentage of taxable income method
is limited to the extent that the amount accumulated in the reserve for losses
on qualifying real property loans exceeds 6% of such loans outstanding at the
end of the taxable year. In addition, the amount claimed as a bad debt
deduction when added to accumulated loss reserves is limited to the excess, if
any, of 12% of total deposits or withdrawable accounts of depositors at
year-end in excess of the sum of surplus, undivided profits and reserves at the
beginning of the year. It is not expected that either limitation will restrict
Franklin Federal from making the maximum addition to its bad debt reserves.
The percentage bad debt reduction is reduced by the deduction for losses on
nonqualifying loans.
Earnings appropriated to Franklin Federal's tax bad debt reserves and
claimed as a tax deduction will not be available for the payment of cash
dividends or other distributions to
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stockholders (including distributions made upon dissolution or liquidation),
unless Franklin Federal includes the amount distributed in taxable income,
along with the amount deemed necessary to pay the resulting federal income tax.
As of September 30, 1995, the end of Franklin Federal's most recent fiscal
year, Franklin Federal had approximately $3.9 million of accumulated bad debt
reserves for which federal income taxes had not been provided.
Among various proposals currently being considered by the FDIC and
Congress in connection with the recent premium disparity between BIF- and
SAIF-insured depository institutions is a requirement that savings institutions
convert to commercial banks. Under current federal income tax laws, a savings
institution, such as Franklin Federal, converting to a commercial bank must
"recapture" into taxable income the amount of its tax bad debt reserve that
would not have been allowed if the savings institution had operated as a
commercial bank. The tax associated with the recapture of all or part of its
tax bad debt reserve would immediately reduce the capital of the savings
institution, even though such tax would actually be paid out over the
succeeding years. Based on the current proposal and FFGI's accumulated bad
debt reserve at September 30, 1995, the capital reduction under current law
would have amounted to approximately $1.1 million at that date. Management
cannot predict at this time whether the foregoing proposal will be adopted in
its current form or, if adopted, whether such proposal might be amended to
remedy some or all of the adverse financial and tax effects from the recapture.
For taxable years beginning after December 31, 1986, the Code imposes
an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is payable to
the extent such AMTI is in excess of an exemption amount. The Code provides
that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income
method over the amount allowable under the experience method. The other items
of tax preference that constitute AMTI include: (a) tax-exempt interest on
newly-issued (generally, issued on or after August 8, 1986) private activity
bonds other than certain qualified bonds; and (b) for taxable years including
1987 through 1989, 50% of the excess of (i) the taxpayer's pre-tax adjusted net
book income over (ii) AMTI (determined without regard to this latter preference
and prior to reduction by net operating losses). For taxable years beginning
after 1989, this latter preference will be replaced by 75% of the excess (if
any) of (i) 75% of adjusted current earnings as defined in the Code, over (ii)
AMTI (determined without regard to this preference and prior to reduction by
net operating losses). For any taxable year beginning after 1986, net
operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum taxes may be used as credits against regular tax
liabilities in future years. In addition, for taxable years after 1986,
corporations, including thrift institutions, are also subject to an
environmental tax equal to 0.12% of the excess of AMTI for the taxable year
(determined without regard to net operating losses and the deduction for the
environmental tax) over $2.0 million.
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TABLE 1
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
<TABLE>
<CAPTION>
At September 30, 1995
- -----------------------------------------------------------------------------------
Net Portfolio Value
- ------------------------------------ NPV as % of PV of Assets
Change Dollar Dollar Percent ------------------------
in Rates Amount Change Change NPV Ratio Change
- ---------- --------- ---------- --------- --------- --------
(Dollars in thousands) (rounded)
<S> <C> <C> <C> <C> <C>
+400 bp $ 10,393 $ (3,631) (26.00)% 7.92% (229) bp
+300 bp 11,576 (2,448) (17.00)% 8.70% (151) bp
+200 bp 12,647 (1,377) (10.00)% 9.39% (82) bp
+100 bp 13,497 (527) (4.00)% 9.91% (30) bp
0 bp 14,024 10.21%
-100 bp 14,283 259 2.00% 10.32% +11 bp
-200 bp 14,418 394 3.00% 10.35% +14 bp
-300 bp 14,762 738 5.00% 10.51% +30 bp
-400 bp 15,394 1,370 10.00% 10.85% +64 bp
</TABLE>
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TABLE 2
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------
1993 1994 1995
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
-------- --------- ------ -------- --------- ------ -------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
MORTGAGE LOANS $ 44,804 $ 4,397 9.81% $ 53,720 $ 4,360 8.12% $ 62,480 $ 5,215 8.35%
CONSUMER AND COMMERCIAL LOANS 21,276 2,598 12.21% 24,716 2,834 11.47% 26,025 3,117 11.98%
-------- ------- -------- ------- -------- -------
TOTAL LOANS 66,080 6,995 10.59% 78,436 7,194 9.17% 88,505 8,332 9.41%
MORTGAGE BACKED SECURITIES 12,745 820 6.43% 18,128 988 5.45% 16,419 979 5.96%
INVESTMENT SECURITIES 17,123 1,027 6.00% 15,955 899 5.63% 13,976 801 5.73%
DAILY INTEREST BEARING DEPOSITS 2,661 28 1.05% 2,900 47 1.62% 2,806 34 1.21%
OTHER INTEREST EARNING ASSETS 631 26 4.12% 627 30 4.78% 702 43 6.13%
-------- ------- -------- ------- -------- -------
TOTAL INTEREST EARNING ASSETS 99,240 8,896 8.96% 116,046 9,158 7.89% 122,408 10,189 8.32%
-------- ------- -------- ------- -------- -------
NON-INTEREST EARNING ASSETS:
PREMISES AND EQUIPMENT, NET 1,847 1,793 1,749
REAL ESTATE OWNED AND REPOSSESSED ASSETS 95 128 173
OTHER NON-INTEREST EARNING ASSETS 1,443 1,367 1,895
INTANGIBLE ASSETS 4,548 3,804 2,999
-------- -------- --------
TOTAL NON-INTEREST EARNING ASSETS 7,933 7,092 6,816
-------- -------- --------
TOTAL ASSETS $107,173 $123,138 $129,224
======== ======== ========
INTEREST BEARING LIABILITIES:
PASSBOOK ACCOUNTS $ 8,992 $ 332 3.69% $ 10,992 $ 310 2.82% $ 9,536 $ 270 2.83%
NOW ACCOUNTS 7,274 186 2.56% 8,415 176 2.09% 9,351 162 1.73%
MMDA ACCOUNTS 17,205 650 3.78% 21,535 719 3.34% 16,420 538 3.28%
CERTIFICATES OF DEPOSIT 61,930 2,895 4.67% 64,200 2,744 4.27% 67,676 3,408 5.04%
-------- ------- -------- ------- -------- -------
TOTAL INTEREST BEARING DEPOSITS 95,401 4,063 4.26% 105,142 3,949 3.76% 102,983 4,378 4.25%
-------- ------- -------- ------- -------- -------
BORROWINGS 1,842 129 7.00% 1,347 80 5.94% 8,334 488 5.86%
-------- ------- -------- ------- -------- -------
TOTAL INTEREST BEARING LIABILITIES 97,243 4,192 4.31% 106,489 4,029 3.78% 111,317 4,866 4.37%
-------- ------- -------- ------- -------- -------
NON-INTEREST BEARING LIABILITIES:
NON-INTEREST BEARING DEPOSITS 946 2,640 3,130
OTHER LIABILITIES 1,245 1,338 1,873
-------- -------- --------
TOTAL NON-INTEREST BEARING LIABILITIES 2,191 3,978 5,003
-------- -------- --------
TOTAL LIABILITIES 99,434 110,467 116,320
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 7,739 12,671 12,904
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,173 $123,138 $129,224
======== ======== ========
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES $ 4,704 $ 5,129 $ 5,323
======= ======= =======
INTEREST RATE SPREAD 4.65% 4.11% 3.95%
===== ===== =====
NET EARNING ASSETS $ 1,997 $ 9,557 $ 11,091
======== ======== ========
NET YIELD ON AVERAGE INTEREST-
EARNING ASSETS 4.74% 4.42% 4.35%
===== ===== =====
RATIO OF AVERAGE INTEREST-EARNING
ASSETS TO AVERAGE INTEREST-
BEARING LIABILITIES 102.05% 108.97% 109.96%
======== ======== ========
</TABLE>
99
<PAGE> 110
TABLE 3
YIELDS EARNED AND RATES PAID
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Weighted average yield on loan portfolio 10.59% 9.17% 9.41%
Weighted average yield on mortgage-backed securities 6.43% 5.45% 5.96%
Weighted average yield on investment securities 6.00% 5.63% 5.73%
Weighted average yield on daily interest-
bearing deposits 1.05% 1.62% 1.21%
Weighted average yield on other interest-
earning assets 4.12% 4.78% 6.13%
Weighted average yield on all interest-
earning assets 8.96% 7.89% 8.32%
Weighted average rate paid on deposits 4.26% 3.76% 4.25%
Weighted average rate paid on borrowings 7.00% 5.94% 5.86%
Weighted average rate paid on all interest-
bearing liabilities 4.31% 3.78% 4.37%
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) 4.65% 4.11% 3.95%
Net interest margin (net interest income
as a percentage of average interest-earning assets) 4.74% 4.42% 4.35%
</TABLE>
TABLE 4
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------
1993 vs. 1994 1994 vs. 1995
------------------------------------ ----------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
------------------------------------ ----------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ------- ------ ------ ------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $1,310 $ (937) $ (174) $ 199 $ 924 $ 189 $ 25 $ 1,138
Investment securities (69) (63) 4 (128) (112) 16 (2) (98)
Mortgage-backed securities 346 (125) (53) 168 (93) 92 (8) (9)
Other interest-earning
assets 4 18 1 23 -- -- -- --
------ ------- ------ ------ ------ ------ ------ -------
Total interest-earning assets $1,591 $(1,107) $ (222) $ 262 $ 719 $ 297 $ 15 $ 1,031
====== ======= ====== ====== ====== ====== ====== =======
Interest expense:
Deposits $ 414 $ (478) $ (50) $ (114) $ (80) $ 519 $ (10) $ 429
Borrowings (34) (20) 5 (49) 415 (1) (6) 408
------ ------- ------ ------ ------ ------ ------ -------
Total interest-bearing
liabilities 380 (498) (45) (163) 335 518 (16) 837
------ ------- ------ ------ ------ ------ ------ -------
Net interest income $1,211 $ (609) $ (177) $ 425 $ 384 $ (221) $ 31 $ 194
====== ======= ====== ====== ====== ====== ====== =======
</TABLE>
100
<PAGE> 111
TABLE 5
LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------
1993 Percent 1994 Percent 1995 Percent
------- ------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One-to-four family $41,295 57.30 $44,934 54.62 $ 48,505 51.70
Commercial 4,447 6.17 9,721 11.82 11,504 12.26
Multi-family 1,077 1.49 1,747 2.12 1,945 2.07
Construction 1,767 2.45 5,754 6.99 7,038 7.50
Land 312 0.44 551 0.67 1,135 1.22
------- ------ ------- ------ -------- ------
Total mortgage loans 48,898 67.85 62,707 76.22 70,127 74.75
------- ------ ------- ------ -------- ------
Commercial Business Loans 8,585 11.91 4,516 5.49 5,337 5.69
Consumer Loans:
Automobile loans 16,065 22.29 19,247 23.40 21,032 22.42
Loans secured by deposits 790 1.10 644 0.78 730 0.78
Other 1,627 2.26 1,885 2.29 3,916 4.17
------- ------ ------- ------ -------- ------
Total commercial business,
consumer and other loans 27,067 37.56 26,292 31.96 31,015 33.06
------- ------ ------- ------ -------- ------
Total gross loans 75,965 105.41 88,999 108.18 101,142 107.81
------- ------ ------- ------ -------- ------
Less:
Unearned discount on loans 2,041 2.83 2,209 2.69 2,487 2.65
Loans in process 827 1.15 3,374 4.10 3,507 3.74
Deferred loan fees, net 280 0.39 273 0.33 312 0.33
Dealer reserves 183 0.25 226 0.27 275 0.29
Allowance for losses 428 0.59 551 0.67 643 0.69
Net discounts resulting from
purchase accounting principles 141 0.20 101 0.12 101 0.11
------- ------ ------- ------ -------- ------
Total loans receivable, net $72,065 100.00 $82,265 100.00 $ 93,817 100.00
======= ====== ======= ====== ======== ======
</TABLE>
101
<PAGE> 112
TABLE 6
LOAN MATURITY AND REPRICING
<TABLE>
<CAPTION>
Due During Due After Due After Due After Due After
the Year 1 Through 3 3 Through 5 5 Through 10 10 Through 20 Due After 20
Ended Years After Years After Years After Years After Years After
September 30, September 30, September 30, September 30, September 30, September 30,
1996 1995 1995 1995 1995 1995 Total
------------- ------------- ------------- ------------- -------------- ------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans $ 32,296 $ 16,474 $ 4,418 $ 8,005 $ 7,963 $ 971 $ 70,127
Consumer loans 8,639 10,066 6,137 780 56 -- 25,678
Commercial loans 4,477 604 188 68 -- -- 5,337
-------- --------- -------- --------- --------- --------- ---------
Total gross loans $ 45,412 $ 27,144 $ 10,743 $ 8,853 $ 8,019 $ 971 $ 101,142
======== ========= ======== ========= ========= ========= =========
</TABLE>
TABLE 7
OUTSTANDING LONG-TERM LOANS
<TABLE>
<CAPTION>
Floating - or
Fixed- Adjustable
Rates Rates Total
------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate loans $ 27,676 $ 10,155 $ 37,831
Consumer loans 660 200 860
Commercial loans 17,039 -- 17,039
------------ ------------- ------------
Total gross loans $ 45,375 $ 10,355 $ 55,730
=========== ============= ============
</TABLE>
102
<PAGE> 113
TABLE 8
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
At September 30, June 30,
------------------------------------------------ ---------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Real estate -
Residential $ 44 $ 254 $ 55 $ 69 $ 252 $ 204
Multi-family, commercial, land -- -- -- -- 5 --
-------- -------- -------- -------- -------- ---------
Total 44 254 55 69 257 204
-------- -------- -------- -------- -------- ---------
Non-real estate -
Consumer 44 62 162 268 365 178
Commercial -- 13 45 8 26 26
-------- -------- -------- -------- -------- ---------
Total 44 75 207 276 391 204
-------- -------- -------- -------- -------- ---------
Total loans accounted for on
a nonaccrual basis 88 329 262 345 648 408
-------- -------- -------- -------- -------- ---------
Accruing loans which
are contractually past
due 90 days or more:
Real estate -
Residential -- -- -- -- -- --
Multi-family, commercial, land -- -- -- -- -- --
-------- -------- -------- -------- -------- ---------
Total 0 0 0 0 0 0
-------- -------- -------- -------- -------- ---------
Non-real estate -
Consumer 112 156 198 396 171 638
Commercial -- 17 -- 22 -- --
-------- -------- -------- -------- -------- ---------
Total 112 173 198 418 171 638
-------- -------- -------- -------- -------- ---------
Total accruing loans which
are contractually past due
90 days or more 112 173 198 418 171 638
-------- -------- -------- -------- -------- ---------
Total of nonaccrual and
90 days past due loans 200 502 460 763 819 1,046
Real estate owned 17 42 4 3 -- --
Repossessed assets 35 60 58 119 163 193
-------- -------- -------- -------- -------- ---------
Total nonperforming assets $ 252 $ 604 $ 522 $ 885 $ 982 $ 1,239
======== ======== ======== ======== ======== =========
Total nonaccrual and loans
delinquent 90 days
or more to net loans 0.33% 0.82% 0.64% 0.93% 0.87% 1.05%
Total nonaccrual and loans
delinquent 90 days
or more to total assets 0.21% 0.49% 0.40% 0.62% 0.60% 0.76%
Total nonperforming assets
to total assets 0.26% 0.59% 0.45% 0.72% 0.72% 0.90%
</TABLE>
103
<PAGE> 114
TABLE 9
ALLOWANCES FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30, June 30,
--------------------------------------------------- -----------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 818 $ 367 $ 365 $ 428 $ 551 $ 643
------- ------- ------- ------- ------- -------
Provision for loan losses 205 127 145 299 306 302
------- ------- ------- ------- ------- -------
Recoveries -- -- 7 72 34 59
------- ------- ------- ------- ------- -------
Charge-offs:
Residential real estate -- -- 3 -- -- --
Commercial real estate -- -- -- -- -- --
Commercial business 304 18 29 26 -- 22
Consumer 352 111 57 222 248 269
------- ------- ------- ------- ------- -------
Total charge-offs 656 129 89 248 248 291
------- ------- ------- ------- ------- -------
Net charge-offs 656 129 82 176 214 232
------- ------- ------- ------- ------- -------
Balance at end of period $ 367 $ 365 $ 428 $ 551 $ 643 $ 713
======= ======= ======= ======= ======= =======
Ratio of allowance for losses to
total gross loans outstanding at
the end of the period 0.57% 0.56% 0.56% 0.62% 0.64% 0.67%
Ratio of net charge-offs
to average loans outstanding
during the period 0.87% 0.17% 0.12% 0.22% 0.24% 0.24%
</TABLE>
104
<PAGE> 115
TABLE 10
ALLOWANCE FOR LOAN LOSSES BY LOAN CATEGORY
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------------------------------------
1991 1992 1993
--------------------------------- -------------------------------- -----------------------------------
% of % of Loans % of % of Loans % of % of Loans
Allowance in Each Allowance in Each Allowance in Each
to Total Category to Total Category to Total Category
Gross to Gross Gross to Gross Gross to Gross
Amount Loans Loans Amount Loans Loans Amount Loans Loans
------ --------- ---------- ------ --------- ---------- ------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 6 0.009% 72.17% $ 47 0.072% 70.80% $ 79 0.104% 64.37%
Consumer and
Commercial Business 361 0.557% 27.83% 318 0.486% 29.20% 349 0.459% 35.63%
----- ----- ------ ------ ----- ------ ------- ----- ------
Total allowance
for loan losses $ 367 0.566% 100.00% $ 365 0.558% 100.00% $ 428 0.563% 100.00%
===== ===== ====== ====== ===== ====== ======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
At September 30, At June 30,
-------------------------------------------------------------------- -----------------------------------
1994 1995 1996
--------------------------------- -------------------------------- -----------------------------------
% of % of Loans % of % of Loans % of % of Loans
Allowance in Each Allowance in Each Allowance in Each
to Total Category to Total Category to Total Category
Gross to Gross Gross to Gross Gross to Gross
Amount Loans Loans Amount Loans Loans Amount Loans Loans
------ --------- ---------- ------ --------- ---------- ------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 86 0.097% 70.46% $ 105 0.104% 69.34% $ 90 0.086% 67.15%
Consumer and
Commercial Business 465 0.522% 29.54% 538 0.532% 30.66% 623 0.584% 32.85%
----- ----- ------ ------ ----- ------ ------- ----- ------
Total allowance
for loan losses $ 551 0.619% 100.00% $ 643 0.636% 100.00% $ 713 0.670% 100.00%
===== ===== ====== ====== ===== ====== ======= ===== ======
</TABLE>
105
<PAGE> 116
TABLE 11
ASSET CLASSIFICATION
<TABLE>
<CAPTION>
At or For
the Nine
Months
At or For the Year Ended Ended
September 30, June 30,
------------------------ ---------
1994 1995 1996
------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Classified Assets:
Special mention $ 432 $ 152 $ 108
Substandard 393 448 503
Doubtful 29 28 45
Loss 134 100 0
------- ------- -------
Total classified assets $ 988 $ 728 $ 656
======= ======= =======
Allowances:
General loss allowances $ 420 $ 515 $ 546
Specific loss allowances 131 128 167
------- ------- -------
Total allowances $ 551 $ 643 $ 713
======= ======= =======
Charge-offs, net of recoveries $ 176 $ 214 $ 232
======= ======= =======
</TABLE>
TABLE 12
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------
1993 1994 1995
----------------------- --------------------- ---------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLMC $ 3,292 $ 3,365 $ 5,387 $ 5,178 $ 4,888 $ 4,851
FNMA 7,794 8,056 8,644 8,295 7,498 7,355
GNMA 3,667 3,856 3,301 3,163 2,996 3,027
FHLMC REMIC 266 267 135 127 -- --
CMO 1,214 1,237 74 73 -- --
------- ------- ------- ------- ------- -------
Total $16,233 $16,781 $17,541 $16,836 $15,382 $15,233
======= ======= ======= ======= ======= =======
</TABLE>
106
<PAGE> 117
TABLE 13
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------------
1993 1994 1995
-------------------------------- ------------------------------- ---------------------------------
Carrying Fair Percent of Carrying Fair Percent of Carrying Fair Percent of
Value Value Portfolio Value Value Portfolio Value Value Portfolio
-------- ------- ---------- -------- ------- ---------- -------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Securities
U.S. Government and
Federal Agencies
Held to maturity $ 14,655 $14,993 95.95% $ 2,576 $ 2,416 18.00% $ 2,501 $ 2,502 16.89%
Available for sale -- -- -- 10,454 10,454 73.05% 10,522 10,522 71.07%
State and Municipal
Held to maturity 25 25 0.16% 518 497 3.62% 1,039 1,048 7.02%
Available for sale -- -- -- 99 99 0.69% -- -- --
Equity securities
FHLB stock 541 541 3.54% 611 611 4.27% 691 691 4.67%
Other 52 52 0.35% 52 52 0.37% 52 52 0.35%
-------- ------- ------ ------- ------- ------ ------- ------- ------
Total $ 15,273 $15,611 100.00% $14,310 $14,129 100.00% $14,805 $14,815 100.00%
======== ======= ====== ======= ======= ====== ======= ======= ======
</TABLE>
TABLE 14
MATURITIES AND WEIGHTED AVERAGE YIELDS OF DEBT SECURITIES
<TABLE>
<CAPTION>
Less than One to Five to
One Year Five Years Ten Years Total
------------------ ----------------- ----------------- ---------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- ------- ----- ------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
Federal Agencies
Held to maturity $ 1,000 5.60% $ 1,501 6.39% $ -- -- $ 2,501 6.07%
Available for sale 2,492 4.66% 7,526 5.67% 504 6.15% 10,522 5.45%
State & municipal (1)
Held to maturity -- -- 342 5.07% 697 5.22% 1,039 5.17%
Available for sale -- -- -- -- -- -- 0 --
-------- ------- ------- ---------
Total $ 3,492 4.93% $ 9,369 5.76% $ 1,201 5.61% $ 14,062 5.54%
======== ======= ======= =========
</TABLE>
(1) The yields on these securities have been computed on a tax-equivalent
basis.
107
<PAGE> 118
TABLE 15
DEPOSIT ACTIVITIES
<TABLE>
<CAPTION>
For the Year Ended September 30,
----------------------------------
1993 1994 1995
-------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 92,770 $ 101,337 $ 105,635
-------- --------- ----------
Net increase (decrease)
before interest credited 4,504 349 1,071
Interest credited 4,063 3,949 4,378
-------- --------- ----------
Net increase (decrease)
in savings deposits 8,567 4,298 5,449
-------- --------- ----------
Ending balance $101,337 $ 105,635 $ 111,084
======== ========= ==========
</TABLE>
108
<PAGE> 119
TABLE 16
DEPOSIT BALANCES
<TABLE>
<CAPTION>
Weighted-
Average
Interest Original Minimum Percentage
Rate Term Category Balance Amount of Total
- -------------------- --------------------------------- -------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
2.747% -- Passbook savings $ 100 $ 8,600 7.742%
1.747% -- NOW accounts 200 9,100 8.192%
3.198% -- MMDA accounts 2,500 14,324 12.895%
-- -- Non-interest bearing 200 4,195 3.776%
Certificates of Deposit
5.249% 7-31 Day Fixed-term, fixed-rate 2,500 75 0.068%
3.708% 91 Day Fixed-term, fixed-rate 2,500 360 0.324%
5.294% 6 Month Fixed-term, fixed-rate 2,500 9,701 8.733%
5.506% 10 Month Fixed-term, fixed-rate 1,000 4,243 3.820%
5.739% 12 Month Fixed-term, fixed-rate 1,000 16,498 14.852%
5.447% 18 Month Fixed-term, fixed-rate 1,000 9,908 8.919%
5.452% 30 Month Fixed-term, fixed-rate 1,000 5,035 4.533%
5.449% 36 Month Fixed-term, fixed-rate 1,000 4,874 4.388%
6.614% 48 Month Fixed-term, fixed-rate 1,000 3,952 3.558%
5.780% Various Optional term, optional rate (1) 100,000 13,145 11.833%
5.237% 18 Month Individual Retirement Accounts ("IRA") 1,000 7,074 6.368%
--------- ------
$ 111,084 100.00%
========= ======
</TABLE>
(1) All deposits in this classification are $ 100,000 or greater. Due to the
depositor seeking a higher rate of interest with short-term maturities,
Franklin Federal negotiates the term and rate with the depositor.
109
<PAGE> 120
TABLE 17
AMOUNT AND MATURITIES OF TIME DEPOSITS
<TABLE>
<CAPTION>
Amount Due Percent
---------------------------------------------------------------------- of Total
Less Than 1 - 2 2 - 3 3 - 4 After Certificate
One Year Years Years Years 4 Years Total Accounts
-------- -------- -------- -------- -------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Below 4.00% $ 1,665 $ 13 $ 0 $ 0 $ 0 $ 1,678 2.24%
4.01 - 5.00% 10,819 1,751 244 0 0 12,814 17.12%
5.01 - 6.00% 29,721 7,277 1,197 60 0 38,255 51.10%
6.01 - 7.00% 10,213 4,228 3,206 3,012 327 20,986 28.03%
7.01 - 8.00% 0 0 0 855 277 1,132 1.51%
-------- -------- -------- -------- -------- -------- ------
Total $ 52,418 $ 13,269 $ 4,647 $ 3,927 $ 604 $ 74,865 100.00%
======== ======== ======== ======== ======== ======== ======
</TABLE>
110
<PAGE> 121
TABLE 18
DEPOSIT FLOW
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------
1993 1994 1995
-------------------- ------------------------------- -------------------------------
Percent Percent Percent
of of Increase of Increase
Amount Total Amount Total (Decrease) Amount Total (Decrease)
--------- ---------- -------- --------- ------------ -------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing $ 1,866 1.84% $ 3,610 3.42% $ 1,744 $ 4,195 3.78% $ 585
NOW accounts 6,738 6.65% 7,483 7.08% 745 9,100 8.19% 1,617
Passbook savings 9,796 9.67% 10,469 9.91% 673 8,600 7.74% (1,869)
MMDA accounts 19,406 19.14% 20,754 19.65% 1,348 14,324 12.89% (6,430)
Fixed-rate certificates which
mature as follows:
7-31 days 82 0.08% 75 0.07% (7) 75 0.07% 0
91 days 520 0.51% 568 0.54% 48 360 0.32% (208)
6 months 10,332 10.20% 9,960 9.43% (372) 9,701 8.73% (259)
10 months -- -- -- -- -- 4,243 3.82% 4,243
12 months 11,391 11.24% 10,830 10.25% (561) 16,498 14.85% 5,668
18 months 10,668 10.53% 10,548 9.99% (120) 9,908 8.92% (640)
30 months 8,406 8.30% 7,243 6.86% (1,163) 5,035 4.53% (2,208)
36 months 2,620 2.59% 4,530 4.29% 1,910 4,874 4.39% 344
48 months 482 0.48% 689 0.65% 207 3,952 3.56% 3,263
18 month I R A's 5,978 5.90% 6,582 6.23% 604 7,074 6.37% 492
Optional-rate, optional-
term certificates (1) 13,052 12.87% 12,294 11.63% (758) 13,145 11.84% 851
-------- --------- -------- -------- ----------- -------- ------ -----------
Total $101,337 100.00% $105,635 100.00% $ 4,298 $111,084 100.00% $ 5,449
======== ========= ======== ======== =========== ======== ====== ===========
</TABLE>
(1) All deposits in this classification are $ 100,000 or greater. Due to the
depositor seeking a higher rate of in maturities, Franklin Federal negotiates
the term and rate with the depositor.
111
<PAGE> 122
TABLE 19
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------
1993 1994 1995
------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Outstanding advances from FHLB $ 0 $ 0 $ 5,990
Weighted-average rate paid on advances from FHLB -- -- 6.69%
Borrowing under reverse repurchase agreement -- 600 1,000
Weighted-average rate paid on reverse repurchase agreement -- 4.93% 6.13%
</TABLE>
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------
1993 1994 1995
------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum outstanding advances from FHLB at any month end $ 3,057 $ 0 $ 7,490
Weighted average rate paid on advances from FHLB 7.68% -- 6.22%
Average advances from FHLB outstanding 1,015 -- 5,826
Maximum borrowing under reverse repurchase
agreement at any month end -- 600 1,000
Weighted average rate paid on reverse repurchase
agreement -- 4.93% 6.16%
Average borrowing under reverse repurchase
agreement -- 122 756
</TABLE>
TABLE 20
CAPITAL POSITION
<TABLE>
<CAPTION>
At September 30, 1995
---------- -------------
Percent of
Amount Assets (1)
------ ------
(Dollars in thousands)
<S> <C> <C>
Tangible capital $10,708 8.05%
Minimum required tangible capital 1,996 1.50%
------- -----
Excess $8,712 6.55%
======= =====
Core capital $10,708 8.05%
Minimum required core capital 3,992 3.00%
------- -----
Excess $6,716 5.05%
======= =====
Risk-based capital $11,221 13.77%
Minimum risk-based capital requirement 6,519 8.00%
------- -----
Excess $4,702 5.77%
======= =====
</TABLE>
(1) Based upon adjusted total assets for purposes of the tangible and core
capital requirements, and risk weighted assets for purposes of the risk-based
capital requirement.
112
<PAGE> 123
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FFGI
GENERAL
FFGI's business primarily consists of attracting savings deposits
from the general public and using such deposits to originate mortgage loans
secured by one-to-four family residences, consumer household loans, commercial
and multi-family real estate loans and to purchase investments and
mortgage-backed securities. FFGI's revenues are derived principally from
interest earned on loans and, to a lesser extent, from interest earned on
investments and mortgage-backed securities.
FFGI's results of operations in recent years have reflected the
fundamental changes which have occurred in the regulatory, economic, and
competitive environment in which savings institutions operate. FFGI's results
of operations are primarily dependent on its net interest income, which is the
difference between the average rate earned on loans and investments and the
average rate paid on deposits, as well as the relative amounts of such assets
and liabilities. Similar to other savings institutions, FFGI is subject to
interest rate risk to the degree that its interest-bearing liabilities mature
or reprice at different times, or on a different basis, than its
interest-earning assets. FFGI also generates non-interest income, such as loan
fees and service charges on deposit accounts and rental income from property it
owns. Net income is further affected by the level of operating expenses, such
as compensation, professional and data processing services, regulatory and
other insurance premiums and provisions for loan loss reserves and income
taxes.
The operations of FFGI, and savings institutions generally, are
significantly influenced by general economic conditions and monetary and fiscal
policies of governmental regulatory agencies. Deposit flows and costs of funds
are influenced by interest rates on competing investments and prevailing market
rates of interest. Lending activities are affected by the demand for financing
real estate and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered and other factors affecting loan
demand and the availability of funds.
ASSET/LIABILITY MANAGEMENT
A continuing challenge to management of savings institutions is the
management of the balance sheet in order to maintain a positive interest rate
spread in varying interest rate environments. Savings institutions, by virtue
of making long-term fixed rate mortgages and funding those mortgages with
shorter interest bearing liabilities, have unique challenges in managing a
positive interest rate spread of the net interest margin, i.e. the difference
in earnings on assets as opposed to the expense of liabilities.
During the life of Franklin Federal, management has focused on
improving its net interest margin by restructuring the balance sheet. The loan
portfolio has been targeted for a fifty percent (50%) mix of single-family
residential loans and a fifty percent (50%) mix of
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<PAGE> 124
consumer/commercial loans. In addition, the following principals have been
used in managing the net interest margin:
1. Booking mostly adjustable rate residential loans or loans that reprice
over a 3-year time horizon in its portfolio;
2. Indexing commercial loans to the prime rate;
3. Making short maturity consumer loans which, by definition, have
shortaverage lives;
4. Maintaining a "ladder" of U. S. Treasury securities and U. S. Agencies
obligations over a 36-month period in order to spread the portfolio
risk;
5. Purchasing adjustable rate mortgage-backed securities that, on a
sequential basis, reprice throughout the year;
6. Maintaining an investment portfolio with a short average weighted
life;
7. Offering attractive rates for longer-term fixed-rate deposits;
8. Employing a conservative pricing strategy in order to avoid costly
deposits; and
9. Employing FHLB advances and repurchase agreements to more economically
manage the liability side of the balance sheet.
INTEREST RATE SENSITIVITY
The matching of assets and liabilities may be analyzed and monitored
by testing the extent to which assets and liabilities are interest rate
sensitive and by monitoring that sensitivity on a periodic basis. A particular
asset or liability can be deemed to be interest rate sensitive within a
specific period if it, in fact, matures or reprices within that period. One of
the measures employed by the OTS to monitor such interest rate sensitivity is
the Market Value Portfolio Equity Analysis. Another commonly used tool is a
"Gap" Analysis, which measures the gap between the maturity of the repricing of
assets and the maturity of the repricing of liabilities.
Franklin Federal monitors its interest rate sensitivity with the
Interest Rate Risk Exposure Report provided by the OTS, which is generated on a
quarterly basis. This report assesses interest rate risk according to the
effect on the market value portfolio equity of the institution, assuming
various interest rate shocks. Additionally, Franklin Federal, on a monthly
basis, prepares for its own use an internal report which monitors interest rate
risk according to the "gap" method.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1994 AND 1995 AND
JUNE 30, 1996
From the fiscal year ended in September 1994 until the fiscal year
ended September 1995, Franklin Federal's total assets increased $13.3 million,
or 10.9%. In the nine months from September 1995 until June 30, 1996, total
assets increased $1.9 million, or 1.39%. From the 1994 fiscal year to the 1995
fiscal year, deposits increased $5.4 million, or 5.16%. During the same
period, advances from the FHLB increased $7.2 million. These additional
resources funded the $11.6 million, or 14%, increase in net loan receivables
from September 30, 1994 to September 30, 1995. Loan activity for the nine
months ended June 30, 1996 shows an increase in loans of $5.8 million, or
6.22%, from fiscal year end 1995. For the first nine months of 1996, deposits
have increased $1.6 million, or 1.40% from fiscal year end 1995.
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Securities Available for Sale declined $563,000 from September 30,
1994 to September 30, 1995. Those Available for Sale securities increased $6.1
million by June 30, 1996, due to the one-time reallocation of
securities from Held to Maturity status to Available for Sale status, as
permitted by the guidelines of the Financial Accounting Standards Board
Statement No. 115, Accounting For Certain Investments in Debt and Equity
Securities. This reallocation took place in December 1995. Likewise,
securities Held to Maturity declined $7.3 million from September 30, 1995 to
June 30, 1996, when the balance stood at $9.3 million.
During the quarter-ended June 30, 1996, $2.2 million in goodwill was
written off. The goodwill resulted from the acquisition by FFGI of Franklin
Federal and its subsidiaries in December 1988, when the carrying values of all
assets and liabilities were adjusted to their market values. Due to this
adjustment, $9.4 million of goodwill was recorded. Given the nature of the
adjustments, FFGI decided to amortize the goodwill over the life of Franklin
Federal's primary asset, the mortgage loan portfolio, using the interest
method of accounting. In addition to considering prepayments in the mortgage
loan portfolio, the recorded value of goodwill has subsequently been evaluated
based upon the ability of the underlying related assets to generate cash flows
to support its recoverability. During the quarter ended June 30, 1996,
management concluded that nearly all of the 1988 mortgage loan portfolio had
been repaid and, when viewed with their assessment of their inability to
recover goodwill from existing cash flows, that the remaining $2.2 million of
goodwill was no longer realizable and should be written off. The effect of the
adjustment resulted in a decrease in total assets, total stockholders' equity
and net income for the nine month period ended June 30, 1996.
Total stockholders' equity increased $722,000 from fiscal year end
1994 to fiscal year end 1995. That increase in stockholders' equity was 5.64%.
For the nine months ended June 30, 1996, stockholders' equity decreased $1.5
million, or 11.24%. The decline in stockholders' equity for the period ended
June 30, 1996 was due solely to the one-time charge-off of goodwill of $2.2
million.
COMPARISON OF OPERATING PERFORMANCE
Operating performance is analyzed for the fiscal years ended September
30, 1993, 1994 and 1995 and for the nine month periods ended June 30, 1995 and
1996.
Net Income. Net income declined $455,000 from the fiscal year ended
1993 to the fiscal year ended 1994, representing a decline of 24.7%.
Additionally, net income declined $501,000, or 36.12%, for the period ended
September 30, 1995, as compared with September 30, 1994. This decline in net
income is primarily attributable to increases in income tax expense net of
cumulative effect of change in accounting for income taxes of $395,000 in 1994
and $599,000 in 1995. These increases in income tax expense were directly
attributable to the institution's exhaustion of its federal net operating loss
carryforwards, which were finally exhausted in August 1993. By comparison in
actual numbers, the income tax expense for 1993 was $46,000. For the nine
month periods ended June 30, 1995 and 1996, net income decreased from $650,000
to a net loss of $1.1 million, constituting a decrease of $1.8 million.
Franklin Federal's income before income tax expense, and the
cumulative effect of the change in accounting principle, reflect more level
income performance with income of $1.9 million in 1993, $1.8 million in 1994
and $1.9 million in 1995. By further comparison, income before income tax
expense for the nine months ended June 30, 1995 was $1.4 million and a loss of
$163,000 for the period ended June 30, 1996. The June 30, 1996 performance
was primarily attributable to the one-time charge-off of all goodwill.
Net Interest Income. For fiscal years 1993, 1994, and 1995, net
interest income grew from $4.7 million to $5.1 million to $5.3 million,
representing a $425,000, or 9.00%, increase in 1994
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from 1993, and a $194,000, or 3.78%, increase in 1995 from 1994. For the nine
month period ended June 30, 1996, net interest income had increased to $4.5
million, representing a $476,000, or 11.95%, increase from the prior period.
The increase in net interest income for the periods analyzed reflects increases
in loan balances, which creates income and declining balances in investment
securities which generate less income.
Interest Income. Interest income increased $262,000, or 2.95%, in
1994 from 1993. Interest income increased $1.0 million, or 11.26%, in 1995
from 1994. Between the unaudited nine month periods ended June 30, 1996 and
June 30, 1995, interest income increased $1.3 million, or 16.92%. These
increases in interest income were caused primarily by interest income from
loans receivable. Interest from loans increased $199,000, or 2.84%, in 1994
from 1993. In 1995, interest income from loans increased $1.1 million, or
15.82%. For the period ended June 30, 1996, as compared with a comparable
period in 1995, interest income from loans increased $1.3 million, or 20.77%.
Income from investment securities and mortgage-backed securities has been
basically level from 1993 to 1995, with a slight decline in 1995. Likewise,
these two categories exhibited constant income for the nine month periods ended
June 30, 1995 and 1996.
Interest Expense. Total interest expense declined by $163,000, or
3.88%, in 1994 from 1993. In 1995, total interest expense increased $837,000,
representing a 20.77% increase from 1994. For the nine month period ended June
30, 1996, as compared with a comparable period in 1995, interest expense
increased $786,000, or 22.63%.
Provision for Loan Losses. Provision for loan losses increased
steadily over the periods analyzed due to the comparable increase in total
loans outstanding. Provision for loan losses in 1994 was $299,000, which
represented a 106% increase from 1993. Loan loss provisions in 1995 were
$306,000, which represented a 2.34% increase from 1994. For the period ended
June 30, 1996, provision for loan loss was $302,000, or a 45.89% increase from
the comparable period in 1995. These increases are a function of the increase
in loan balances outstanding and management's review of specific loans.
Management considers the loan portfolio on a quarterly basis to establish
provisions. Specific loans are analyzed by a committee of senior and middle
management so as to analyze the risk of the portfolio. The provision for loan
losses continues to exceed the amount required by management's internal loan
classifications.
Non-Interest Income. For the periods analyzed, non-interest income
has been relatively level and has not exhibited the type of increases in
interest income and interest expense discussed herein above. Total
non-interest income for 1993, 1994, and 1995 was $1.1 million, $1.1 million and
$1.0 million and was $729,000 for the nine month period ended June 30, 1995 and
$784,000 for the nine month period ended June 30, 1996. Non-interest income is
composed primarily of gains or losses on the sale of securities, loan servicing
fees, NOW accounts, service charges, late charges on loans, and insurance
commissions.
Non-Interest Expense. The stability in total non-interest expense
over the periods analyzed has been a significant driver in the company's
increased profitability. Total non-interest expense, which includes the
amortization of goodwill (a non-cash
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expenditure), increased $371,000 in 1994, which represented an 9.96% increase
from 1993. Likewise, non-interest expense increased $10,000, or .24%, in 1995
from 1994. Total non-interest expense at June 30, 1996, increased $2.0
million, or 66%, from the same period in 1995. The stability of non-interest
expense has contributed significantly to the increase in profit, considering
the substantial increase in total assets during the periods analyzed.
Non-interest expense is generally composed of all expenses not related to
payments for deposits and borrowed funds. These categories are generally
identified as compensation and benefits, occupancy and equipment, data
processing, federal deposit insurance premiums and the amortization of
goodwill. The volatility for the period ended June 30, 1996 is due to the
substantial increase in goodwill amortization.
EARNINGS PER SHARE
Earnings per common share, primarily and fully diluted, have declined
from $2.34 in 1993 to $1.15 in 1994 and $0.73 in 1995. As discussed above,
virtually all of the decline in earnings per common share is directly
attributable to the exhaustion of Franklin Federal's net operating loss
carryforwards and the resulting increase in federal income tax expense. By
further comparison, for the nine month period ended June 30, 1996, earnings per
share were ($0.94) compared with $0.54 for the same period in 1995. The
decline in earnings per share for the period ended June 30, 1996 is directly
attributable to the one-time charge-off of all remaining goodwill.
LIQUIDITY AND CAPITAL RESOURCES
FFGI is required by OTS regulations to maintain a minimum level of
liquid assets. That requirement is currently fixed at 5% of deposits and
short-term borrowings. Franklin Federal's liquidity ratio at June 30, 1996 was
15.37%. Over the last 3 to 4 years, Franklin Federal has maintained at least a
15% liquidity ratio, which is significantly higher than that required by
regulation. The maintenance of this degree of liquidity and short-term
borrowings is based on management's philosophy, which provides greater
flexibility in the management of the institution.
FFGI's principal sources of funds for loans and investments are from
net income, deposits from its primary service area, principle and interest
payments on loans, investments and mortgage-backed securities and FHLB
advances. The institution's principal funding commitments are for the
origination of loans, the purchase of securities and the payment of maturing
deposits.
FFGI has several sources of liquidity in the event such need should
arise. Those sources include a substantial borrowing capability with the FHLB
of Cincinnati and two short-term lines of credit with large regional holding
company banks. At June 30, 1996, total advances from the FHLB of Cincinnati
were $9.8 million and total advances under the lines of credit were zero.
Franklin Federal's planned expansion into new market areas will result in
expected capital expenditures of approximately $750,000. Franklin Federal's
most liquid assets are cash and cash equivalents, which are short-term, highly
liquid investments, and the levels of those assets are dependent on the
business demands of Franklin Federal to fund loans.
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At June 30, 1996, Franklin Federal had $52.6 million in certificates
due within one year and $35.3 million due on demand in passbook and checking
accounts without specific maturity. Management estimates that most of those
deposits will be retained or replaced by new deposits.
Franklin Federal is not aware of any trends or uncertainties which are
reasonably likely to have a detrimental effect on its liquidity or capital
resources.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Persons and groups beneficially owning in excess of 5% of the FFGI
Common Stock are required to file certain reports disclosing such ownership
pursuant to the Securities Exchange Act of 1934. Based upon such reports and
information, management knows of no persons who beneficially owned more than 5%
of the FFGI outstanding shares of Common Stock at the Record Date, except as
set forth in the table below.
<TABLE>
<CAPTION>
NAME & ADDRESS OF TITLE OF CLASS AMOUNT & NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP
<S> <C> <C> <C>
George O Haggard, Jr. (3) Class A Common 51,507 (1) 5.86%
724 Barton Drive Class B Common 72,500 15.00%
Morristown, TN 37814
Richard C. Jessee (3) Class A Common 29,795 4.18%
11335 W. 3rd N. Street Class B Common 50,000 10.00%
Morristown, TN 37814
A. E. Jolley (3) Class A Common 70,604 (2) 9.91%
c/o Lakeway Container Class B Common 100,000 20.00%
5715 Superior Drive
Morristown, TN 37814
Jean S. Keener (3) Class A Common 2,700 *
325 E. 2nd N. Street Class B Common 50,000 10.00%
Morristown, TN 37814
George B. McGuffin (3) Class A Common 48,678 (4) 6.65%
c/o Sunbelt Developers, Inc. Class B Common 145,000 29.00%
1843 W. Morris Boulevard
Morristown, TN 37814
</TABLE>
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<TABLE>
<CAPTION>
NAME & ADDRESS OF TITLE OF CLASS AMOUNT & NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles G. Robinette (5) (6) Class A Common 2,353 *
2778 Lake Forest Circle Class B Common 10,000 2.00%
Morristown, TN 37814
Ben B. Jarnagin (3) Class A Common 24,421 3.43%
2616 Lake Front Drive Class B Common 36,250 7.00%
Morristown, TN 37814
Herbert M. Bacon (3) Class A Common 29,912 4.20%
1135 W. 3rd N. Street
Morristown, TN 37814
Marjorie C. Jarnagin (8) Class A Common 24,221 3.40%
2280 Cambridge Drive Class B Common 36,250 7.00%
Morristown, TN 37814
All Directors and Executive Officers as Class A Common 260,301 (7) 36.54%
a Group (10 persons--does not include Class B Common 463,750 93.00%
Marjorie C. Jarnagin)
All Directors, Executive Officers and Class A Common 284,522 (7) 39.94%
Marjorie C. Jarnagin as a Group (11 Class B Common 500,000 100.00%
persons)
- ------------------
</TABLE>
* less than 1%
(1) Includes 9,765 shares owned by the K. Rudicil II Trust. Mr. Haggard
is the trustee of the trust. These shares represent 1.37% of
outstanding shares of Class A Common Stock.
(2) Includes 12,000 shares owned by the lakeway Container Profit Sharing
Plan. Mr. Jolley is the trustee of the Plan. These shares represent
1.68% of all outstanding shares of Class A Common Stock.
(3) Director of FFGI.
(4) Includes 1,342 shares owned by Jullia G. McGuffin, the wife of George
B. McGuffin.
(5) Director and President of FFGI.
(6) Mr. Robinette also has options to purchase 15,000 shares of the
company's Class A Common Stock. Such options are exercisable at a
price of $8.50 per share; 7,500 of such options may be exercised
through and until September 30, 1997; 7,500 of such options may be
exercised through and until September 30, 1998. Pursuant to the
Merger Agreement, each of such options will be converted into options
to purchase .5440 shares of UPC Common Stock. If such options were
exercised prior to the Merger, Mr. Robinette would own a total of
17,353 shares of Class A Common Stock, which would represent 2.44% of
the outstanding Class A Common Stock.
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(7) This amount includes all of the Class A Common Stock owned by the
individuals listed above, plus a total of 331 shares owned by two
executive officers of Franklin Federal, neither of whom owns more than
1% of the outstanding Class A Common Stock or receives annual
compensation exceeding $100,000.00.
(8) Ms. Jarnagin is not a director or officer of FFGI. Ms. Jarnagin is
the only Class B Stockholder other than the Interested Directors.
INDEPENDENT ACCOUNTANTS
Representatives of Hiram H. Jones Associates, P.C., FFGI's independent
accountants, are expected to be present at the Special Meeting. They will be
afforded the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
LEGAL OPINIONS
The validity of the shares of the UPC Common Stock offered hereby will
be passed upon by E. James House, Jr., Secretary and Manager of the Legal
Department of UPC. E. James House, Jr. is an officer of, and receives
compensation from, UPC. The tax consequences of the Merger and other matters
will be passed upon by Wyatt, Tarrant & Combs, Memphis, Tennessee, counsel to
UPC.
EXPERTS
The consolidated financial statements of Union Planters Corporation
incorporated into this Prospectus/Proxy Statement by reference to the Annual
Report on Form 10-K of Union Planters Corporation for the year ended December
31, 1995 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of FFGI included in this
Prospectus/Proxy Statement as of September 30, 1995, and 1994 and for the three
years ended December 31, 1995 have been audited by Hiram H. Jones Associates,
P.C., independent auditor, as stated in its reports appearing herein, and has
been so included in reliance upon the reports of such firm given upon their
authority as an expert in accounting and auditing.
The consolidated statements of financial position of Leader Financial
Corporation and its subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995,
incorporated into this Prospectus/Proxy Statement by reference to UPC's Current
Report on Form 8-K, dated April 1, 1996, have been audited by KPMG Peat Marwick
LLP, independent certified public accountant, as stated in their report which
is incorporated herein by reference and in reliance on the report of such firm
given upon their authority as experts in accounting and auditing.
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The report of KPMG Peat Marwick LLP refers to changes in accounting
principles related to the adoption in 1994 of the provisions of the American
Institute of Certified Public Accountants' Statement of Position 93-6,
Employer's Accounting for Employee Stock Ownership Plans, and in 1993 of the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Post-retirement
Benefits Other than Pensions, and No. 115, Accounting for Certain Investments
in Debt and Equity Securities.
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UNION PLANTERS CORPORATION
INDEX TO APPENDICES
APPENDIX
A -- Agreement and Plan of Merger between Union Planters
Corporation, Franklin Acquisition Corp., Franklin Financial
Group, Inc., Franklin Federal Savings Bank and the Class B
Stockholders, dated as of March 4, 1996, together with the
related Plan of Merger.
B -- Escrow Agreement between Union Planters Corporation, Franklin
Financial Group, Inc., the Class B Stockholders and Union
Planters National Bank, as Escrow Agent, dated as of March 4,
1996.
C -- Tennessee Dissenters' Rights Statutes
D -- Fairness Opinion of PBS Financial Corporation
E -- Franklin Financial Group, Inc. Consolidated Financial
Statements for the years ended December 31, 1995 and 1994
(audited) and the nine months ended June 30, 1996 and 1995
(unaudited)
<PAGE> 133
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 4, 1996
BETWEEN
UNION PLANTERS CORPORATION
AND
FRANKLIN ACQUISITION CORP.
AND
FRANKLIN FINANCIAL GROUP, INC.
AND
FRANKLIN FEDERAL SAVINGS BANK
AND
CERTAIN STOCKHOLDERS OF FRANKLIN FINANCIAL GROUP, INC.
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Charter, ByLaws, Directors, Officers and Name of the Resulting Corporation . . . . . . . . . . . . . 10
(a) Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 UPC's Right to Revise the Structure of the Transaction . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Holding Period of UPC Common Stock; Limited Transfer of Rights in Escrow Agreement . . . . . . . . . 12
(a) Restrictions on Affiliates of FFGI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Escrow Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Stock Options and Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Description of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Continuation of the FFGI Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Reclassification, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Limited Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 3
DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Satisfaction of Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Continuation of Shares of Franklin Acquisition . . . . . . . . . . . . . . . . . . . . . . 16
(d) Conversion and Cancellation of Shares of FFGI . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Conversion and Exchange of FFGI Shares; Exchange Ratio . . . . . . . . . . . . . . . . . . 17
(f) Mechanics of Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
i
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<TABLE>
<S> <C>
(j) Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(k) Dissenting Shareholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(l) Reservation of Shares of UPC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Organization and Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Authorization, Execution and Delivery; Merger Agreement Not in Breach . . . . . . . . . . . . . . . . 22
4.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 UPC Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.7 Exchange Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.8 The UPC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.9 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.13 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.15 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.16 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FFGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1 Organization and Qualification of FFGI and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 29
5.2 Authorization, Execution and Delivery; Merger Agreement Not in Breach . . . . . . . . . . . . . . . . 29
5.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 Government and Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5 Licenses, Franchises, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7 FFGI Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.9 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.10 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.11 FFGI Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12 Condition of Fixed Assets and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.15 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.17 Labor and Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.18 Records and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.19 Capitalization of FFGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.20 Capitalization of Savings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.21 Sole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.23 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.24 Allowance for Possible Loan or ORE Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.25 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.26 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.27 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.28 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.29 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.30 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 5A
REPRESENTATIONS AND WARRANTIES OF EACH CLASS B SHAREHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5A.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5A.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5A.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5A.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5A.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5A.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 6
COVENANTS OF UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.1 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.2 Registration of UPC Common Stock under the Securities Laws . . . . . . . . . . . . . . . . . . . . . . 51
6.3 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 7
COVENANTS OF FFGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1 Proxy Statement; FFGI Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.2 Conduct of Business -- Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.3 Conduct of Business -- Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4 Conduct of Business -- Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 7A
COVENANTS OF CLASS B STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7A.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7A.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7A.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 8
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.1 Conditions to the Obligations of FFGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(a) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(c) Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(d) Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(e) Opinion of UPC's and Franklin Acquisition's Counsel . . . . . . . . . . . . . . . . . . . . . 63
(f) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(g) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.2 Conditions to the Obligations of UPC and Franklin Acquisition . . . . . . . . . . . . . . . . . . . . 65
(a) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(c) Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(d) Destruction of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
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(e) Inspections Permitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(f) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(g) Opinion of FFGI's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(h) Other Business Combinations Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(i) Maintenance of Certain Covenants, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(j) Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(k) Pooling of Interests Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(l) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(m) Effectiveness of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(n) FFGI Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(o) Merger Agreement and Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.3 Conditions to Obligations of All Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(a) No Pending or Threatened Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(b) Governmental Approvals and Acquiescence Obtained . . . . . . . . . . . . . . . . . . . . . . 71
(c) Shareholder Approval of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(d) Shareholder Approval of Charter Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE 9
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 10
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.2 Assignability and Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.5 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.9 Modifications, Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.11 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.12 Finders and Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.13 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.15 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.16 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.17 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
EXHIBIT A PLAN OF MERGER
EXHIBIT B ESCROW AGREEMENT
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") dated as of
the 4th day of March, 1996, by and between UNION PLANTERS CORPORATION ("UPC"),
a corporation chartered and existing under the laws of the State of Tennessee
which is registered both as a bank holding company and a savings and loan
holding company and whose principal offices are located at 7130 Goodlett Farms
Parkway, Cordova, Shelby County, Tennessee 38018; FRANKLIN ACQUISITION CORP.
("Franklin Acquisition"), a Tennessee corporation whose principal offices are
located at 7130 Goodlett Farms Parkway, Cordova, Shelby County, Tennessee 38018
and which is a wholly-owned subsidiary of UPC; FRANKLIN FINANCIAL GROUP, INC.
("FFGI" OR "Resulting Corporation" as the context may require), a Tennessee
corporation, whose principal offices are located at 622 West First North
Street, Morristown, Tennessee 37814; FRANKLIN FEDERAL SAVINGS BANK ("Savings
Bank"), a federal savings bank which is a wholly-owned subsidiary of FFGI and
which has its main offices located at 622 West First North Street, Morristown,
Tennessee 37814; and the undersigned holders of the outstanding FFGI Class B
Common Stock (collectively the "Class B Stockholders"). UPC, Franklin
Acquisition, FFGI and Savings Bank are sometimes referred to herein as the
"Parties."
RECITALS
A. FFGI desires to have itself acquired by UPC on the terms and
subject to the conditions set forth in this Merger Agreement and the
accompanying Plan of Merger (attached hereto as Exhibit A and incorporated by
reference herein) (the "Plan of Merger").
B. The Board of Directors of FFGI deem it desirable and in the
best interests of FFGI, Savings Bank and the stockholders of FFGI (the "FFGI
Stockholders") that Franklin Acquisition be merged with and into FFGI (which
would survive the merger as the "Resulting Corporation") on the terms and
subject to the conditions set forth in this Merger Agreement and in the manner
provided in this Merger Agreement and the Plan of Merger.
C. The Boards of Directors of UPC and Franklin Acquisition deem
it desirable and in the best interests of UPC, Franklin Acquisition and the
shareholders of UPC and Franklin Acquisition that Franklin Acquisition be
merged with and into FFGI on the terms and subject to the conditions set forth
in this Merger Agreement and in the manner provided in this Merger Agreement
and the Plan of Merger.
AGREEMENT AND PLAN OF MERGER - PAGE 1
<PAGE> 139
D. The respective Boards of Directors of UPC, Franklin
Acquisition, FFGI and Savings Bank have each adopted (or will each adopt)
resolutions setting forth and adopting this Merger Agreement and the Plan of
Merger, and have directed that this Merger Agreement and the Plan of Merger
(and the Escrow Agreement, a copy of which is attached hereto as Exhibit B, and
which is incorporated by reference into this Merger Agreement and the Plan of
Merger), and all resolutions adopted by said Boards of Directors and by the
FFGI Stockholders related to this Merger Agreement, the Plan of Merger and the
Escrow Agreement, be submitted with appropriate applications to, and filed
with, the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), the Office of Thrift Supervision (the "OTS") and such other
regulatory agencies or authorities as may be necessary in order to obtain all
governmental authorizations required to consummate the proposed Merger (as
defined herein) in accordance with this Merger Agreement, the Plan of Merger
and applicable law.
E. The Class B Stockholders own all of the outstanding shares of
Class B Common Stock of FFGI. The Class B Stockholders have each joined in
this Merger Agreement for the purpose of making certain agreements,
representations, warranties and covenants, including, but not limited to, those
set forth in Sections 2.6 and 10.15 and Articles 5A and 7A, hereof relating to
the deposit in escrow of shares of UPC Common Stock (as defined herein) for
potential delivery to such Class B Stockholders, in whole or in part, pursuant
to the terms of this Merger Agreement, the Plan of Merger, and the Escrow
Agreement, a copy of which is attached hereto as Exhibit B.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, UPC, Franklin Acquisition, FFGI, Savings Bank and
the Class B Stockholders agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Merger Agreement, the
following terms have the definitions indicated:
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<PAGE> 140
"AFFILIATE" of a party means any person, partnership,
corporation, association or other legal entity directly or indirectly
controlling, controlled by or under common Control, as that term is defined
herein, with that party.
"APPLICABLE ENVIRONMENTAL LAWS" shall have the meaning
assigned to such term in Section 5.15(a) of this Merger Agreement.
"BALANCE SHEET DATE" shall have the meaning assigned to such
term in Section 4.10 of this Merger Agreement.
"BHCA" shall mean the Bank Holding Company Act of 1956, as
amended.
"BUSINESS DAY" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a federal or state holiday generally recognized
by banks in Tennessee.
"CERCLA" shall have the meaning set forth in Section 5.15(a)
of this Merger Agreement.
"CERTIFIED FFGI SHAREHOLDER LIST" shall have the meaning
assigned to such term in Section 3.1(f) of this Merger Agreement.
"CLASS B STOCKHOLDERS" shall have the meaning assigned to such
term in Section 2.8 of this Merger Agreement.
"CLOSING" shall have the meaning assigned to such term in
Section 3.1(a) of this Merger Agreement.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 3.2 of this Merger Agreement.
"CONSIDERATION" shall mean the value to be received by the
FFGI Record Holders in exchange for their FFGI Class A Common Stock and FFGI
Class B Common Stock upon consummation of the Merger, as provided in Section
3.1(e)(1) of this Merger Agreement, and as to the Class B Stockholders, it
shall also mean and include their right to participate in any distributions
under the Escrow Agreement as provided in Section 3.1(e)(2) and the Escrow
Agreement.
"CONTROL" shall have the meaning assigned to such term in
Section 2(a)(2) of the BHCA.
AGREEMENT AND PLAN OF MERGER - PAGE 3
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"CURRENT MARKET PRICE PER SHARE" shall have the meaning set
forth in Section 3.1(e)(i) of this Merger Agreement.
"DEPOSITS" shall mean all deposits (including, but not limited
to, certificates of deposit, savings accounts, NOW accounts and checking
accounts) of the Savings Bank.
"DISAPPEARING CORPORATION" shall mean Franklin Acquisition as
the corporation whose corporate existence does not continue after consummation
of the Merger.
"EFFECTIVE DATE OF THE MERGER" shall mean that date on which
the Effective Time of the Merger shall have occurred.
"EFFECTIVE TIME OF THE MERGER" shall have the meaning assigned
to such term in Section 3.3 of the Plan of Merger and Section 3.1(b) of this
Merger Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" shall mean Union Planters National Bank,
Memphis, Tennessee, its successors or permitted assigns.
"ESCROW DEPOSIT" shall have the meaning assigned to such term
in Section 3.1(e) of this Merger Agreement
"ESCROW AGREEMENT" shall mean that Escrow Agreement, a copy of
which is attached hereto as Exhibit B.
"ESCROWED SHARES" shall have the meaning assigned to such term
in the Escrow Agreement.
"EXCHANGE AGENT" shall mean Union Planters National Bank,
Memphis, Tennessee, acting through its Corporate Trust Department.
"EXCHANGE RATIO" shall have the meaning assigned to such term
in Section 3.1(e)(1) of this Merger Agreement.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
AGREEMENT AND PLAN OF MERGER - PAGE 4
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"FEDERAL RESERVE" shall mean the Board of Governors of the
Federal Reserve System and shall include the Federal Reserve Bank of St. Louis
acting under delegated authority.
"FFGI" means Franklin Financial Group, Inc., a Tennessee
corporation whose main office is located at 622 West First North Street,
Morristown, Tennessee 37814.
"FFGI CLASS A COMMON" shall have the meaning assigned to such
term in Section 3.1(d) of this Merger Agreement.
"FFGI CLASS B COMMON" shall have the meaning assigned to such
term in Section 3.1(d) of this Merger Agreement.
"FFGI COMMON STOCK" shall have the meaning assigned to such
term in Section 3.1(d) of this Merger Agreement.
"FFGI COMPANIES" shall mean FFGI and all of its Subsidiaries.
"FFGI EMPLOYEE PLANS" shall mean any pension plans, profit
sharing plans, deferred compensation plans, stock option plans, cafeteria
plans, and any other such or related benefit plans or arrangements offered or
funded by FFGI or any FFGI Subsidiary, to or for the benefit of the current and
former officers, directors or employees of FFGI or any FFGI Subsidiary.
"FFGI FINANCIAL STATEMENTS" shall mean (i) the audited
consolidated balance sheets and related consolidated statements of earnings, of
changes in shareholders' equity, and of cash flows (including related notes) of
FFGI and its Subsidiaries as of September 30, 1995 and 1994 and each subsequent
September 30 prior to the Effective Time of the Merger, and (ii) the related
unaudited consolidated balance sheets and related consolidated statements of
earnings, of changes in shareholders' equity, and of cash flows (including
related notes) of FFGI and its Subsidiaries for each of the quarters ended or
ending after January 1, 1995.
"FFGI PENDING LITIGATION" shall mean the litigation presently
pending in the United States Claims Court styled Franklin Federal Savings Bank,
et al., Plaintiffs, v. United States of America, Defendant, Civil Action No.
92-739C.
"FFGI PENDING LITIGATION EXPENSES" shall mean all costs and
expenses incurred by or on behalf of FFGI, Savings Bank, UPC, or any of their
successors or assigns, after the date hereof in connection with the FFGI
Pending Litigation, including, but not limited to, legal and consultant fees
and expenses, court costs, travel costs and expenses of attorneys, consultants
and their staffs, as well as for management or other
AGREEMENT AND PLAN OF MERGER - PAGE 5
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representatives of FFGI, Savings Bank or UPC, filing fees, transcript costs,
settlement or judgement costs and expenses in the event FFGI, Savings Bank or
UPC, or any of their successors are to pay such costs, expenses or amounts in
settlement of, or to satisfy a judgement against either one of them, in the
FFGI Pending Litigation.
"FFGI OPTION PLAN" shall have the meaning assigned to such
term in Section 2.7 of this Merger Agreement.
"FFGI RECORD HOLDERS" means the holders of record of all of
the issued and outstanding shares of FFGI Common Stock immediately prior to the
Effective Time of the Merger.
"FFGI STOCKHOLDERS" shall have the meaning assigned to such
term in Recital B of this Merger Agreement.
"FFGI STOCK OPTIONS" shall have the meaning assigned to such
term in Section 2.7 of this Merger Agreement.
"FRANKLIN ACQUISITION" shall mean Franklin Acquisition, a
Tennessee corporation, whose main office is located at 7130 Goodlett Farms
Parkway, Cordova, Shelby County, Tennessee 38018, which is a wholly-owned
subsidiary of UPC.
"FRANKLIN ACQUISITION COMMON STOCK" shall have the meaning
assigned to such term in Section 3.1(c) of this Merger Agreement.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GOVERNMENT APPROVALS" shall have the meaning assigned to such
term in Section 4.4 of this Merger Agreement.
"HAZARDOUS SUBSTANCES" shall have the meaning set forth in
Section 5.15(a) of this Merger Agreement.
"HOLA" shall mean the Home Owners' Loan Act of 1933, as
amended.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended.
"MERGER" shall, as described in Section 2.1 of this Merger
Agreement, mean the merger of Franklin Acquisition with and into FFGI, which
later corporation shall survive the Merger as the Resulting Corporation.
AGREEMENT AND PLAN OF MERGER - PAGE 6
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"MERGER AGREEMENT" means this Agreement and Plan of Merger
together with the Plan of Merger (Exhibit A), the Escrow Agreement (Exhibit B)
and all other Exhibits and Schedules annexed to, and incorporated by specific
reference as a part of, this Merger Agreement.
"NET FFGI PENDING LITIGATION EXPENSES" shall mean the
remainder after subtracting from (x) the aggregate amount of FFGI Pending
Litigation Expenses (y) the aggregate amount of FFGI Pending Litigation
Expenses which have been paid to Savings Bank by the Class B Stockholders
pursuant to Section 5(h)(4) of the Escrow Agreement.
"NYSE" shall mean the New York Stock Exchange, or its
successor, upon which shares of the UPC Common Stock are listed for trading.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"OFFICER" shall have the meaning set forth in Section 5.8(k)
of this Merger Agreement.
"OTS" shall mean the Office of Thrift Supervision or any
successor thereto.
"PARTIES" shall mean FFGI, Savings Bank, UPC, and Franklin
Acquisition collectively; FFGI and Savings Bank on the one hand, or UPC and
Franklin Acquisition on the other hand, may sometimes be referred to as a
"PARTY." The Class B Stockholders are in fact "parties" to this Merger
Agreement, but unless otherwise specifically stated, the term "Parties" shall
not be deemed to include the Class B Stockholders.
"PENSION PLAN" shall mean any employee pension benefit plan as
such term is defined in Section 3(2) of ERISA which is maintained by the
referenced Party.
"PERSON" shall mean any natural person, fiduciary,
corporation, partnership, joint venture, association, business trust or any
other entity of any kind.
"PLAN OF MERGER" shall mean the Plan of Merger substantially
in the form of Exhibit A hereto to be executed by authorized representatives of
FFGI, Savings Bank, UPC and Franklin Acquisition and filed with the Tennessee
Secretary of State along with Escrow Agreement which shall be an exhibit to the
Plan of Merger and incorporated therein by reference, as well as the Articles
of Merger in accordance with Section 48-21-105 of the Tennessee Code and
providing for the Merger of Franklin Acquisition with and into FFGI as
contemplated by Section 2.1 of this Merger Agreement.
AGREEMENT AND PLAN OF MERGER - PAGE 7
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"PROPERTY" shall have the meaning assigned to such term in
Section 5.15(a) of this Merger Agreement.
"PROXY STATEMENT" shall mean the proxy statement to be used by
FFGI to solicit proxies with a view to securing the approval of the FFGI
Stockholders of this Merger Agreement and the Plan of Merger.
"REALTY" means the real property of FFGI owned or leased by
FFGI or any Subsidiary of FFGI.
"RECORDS" means all available records, minutes of meetings of
the Board of Directors, committees and shareholders of FFGI and its
Subsidiaries, original instruments and other documentation, pertaining to FFGI,
FFGI's assets (including plans and specifications relating to the Realty),
FFGI's liabilities, the FFGI Common Stock, the Deposits and the loans, and all
other business and financial records which are necessary or customary for use
in the conduct of FFGI's and its Subsidiaries' business by UPC and Franklin
Acquisition on and after the Effective Time of the Merger as it was conducted
prior to the Closing Date.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Reserve, the OTS, the SEC, or any other state or federal governmental or
quasi-governmental entity which has, or may hereafter have, jurisdiction over
any of the transactions described in this Merger Agreement.
"RELEASE" shall have the meaning assigned to such term in
Section 5.15(b)(i) of this Merger Agreement.
"RESULTING CORPORATION" shall mean FFGI as the corporation
resulting from the consummation of the Merger as set forth in Section 2.1 of
this Merger Agreement as set forth in Section 2.2(d) of this Merger Agreement
and in the Plan of Merger.
"SAVINGS BANK" means Franklin Federal Savings Bank, a federal
savings bank, whose main office is located at 622 West First North Street,
Morristown, Tennessee 37814, which is a wholly-owned subsidiary of FFGI.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a Party or any of
its Subsidiaries pursuant to the Securities Laws, whether filed, or required to
be filed, with the SEC, the OTS, the Comptroller of the Currency, the FDIC or
with any other Regulatory Authority pursuant to the Securities Laws.
AGREEMENT AND PLAN OF MERGER - PAGE 8
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"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of the SEC promulgated thereunder, as well as any similar state
securities laws and any similar rules and regulations promulgated by the
applicable federal bank Regulatory Authorities.
"SHAREHOLDER MATERIALS" shall have the meaning assigned to
such term in Section 3.1(f) of this Merger Agreement.
"SHAREHOLDERS MEETING" shall mean the meeting of the FFGI
Stockholders to be held pursuant to Section 7.1 of this Merger Agreement,
including any adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all of those corporations, banks,
associations or other entities of which the entity in question owns or controls
10% or more of the outstanding voting equity securities either directly or
through an unbroken chain of entities as to each of which 10% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, however, that there shall not be included any such entity acquired
through foreclosure or in satisfaction of a debt previously contracted in good
faith, any such entity that owns or operates an automatic teller machine
interchange network, any such entity that is a joint venture of the parent or
of a Subsidiary of the parent, or any such entity the equity securities of
which are owned or controlled in a fiduciary capacity or through a small
business investment corporation.
"TDFI" shall mean the Tennessee Department of Financial
Institutions.
"TENNESSEE CODE" means the Tennessee Code Annotated, as
amended.
"TENNESSEE COMMISSIONER" shall mean the Commissioner of the
Tennessee Department of Financial Institutions.
"UPC" shall mean Union Planters Corporation, a
Tennessee-chartered bank holding company which is also registered as a savings
and loan holding company having its principal place of business at 7130
Goodlett Farms Parkway, Cordova, Shelby County, Tennessee 38018.
"UPC COMMON STOCK" shall have the meaning set forth in Section
4.5 of this Merger Agreement.
"UPC FINANCIAL STATEMENTS" shall mean (i) the audited
consolidated balance sheets and related consolidated statements of earnings, of
changes in shareholders' equity, and of cash flows (including related notes) of
UPC and its
AGREEMENT AND PLAN OF MERGER - PAGE 9
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Subsidiaries as of December 31, 1993 and 1994 and each subsequent December 31
prior to the Effective Time of the Merger (as originally issued, but without
giving effect to subsequently effected business combinations accounted for as
poolings of interests), and (ii) the related unaudited consolidated balance
sheets and related consolidated statements of earnings, of changes in
shareholders' equity, and of cash flows (including related notes) of UPC and
its Subsidiaries for each of the quarters ended or ending after January 1,
1995, as filed by UPC in SEC Documents.
"UPC PREFERRED STOCK" shall have the meaning assigned to such
term in Section 4.5 of this Merger Agreement.
ARTICLE 2
TERMS OF THE MERGER
2.1 The Merger.
Subject to the satisfaction (or lawful waiver) of all
of the conditions to the obligations of each of the Parties and the Class B
Stockholders to this Merger Agreement, at the Effective Time of the Merger,
Franklin Acquisition shall be merged with and into FFGI (the "Merger"), which
latter corporation (the "Resulting Corporation") shall survive the Merger.
2.2 Charter, ByLaws, Directors, Officers and Name of the
Resulting Corporation.
(a) Charter. The Charter of FFGI as in effect
immediately prior to the Effective Time of the Merger shall constitute the
Charter of the Resulting Corporation, unless and until the same shall be
subsequently amended as provided by law and the terms of such Charter.
(b) Bylaws. At the Effective Time of the Merger,
the Bylaws of FFGI as in effect immediately prior to the Effective Time of the
Merger, shall constitute the Bylaws of the Resulting Corporation, unless and
until amended or repealed as provided by law, its Charter and such Bylaws.
(c) Directors and Officers. The directors of
Franklin Acquisition in office immediately prior to the Effective Time of the
Merger shall become the directors of FFGI as the Resulting Corporation, to hold
office as provided in the Charter and Bylaws of the Resulting Corporation,
unless and until their successors shall have been elected or appointed and
shall have qualified or until they shall have been removed in the
AGREEMENT AND PLAN OF MERGER - PAGE 10
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manner provided therein. The officers of Franklin Acquisition in office
immediately prior to the Effective Time of the Merger shall continue to be the
officers of FFGI as the Resulting Corporation, to hold office as provided in
the Charter and Bylaws of the Resulting Corporation, until their successors
shall have been appointed or they shall have been removed as provided therein.
(d) Name. The name of FFGI as the Resulting
Corporation following the Merger shall remain the same.
2.3 Due Diligence Review. Prior to the date of this
Merger Agreement, each Party has granted to the other the opportunity to
conduct a preliminary due diligence review of the books, records and operations
of the other Party.
2.4 Availability of Information. Each Party shall
continue to provide to the other Party, its Officers, employees, agents, and
representatives access, on reasonable notice and during customary business
hours, to all of the books, records, properties and facilities of the Party and
shall use its best efforts to cause its Officers, employees, agents and
representatives to cooperate with any of the reviewing Party's reasonable
requests for information which would be customary in order to verify that there
has been no material adverse change in the reviewed Party since the date of the
due diligence review provided for in Section 2.3 of this Merger Agreement.
2.5 UPC's Right to Revise the Structure of the
Transaction. UPC shall have the unilateral right to revise the structure of
the corporate reorganization contemplated by this Merger Agreement in order to
achieve tax benefits or for any other reason which UPC may deem advisable;
provided, however, that UPC shall not have the right, without the approval of
the Board of Directors of FFGI, to make any revision to the structure of the
reorganization which (i) changes the amount or nature of the Consideration
which the FFGI Record Holders are entitled to receive (determined in the manner
provided in Section 3.1(e) of this Merger Agreement); (ii) changes the intended
tax-free effects of the Merger to UPC, Franklin Acquisition, FFGI, the Class B
Stockholders or the other FFGI Record Holders; (iii) except as may be otherwise
provided herein, would permit UPC to pay the Consideration other than by
delivery of UPC Common Stock which has been registered with the SEC in the
manner described in Section 6.2 of this Merger Agreement; or (iv) would be
materially adverse to the interests of FFGI or the FFGI Record Holders as
shareholders of FFGI, or the FFGI Class B Stockholders. UPC may exercise this
right of revision by giving written Notice to FFGI in the manner provided in
Section 10.1 of this Merger Agreement which Notice shall be in the form of an
amendment to this Merger Agreement or in the form of an Amended and Restated
Agreement and Plan of Merger.
AGREEMENT AND PLAN OF MERGER - PAGE 11
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2.6 Holding Period of UPC Common Stock; Limited Transfer
of Rights in Escrow Agreement.
(a) Restrictions on Affiliates of FFGI. FFGI
hereby acknowledges and agrees that, in order to qualify the Merger under the
Internal Revenue Code as a tax-free reorganization, as well as to qualify it
for accounting purposes as a "pooling of interests" under the rules and
regulations promulgated by the SEC, Accounting Principles Board Opinion No. 16
and GAAP, then any FFGI Record Holder who would be deemed an "Affiliate" of
FFGI under the Securities Laws and who accepts shares of UPC Common Stock as
Consideration for the cancellation, exchange and conversion of his shares of
FFGI Common Stock pursuant to the terms and conditions of this Merger
Agreement, may not pledge on a nonrecourse basis, assign, sell, transfer,
devise, otherwise alienate or take any action which would eliminate or diminish
the risk of owning or holding the shares of UPC Common Stock to be received by
such FFGI Record Holder upon consummation of the Merger, nor enter into any
formal or informal agreement to pledge on a nonrecourse basis, assign, sell or
transfer, devise, or otherwise alienate his right, title and interests in any
of the shares of UPC Common Stock to be delivered by UPC to such FFGI Record
Holder pursuant to the terms and conditions of this Merger Agreement, except in
accordance with the Securities Laws and consistently with the Merger being
treated as one or more tax-free reorganizations as defined in Section 368 of
the IRC, and in no event prior to the time as UPC shall have publicly released
a statement of UPC's consolidated earnings reflecting the combined financial
results of operations of UPC and FFGI for a period of not less than thirty (30)
days subsequent to the Effective Time of the Merger.
FFGI represents and warrants to UPC and Franklin Acquisition that it
will use its best efforts to identify and promptly notify UPC of all such
persons or entities which would be an "Affiliate" of FFGI, and to obtain from
each such person, and deliver to UPC as soon as practicable thereafter, an
"Affiliates Agreement" in such form as UPC shall require, executed by each such
Affiliate.
FFGI and each Class B Stockholder further acknowledges and agrees that
any certificate for UPC Common Stock issued in connection with the Merger to
FFGI Record Holders who would be deemed Affiliates of FFGI or UPC under the
Securities Laws shall be subject to and bear a restrictive legend substantially
in the form as follows:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT
TO ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE RULES AND REGULATIONS PROMULGATED BY
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") THEREUNDER. NO SALE,
TRANSFER OR OTHER DISPOSITION OF THESE SHARES
AGREEMENT AND PLAN OF MERGER - PAGE 12
<PAGE> 150
MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT (OTHER THAN A REGISTRATION STATEMENT ON SEC
FORM S-4) OR UPON THE PRIOR DELIVERY TO UNION PLANTERS CORPORATION
("UPC") OF AN OPINION FROM LEGAL COUNSEL SATISFACTORY TO UPC AND IN
FORM AND SUBSTANCE SATISFACTORY TO UPC AND ITS LEGAL COUNSEL, STATING
THAT SUCH SALE OR OTHER DISPOSITION IS BEING MADE PURSUANT TO AND IN
ACCORDANCE WITH THE REQUIREMENTS OF SEC RULES 144 AND 145 OR IS
OTHERWISE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
IN ADDITION, THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE SHALL
NOT BE PLEDGED, ASSIGNED, SOLD, TRANSFERRED OR OTHERWISE ALIENATED NOR
SHALL THE HOLDER TAKE ANY ACTION WHICH WOULD ELIMINATE OR DIMINISH THE
RISK OF OWNING OR HOLDING SUCH SHARES OR ENTER INTO ANY FORMAL OR
INFORMAL AGREEMENT TO PLEDGE, ASSIGN, SELL, TRANSFER OR OTHERWISE
ALIENATE THE HOLDER'S RIGHT, TITLE OR INTEREST IN ANY OF THE SHARES
REPRESENTED BY THIS CERTIFICATE UNTIL THERE SHALL HAVE BEEN PUBLISHED
FINANCIAL INFORMATION CONCERNING UPC WHICH REFLECTS THE RESULTS OF THE
COMBINED BUSINESS OPERATIONS OF UPC AND FRANKLIN FINANCIAL GROUP, INC.
FOR A PERIOD OF NOT LESS THAN THIRTY (30) DAYS.
(b) Escrow Rights. FFGI, Savings Bank and the
Class B Stockholders each acknowledges and agrees that the rights of the Class
B Stockholders to any distributions of any nature pursuant to the Escrow
Agreement shall be governed exclusively by such Escrow Agreement, and that the
rights of any Escrow Participant (as that term is defined in the Escrow
Agreement) to any distribution under the Escrow Agreement shall not be pledged,
assigned, sold, transferred or alienated, in whole or in part, directly or
indirectly, except to the limited extent set forth in the Escrow Agreement, and
neither UPC nor the Escrow Agent shall have any responsibility to recognize or
register any attempted transfer, assignment, pledge, sale or alienation of any
such rights except under the specific conditions set forth in the Escrow
Agreement. Neither UPC nor the Escrow Agent shall ever issue any certificate
or other document evidencing or representing any right to participate in any
distribution in the Escrow Agreement and the only evidence of the Class B
Stockholder's rights in the Escrow Agreement shall be evidenced and represented
only by a copy of the fully executed Escrow Agreement. FFGI, Savings Bank and
each Class B Stockholder further represents to UPC and Franklin Acquisition and
acknowledges and agrees that the right of the Class B Stockholders to any
distribution under the Escrow Agreement is contingent upon the
AGREEMENT AND PLAN OF MERGER - PAGE 13
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settlement or successful resolution of the FFGI Pending Litigation in such an
amount as would exceed the Net FFGI Pending Litigation Expenses, and that
neither UPC, Franklin Acquisition, FFGI, Savings Bank, the Resulting
Corporation, nor any of their respective officers, directors, employees, agents
or representatives have made in the past or will make any representation
whatsoever regarding the likelihood of success of the FFGI Pending Litigation,
either favorable or unfavorable, or that FFGI Pending Litigation can or cannot
be resolved in favor of FFGI, or settled for such an amount or in such a manner
as would entitle any Class B Shareholder to any distribution whatsoever
pursuant to the Escrow Agreement.
2.7 Stock Options and Treasury Stock.
(a) Description of Plan. FFGI has established
the Franklin Financial Group Stock Option Plan (the "FFGI Option Plan"). FFGI
has reserved 21,000 shares of FFGI Class A Common Stock and No shares of FFGI
Class B Common Stock for issuance upon the exercise of any such options from
time to time under the FFGI Plan. As of the date hereof, 21,000 stock options
have been granted by FFGI under the FFGI Plan, No (0) such options have been
exercised, No (0) such options have been forfeited, and 21,000 such options are
outstanding (the "FFGI Stock Options"). The option exercise price for such
outstanding options is $8.50 per share.
FFGI did not grant any such FFGI Stock Options in
1995, has not granted any such FFGI Stock Options thus far in 1996, and will
not grant any additional FFGI Stock Options on or after the date hereof and
prior to the earlier of the effective termination of this Merger Agreement or
Effective Time of the Merger.
As of the date of this Merger Agreement, there are no
other options, rights, warrants, scrip or similar rights issued and outstanding
by FFGI to purchase shares of FFGI Common Stock or any other capital stock of
FFGI. Therefore, at the Effective Time of the Merger there will be in the
aggregate 21,000 issued and outstanding FFGI Stock Options. As of the date of
this Merger Agreement, FFGI has not repurchased any shares of its capital
stock. Therefore, as of the date of this Merger Agreement, there are no shares
of FFGI Common Stock held by FFGI as treasury stock, nor will there be any such
shares at the Effective Time of the Merger.
(b) Continuation of the FFGI Option Plan. The
FFGI Option Plan shall continue in effect but no additional options shall be
available for grant thereunder after the Effective Time of the Merger. At the
Effective Time of the Merger, each option validly granted under the FFGI Option
Plan and outstanding immediately prior to the Effective Time of the Merger
shall continue to be outstanding as an option to purchase, in place of the
purchase of a share of FFGI Common Stock, that number of shares (rounded down
to the nearest whole share) of UPC Common Stock that would have been
AGREEMENT AND PLAN OF MERGER - PAGE 14
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received by the optionee in connection with Section 3.1(e)(1) of this Merger
Agreement had such option been exercised in full (without regard to any
limitations contained thereon on exercise and without regard as to whether the
option was to purchase FFGI Class A Common Stock or FFGI Class B Common Stock)
for shares of FFGI Common Stock immediately prior to the Effective Time of the
Merger upon the same terms and conditions under the relevant option as were
applicable immediately prior to the Effective Time of the Merger, except for
appropriate pro rata adjustments as to the relevant option price for shares of
UPC Common Stock substituted therefor, so that the aggregate option exercise
price of shares subject to an option immediately following the assumption and
substitution shall be the same as the aggregate option exercise price for such
shares immediately prior to such assumption and substitution. UPC, Franklin
Acquisition and FFGI agree to take such actions as shall be necessary to give
effect to the foregoing. At all times after the Effective Time of the Merger,
UPC shall reserve for issuance such number of shares of UPC Common Stock as
necessary so as to permit the exercise of any FFGI Stock Options granted under
the FFGI Option Plan and which were unexercised prior to the Effective Time of
the Merger in the manner contemplated by this Merger Agreement and the
instruments pursuant to which the FFGI Stock Options were granted. UPC shall
make all filings required under the Securities Laws so as to permit the
exercise of such FFGI Stock Options and the sale or transfer of the shares of
UPC Common Stock received by the optionee upon such exercise; provided,
however, that UPC's obligation hereunder shall not include the obligation to
make such filings as would be necessary for the resale of any shares of UPC
Common Stock issued upon exercise of an option by any person who would be
deemed to be an "Affiliate" of FFGI or UPC without compliance with either Rules
144 or 145 as promulgated by the SEC.
(c) Reclassification, etc. In case of any
reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
the UPC Common Stock or in case of any consolidation or merger of UPC with or
into any other corporation, or in the case of any sale or transfer of all or
substantially all of UPC's assets, then the rights of the optionees under the
FFGI Stock Option Plan shall be appropriately adjusted so that the optionees
will be in the same position as if their options had been exercised immediately
before such corporate action or transaction. The provisions hereof shall
similarly apply to successive reclassifications, reorganizations,
recapitalizations, stock dividends or distributions, subdivisions, combinations
or exchanges, consolidations, mergers, sales or transfers.
(d) Limited Obligations. Nothing contained in
this Merger Agreement or in the other documentation of the proposed transaction
shall be deemed to have reduced, contracted, enlarged, ratified, affirmed,
undertaken, authorized, approved or otherwise to have affected whatever
contractual rights the holders of FFGI Stock Options may have under applicable
documentation other than as expressly stated
AGREEMENT AND PLAN OF MERGER - PAGE 15
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in this Merger Agreement with respect to the outstanding FFGI Stock Options
identified herein which are validly issued and outstanding under the FFGI Stock
Option Plan at the Effective Time of the Merger.
ARTICLE 3
DESCRIPTION OF TRANSACTION
3.1 Terms of the Merger.
(a) Satisfaction of Conditions to Closing. After
the transactions contemplated herein have been approved by the stockholders of
FFGI and Franklin Acquisition, and each other condition to the obligations of
the Parties and Class B Stockholders hereto, other than those conditions which
are to be satisfied by delivery of documents by any Party or Class B
Stockholder to any other Party, has been satisfied or, if lawfully permitted,
waived by the Party or Parties entitled to the benefits thereof, a closing (the
"Closing") will be held on the date and at the time of day and place referred
to in Section 3.2 of this Merger Agreement. At the Closing the Parties shall
use their respective best efforts to deliver the certificates, letters,
agreements and opinions which constitute conditions to effecting the Merger and
each Party and Class B Stockholder will provide the other Parties with such
reasonable proof or indication of satisfaction of the conditions to the
obligations of such other Parties to consummate the Merger as such other
Parties may reasonably require. If all conditions to the obligations of each
of the Parties and Class B Stockholders shall have been satisfied or lawfully
waived by the Party entitled to the benefits thereof, the Parties shall, at the
Closing, duly execute Articles of Merger for filing with the Secretary of State
of the State of Tennessee and promptly thereafter FFGI and Franklin Acquisition
shall take all steps necessary or desirable to consummate the Merger in
accordance with all applicable laws, rules and regulations and the Plan of
Merger which is attached hereto as Exhibit A and incorporated by reference as
part of this Merger Agreement. The Parties and each Class B Stockholder shall
thereupon take such other and further actions as UPC shall direct or as may be
required by law or this Merger Agreement, the Plan of Merger and the Escrow
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 as specified on the endorsement of the Articles of
Merger by the Secretary of State of the State of Tennessee, or at such later
time and date as is provided in the Articles of Merger (the "Effective Time of
the Merger").
(c) Continuation of Shares of Franklin
Acquisition. At the Effective Time of the Merger, each share of no par value
common stock of Franklin
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Acquisition (the "Franklin Acquisition Common Stock") issued and outstanding
immediately prior to the Effective Time of the Merger shall be converted into
one share of the issued and outstanding common stock of the Resulting
Corporation.
(d) Conversion and Cancellation of Shares of
FFGI. At the Effective Time of the Merger, each share of $1.00 par value Class
A common stock of FFGI ("FFGI Class A Common") and each share of $1.00 par
value Class B common stock of FFGI ("FFGI Class B Common") (collectively, the
FFGI Class A Common and the FFGI Class B Common are referred to herein as the
"FFGI Common Stock") validly issued and outstanding immediately prior to the
Effective Time of the Merger shall, by virtue of the Merger becoming effective
and without any further action on the part of anyone, be converted, exchanged
and cancelled as provided in Section 3.1(e) hereof.
(e) Conversion and Exchange of FFGI Shares;
Exchange Ratio; Escrow of UPC Common Stock for the Benefit of Class B
Stockholders. At the Effective Time of the Merger, the outstanding shares of
FFGI Common Stock held by the FFGI Record Holders immediately prior to the
Effective Time of the Merger shall, without any further action on the part of
anyone, cease to represent any interest (equity, shareholder or otherwise) in
FFGI or the Resulting Corporation, and shall, except for those shares of FFGI
Common Stock held and registered in the name of any FFGI Record Holder who
shall have perfected his dissenter's rights and shall have continued such
dissenting status through the Effective Time of the Merger (a "FFGI Dissenting
Shareholder"), automatically be converted exclusively into, and constitute only
the right of the FFGI Record Holders to receive in exchange for their shares of
FFGI Common Stock, the Consideration set forth in this Section 3.1(e) to which
they are entitled.
(1) The number of shares of UPC Common
Stock to be exchanged for each share of FFGI Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger shall be
based on an exchange ratio (the "Exchange Ratio") of 0.5440 shares of UPC
Common Stock for each share of FFGI Common Stock, based on an aggregate of no
more than 1,233,320 fully diluted shares of FFGI Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger (which, for
purposes of this paragraph, shall be determined by counting all FFGI Stock
Options issued and outstanding immediately prior to the Effective Time of the
Merger as shares of FFGI Common Stock); and further based on the understanding
that there shall be no shares of $1.00 par value preferred stock of FFGI ("FFGI
Preferred Stock") outstanding and no other options, warrants, rights or other
instruments outstanding or subject to issuance which are convertible into or
otherwise represent the right to acquire any FFGI Common Stock, FFGI Preferred
Stock or any other capital stock of FFGI. No fractional shares of UPC Common
Stock shall be issued and if, after aggregating all of the shares of UPC Common
Stock to which a FFGI Record Holder is entitled based upon the Exchange Ratio,
there shall be a fractional share of UPC
AGREEMENT AND PLAN OF MERGER - PAGE 17
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Common Stock remaining, such fractional share shall be settled by a cash
payment therefor pursuant to the Mechanics of Payment of the Purchase Price set
forth in Section 3.1(f) hereof, which shall be calculated based upon the
Current Market Price Per Share of one (1) full share of UPC Common Stock as
defined in Section 3.1(f) hereof.
(2) In addition to the Consideration to
be exchanged for each share of FFGI Class B Common Stock set forth in Section
3.1(e)(1) above, UPC shall issue to the Escrow Agent named in the Escrow
Agreement, a copy of which is attached hereto as Exhibit B and incorporated
fully herein, that number of shares of UPC Common Stock as shall equal the
"Escrow Deposit" (as defined below) to be held by such Escrow Agent pursuant to
the Escrow Agreement for the benefit of UPC and the Class B Stockholders (other
than any Class B Stockholders who are FFGI Dissenting Shareholders as to a
share or shares of FFGI Class B Common Stock). The "Escrow Deposit" shall
equal ten percent (10%) of the remainder after subtracting from the aggregate
number of whole shares of UPC Common Stock as UPC shall be obligated to issue
to FFGI Record Holders pursuant to Section 3.1(e)(1) above, (x) any shares of
UPC Common Stock as would be issued to any FFGI Dissenting Shareholders had
they not perfected their dissenters' rights as to any Class A Common Stock, (y)
any fractional shares of UPC Common Stock which would have been issued if UPC
had issued fractional shares, and (z) that number of the shares of UPC Common
Stock which would have been deposited with the Escrow Agent hereunder equal to
the proportionate interest(s) of all shares of FFGI Class B Common Stock for
which dissenters rights have been perfected as to their FFGI Class B Common
Stock, to the total number of shares of Class B Common Stock; provided,
however, that UPC shall have no obligation to escrow shares or pay any
Consideration pursuant to this Section 3.1(e)(2), should the FFGI Pending
Litigation be resolved or otherwise settled prior to the Effective Date of the
Merger and should FFGI have declared and paid, or set aside for payment, the
dividends, or a portion thereof, contemplated by Section 7(C)(2)(b) of FFGI's
Charter to be paid to the holders of FFGI Class B Common Stock.
For example, should the Exchange Ratio equal
two (2) shares of UPC Common Stock for each of the 1,233,320 shares of FFGI
Common Stock outstanding at the Effective Time of the Merger, the total number
of shares of UPC Common Stock to be issued would equal 2,466,640 shares. If
the FFGI Record Holders of 5,000 shares of FFGI Class A Common Stock perfect
dissenters' rights thereby becoming FFGI Dissenting Shareholders, and should
UPC cash-out 1000 fractional shares of UPC Common Stock, the aggregate number
of whole shares of UPC Common Stock which UPC would be required to issue upon
consummation of the Merger would equal 2,455,640 shares (2,466,640 less 10,000
(2 X 5,000) and less 1000). If no Record Holders of Class B Common Stock
perfect dissenters' rights with respect to any of their shares of FFGI Class B
Common Stock, the Escrow Deposit would equal 10% of 2,455,640 or 245,564 shares
of UPC Common Stock. If, however, the holders of 25%
AGREEMENT AND PLAN OF MERGER - PAGE 18
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of the outstanding shares of FFGI Class B Common Stock perfect dissenter's
rights with respect to such shares, and should UPC, in its sole discretion,
determine to proceed with the Merger, the Escrow Deposit would be reduced by
25% of 245,564 (61,391) to 184,173 shares of UPC Common Stock.
The shares of UPC Common Stock and the cash
settlement of any remaining fractional share of UPC Common Stock deliverable by
UPC to the FFGI Record Holders upon consummation of the Merger and proper
surrender in accordance with Section 3.1(f) of certificates evidencing and
representing shares of FFGI Common Stock outstanding immediately prior to the
Effective Time of the Merger, and the additional rights of the Class B
Stockholders under the Escrow Agreement are sometimes collectively referred to
herein as the "Consideration."
(i) Definition of "Current Market Price
Per Share". The "Current Market Price Per Share" shall be the closing price
per share of the "last" real time trade (i.e., closing price) of the UPC Common
Stock on the NYSE (as published in The Wall Street Journal) for the Effective
Date of the Merger (the "Pricing Period").
(ii) Effect of Stock Splits, Reverse
Stock Splits, Stock Dividends and Similar Changes in the Capital of UPC or
FFGI. Should either UPC or FFGI effect any stock splits, reverse stock splits,
stock dividends, reclassifications, recapitalizations, exchange of shares or
similar changes in their respective capital accounts or capitalization
subsequent to the date of this Merger Agreement but prior to the Effective Time
of the Merger, the Exchange Ratio and the Escrow Deposit shall be
proportionally adjusted, to the extent necessary, in order to give effect to
such changes.
(f) Mechanics of Payment of Purchase Price. As
soon as reasonably practicable after the Effective Time of the Merger and the
receipt by UPC of the Certified FFGI Shareholder List from the transfer agent
of FFGI, the Exchange Agent shall deliver to each of the FFGI Record Holders
such materials and information deemed necessary by the Exchange Agent to advise
the FFGI Record Holders of the procedures required for proper surrender of
their certificates evidencing and representing shares of the FFGI Common Stock
in order for the FFGI Record Holders to receive the Consideration to which they
are entitled pursuant to the terms of this Merger Agreement and the Plan of
Merger. Such materials shall include, without limitation, a Letter of
Transmittal and an Instruction Sheet (collectively the "Shareholder
Materials"). All Shareholder Materials shall be sent by United States mail to
the FFGI Record Holders at the addresses set forth on a certified shareholder
list to be delivered by FFGI to UPC at the Closing (the "Certified FFGI
Shareholder List"). As soon as reasonably practicable thereafter, the FFGI
Record Holders of all of the outstanding shares of FFGI Common Stock, shall
deliver, or cause to be delivered, to the Exchange Agent, pursuant to the
Shareholder Materials, the certificates formerly evidencing and representing
all of the
AGREEMENT AND PLAN OF MERGER - PAGE 19
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shares of FFGI Common Stock which were validly issued and outstanding
immediately prior to the Effective Time of the Merger, and the Exchange Agent
shall take prompt action to process such certificates formerly evidencing and
representing shares of FFGI Common Stock received by it (including the prompt
return of any defective submissions with instructions as to those actions which
may be necessary to remedy any defects). Upon receipt of the proper submission
of the certificate(s) formerly representing and evidencing ownership of the
shares of FFGI Common Stock, the Exchange Agent shall mail to the former FFGI
Stockholders in exchange for the certificate(s) surrendered by them, the
Consideration to be paid for each such FFGI Shareholder's shares of FFGI Common
Stock pursuant to Section 3.1(e)(1) hereof evidenced by the certificate or
certificates which were cancelled and converted exclusively into the right to
receive the Consideration set forth in Section 3.1(e)(1) upon the Merger
becoming effective. After the Effective Time of the Merger and until properly
surrendered to the Exchange Agent, each outstanding certificate or certificates
which formerly evidenced and represented the shares of FFGI Common Stock of an
FFGI Record Holder, subject to the provisions of this Section, shall be deemed
for all corporate purposes to represent and evidence only the right to receive
the Consideration into which such FFGI Record Holder's shares of FFGI Common
Stock were converted and aggregated at the Effective Time of the Merger.
Unless and until the outstanding certificate or certificates, which immediately
prior to the Effective Time of the Merger evidenced and represented the FFGI
Record Holder's FFGI Common Stock, shall have been surrendered as provided
above, the Consideration payable to the FFGI Record Holder(s) of the cancelled
shares as of any time after the Effective Date shall not be paid to the FFGI
Record Holder(s) of such certificate(s) until such certificate(s) shall have
been surrendered in the manner required. Each FFGI Record Holder will be
responsible for all federal, state and local taxes which may be incurred by him
on account of his receipt of the Consideration to be paid in the Merger. The
FFGI Record Holder(s) of any certificate(s) which shall have been lost or
destroyed may nevertheless, subject to the provisions of this Section, receive
the Consideration to which each such FFGI Record Holder is entitled, provided
that each such FFGI Record Holder shall deliver to UPC and to the Exchange
Agent: (i) a sworn statement certifying such loss or destruction and specifying
the circumstances thereof and (ii) a lost instrument bond in form satisfactory
to UPC and the Exchange Agent which has been duly executed by a corporate
surety satisfactory to UPC and the Exchange Agent, indemnifying the Resulting
Corporation, UPC, the Exchange Agent (and their respective successors) to their
satisfaction against any loss or expense which any of them may incur as a
result of such lost or destroyed certificates being thereafter presented. Any
costs or expenses which may arise from such replacement procedure, including
the premium on the lost instrument bond, shall be for the account of the FFGI
Record Holder.
(g) Stock Transfer Books. At the Effective Time
of the Merger, the stock transfer books of FFGI shall be closed and no transfer
of shares of FFGI
AGREEMENT AND PLAN OF MERGER - PAGE 20
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Common Stock outstanding immediately prior to the Effective Time of the Merger
shall be made thereafter.
(h) Effects of the Merger. At the Effective Time
of the Merger, the corporate existence of Franklin Acquisition shall cease, and
Franklin Acquisition shall be merged with and into FFGI which, as the Resulting
Corporation, shall thereupon and thereafter possess all of the assets, rights,
privileges, appointments, powers, licenses, permits and franchises of the two
merged corporations, whether of a public or a private nature, and shall be
subject to all of the liabilities, restrictions, disabilities and duties of
both FFGI and Franklin Acquisition.
(i) Transfer of Assets. At the Effective Time of
the Merger, all rights, assets, licenses, permits, franchises and interests of
FFGI and Franklin Acquisition 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 FFGI as the Resulting Corporation by virtue of
the Merger becoming effective and without any deed or other instrument or act
of transfer whatsoever.
(j) Assumption of Liabilities. At the Effective
Time of the Merger, the Resulting Corporation shall become and be liable for
all debts, liabilities, obligations and contracts of FFGI, as well as those of
Franklin Acquisition, 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 FFGI or Franklin Acquisition.
(k) Dissenting Shareholders' Rights. If any
holder of shares of FFGI Common Stock shall, in accordance with the provisions
of applicable law, seek appraisal and perfect dissenting shareholder rights to
be paid the fair value of his or her shares ("Dissenting Shares"), then such
holder shall be entitled to receive such value as may be established pursuant
to such provisions. FFGI shall give UPC prompt notice of any written
objections or demands received from any shareholder pursuant to such
provisions, and shall give UPS the opportunity to participate in all
proceedings with respect to any such objections or demands.
(l) Reservation of Shares of UPC Common Stock.
UPC shall reserve for issuance a sufficient number of shares of UPC Common
Stock for the purpose of issuing shares of UPC Common Stock to the FFGI Record
Holders, and depositing shares of UPC Common Stock with the Escrow Agent
pursuant to the Escrow Agreement, in accordance with the terms and conditions
of this Section 3.1 and, where applicable, the Escrow Agreement.
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3.2 Time and Place of Closing. The Closing shall take
place at 10:00 a.m. on the Business Day next preceding the date on which the
Effective Time of the Merger is expected to occur, or at such other time as the
Parties, acting through their chief executive officers, presidents or chief
financial officers, may mutually agree (the "Closing Date"). The place of
Closing shall be at Union Planters National Bank, Administrative Center, Union
Planters Corporation Executive Offices (Fourth Floor), 7130 Goodlett Farms
Parkway, Memphis, Shelby County, Tennessee 38018. The Closing may be held at
such other place as may be mutually agreed upon by the Parties.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UPC AND FRANKLIN ACQUISITION
As of the date hereof and as of the Effective Time of the
Merger, UPC and Franklin Acquisition represent and warrant to FFGI as follows:
4.1 Organization and Corporate Authority. UPC, each UPC
Subsidiary and Franklin Acquisition are corporations duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and (i) have, in all material respects, all requisite corporate
power and authority to own, operate and lease their material properties and
carry on their businesses as they are currently being conducted; (ii) are in
good standing and are duly qualified to do business in each jurisdiction where
the character of their properties owned or held under lease or the nature of
their business makes such qualification necessary; and (iii) have in effect all
federal, state, local and foreign governmental authorizations, permits and
licenses necessary for them to own or lease their properties and assets and to
carry on their businesses as they are currently being conducted. The corporate
Charters and Bylaws of UPC and Franklin Acquisition, as amended to date, are in
full force and effect as of the date of this Merger Agreement. UPC is duly
registered as a bank holding company with the Federal Reserve and as a savings
and loan holding company with the OTS.
4.2 Authorization, Execution and Delivery; Merger
Agreement Not in Breach.
(a) UPC and Franklin Acquisition have all
requisite corporate power and authority to execute and deliver this Merger
Agreement, the Plan of Merger and the Escrow Agreement, and to consummate the
transactions contemplated hereby and thereby. This Merger Agreement, and all
other agreements contemplated to be executed in connection herewith by UPC and
Franklin Acquisition, including, but not limited to, the Escrow Agreement, have
been (or upon execution will have been) duly executed and delivered by UPC and
Franklin Acquisition, have been (or upon execution will have been) duly
authorized by all necessary action by UPC and Franklin Acquisition,
AGREEMENT AND PLAN OF MERGER - PAGE 22
<PAGE> 160
corporate or otherwise, and no other corporate proceedings on the part of UPC
or Franklin Acquisition are (or will be) necessary to authorize such execution
and delivery and the consummation of the transactions contemplated hereby, and
constitute (or upon execution will constitute) legal, valid and enforceable
obligations of UPC and Franklin Acquisition, subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and to the
application of equitable principles and judicial discretion.
(b) The execution and delivery of this Merger
Agreement, the Plan of Merger and the Escrow Agreement, the consummation of the
transactions contemplated hereby and the fulfillment of the terms hereof and
thereof, will not result in a breach of any of the material terms or provisions
of, or constitute a default under (or an event which, with the passage of time
or the giving of notice or both, would constitute a default under), or conflict
with, or permit the acceleration of any obligation under, any material
mortgage, lease, covenant, agreement, indenture or other instrument to which
UPC or Franklin Acquisition is a party or by which they or their property or
any of their assets are bound; the corporate Charters or Bylaws of UPC or
Franklin Acquisition; or any material judgment, decree, order or award of any
court, governmental body or arbitrator by which UPC or Franklin Acquisition is
bound; or any material permit, concession, grant, franchise, license, law,
statute, ordinance, rule or regulation applicable to UPC or Franklin
Acquisition or their properties; or result in the creation of any lien, claim,
security interest, encumbrance, charge, restriction or right of any third party
of any kind whatsoever upon the property or assets of UPC or Franklin
Acquisition, except that the Government Approvals shall be required in order
for UPC and Franklin Acquisition to consummate the Merger.
4.3 No Legal Bar. Neither UPC nor Franklin Acquisition
is a party to, subject to or bound by any agreement, judgment, order, writ,
prohibition, injunction or decree of any court or other governmental body of
competent jurisdiction which would prevent the execution of this Merger
Agreement by UPC or Franklin Acquisition, its delivery to FFGI or the
consummation of the transactions contemplated hereby, and no action or
proceeding is pending against UPC or Franklin Acquisition in which the validity
of this Merger Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the Parties in connection herewith or in
connection with any of the transactions contemplated hereby is at issue.
4.4 Government Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by UPC
or Franklin Acquisition in connection with the execution and delivery of this
Merger Agreement or the consummation of the transactions contemplated hereby by
UPC or Franklin Acquisition, except for: (a) the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal
AGREEMENT AND PLAN OF MERGER - PAGE 23
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Reserve") of the Merger under the Bank Holding Company Act of 1956, as amended,
and the regulations promulgated by the Federal Reserve thereunder, and (b) the
prior approval of the Office of Thrift Supervision (the"OTS") under the Home
Owners Loan Act, as amended, and the regulations promulgated by the OTS
thereunder (collectively, the "Government Approvals"). Neither UPC nor
Franklin Acquisition is aware of any reason why the Government Approvals
required to be obtained by the Regulatory Authorities in connection with the
Merger should not be granted by such Regulatory Authorities or why such
Government Approvals should be conditioned on any requirement which would be a
significant impediment to UPC's ability to carry on its businesses.
4.5 Capitalization.
(a) The authorized capital stock of UPC consists
of 10,000,000 shares of preferred stock having no par value (the "UPC Preferred
Stock"), and 100,000,000 shares of common stock having a par value of $5.00 per
share (the "UPC Common Stock"). As of January 31, 1996, UPC had issued and
outstanding: 44,000 shares of $8.00 Nonredeemable Cumulative Convertible
Preferred Stock, Series B; and 3,496,419 shares of 8% Cumulative, Convertible
Preferred Stock, Series E. In addition, 250,000 shares of UPC Preferred Stock
have been reserved for issuance as Series A Preferred Stock pursuant to the UPC
Share Purchase Rights Agreement dated January 19, 1989, between UPC and Union
Planters National Bank as Rights Agent (the "UPC Share Purchase Rights
Agreement"); 317,459 shares of Series E Preferred Stock and 482,922 shares of
UPC Common Stock have been reserved for issuance in connection with pending UPC
acquisitions other than the Merger contemplated hereby, and 861,460 shares of
UPC Common Stock have been reserved for issuance in connections with UPC stock
option plans, employee benefit plans and its dividend reinvestment plan. As of
January 31, 1996, approximately 45,494,183 shares of UPC Common Stock were
validly issued and outstanding. As of the date of this Merger Agreement, UPC
owns and is the beneficial record holder, directly or indirectly, of all of the
outstanding capital stock of its Subsidiaries, except for directors' qualifying
shares, free and clear of all liens, charges or encumbrances.
(b) The authorized capital stock of Franklin
Acquisition consists of 1,000 shares of common stock having no par value per
share (the "Franklin Acquisition Common Stock") and no preferred stock. As of
the date hereof, Franklin Acquisition had issued 1,000 shares of the authorized
Franklin Acquisition Common Stock to UPC. Therefore, UPC is the record holder
and beneficial owner of all of the Franklin Acquisition Common Stock
outstanding.
4.6 UPC Financial Statements. UPC has delivered and, to
the extent reference is made to financial statements not yet available or
capable of development, will deliver to FFGI true and complete copies of the
UPC Financial Statements. Such
AGREEMENT AND PLAN OF MERGER - PAGE 24
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financial statements and the notes thereto present fairly, or will present
fairly when issued, in all material respects, the consolidated financial
position of UPC at the respective dates thereof and the consolidated results of
operations and consolidated cash flow of UPC for the periods indicated, and in
each case in conformity with GAAP consistently applied and maintained.
4.7 Exchange Act Filings. The outstanding shares of UPC
Common Stock are registered with the SEC pursuant to the 1934 Act and UPC has
filed with the SEC all material forms and reports required by law to be filed
by UPC with the SEC, which forms and reports, taken as a whole, are true and
correct in all material respects, and do not misstate a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.8 The UPC Common Stock. All shares of UPC Common Stock
to be issued by UPC and delivered to the FFGI Record Holders in exchange for
all of the FFGI Common Stock held by the FFGI Record Holders, or delivered to
the Escrow Agent pursuant to the Escrow Agreement will be, when issued, duly
authorized, validly issued, fully paid and non-assessable, and none of such
shares of UPC Common Stock will have been issued in violation of any preemptive
rights of any UPC shareholders. The shares of UPC Common Stock to be delivered
in payment of the Consideration shall have in all material respects such
distinguishing characteristics as those of the shares of UPC Common Stock
outstanding immediately prior to the Effective Time of the Merger.
4.9 Compliance With Law. UPC and all UPC Subsidiaries
hold all licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses. The benefits of all of such
licenses, franchises, permits and authorizations are in full force and effect
and may continue to be enjoyed by UPC and all UPC Subsidiaries subsequent to
the Closing of the transactions contemplated herein without any consent or
approval. Neither UPC nor any UPC Subsidiary has received notice of any
proceeding for the suspension or revocation of any such license, franchise,
permit, or authorization and no such proceeding is pending or has been
threatened by any governmental authority.
4.10 Absence of Certain Changes. Except as disclosed in
Schedule 4.10 or as provided for or contemplated in this Merger Agreement,
since December 31, 1994 (the "Balance Sheet Date") there has not been any
material adverse change in the business, property, assets (including loan
portfolios), liabilities (whether absolute, accrued, contingent or otherwise),
prospects, operations, liquidity, income, condition (financial or otherwise) or
net worth of UPC or Franklin Acquisition.
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4.11 Tax Matters. Except as described in Schedule 4.11
hereto:
(a) all federal, state, local, and foreign tax
returns required to be filed by or on behalf of UPC and each UPC Subsidiary
have been timely filed or requests for extensions have been timely filed,
granted, and have not expired for periods ended on or before the date of this
Merger Agreement, and all returns filed are, and the information contained
therein is, complete and accurate. All tax obligations reflected in such
returns have been paid. As of the date of this Merger Agreement, there is no
audit examination, deficiency, or refund litigation or matter in controversy
with respect to any taxes that might result in a determination materially
adverse to UPC or any UPC Subsidiary except as fully reserved for in the UPC
Financial Statements. All taxes, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid.
(b) Neither UPC nor any UPC Subsidiary has
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect.
(c) Adequate provision for any federal, state,
local, or foreign taxes due or to become due for UPC and all UPC Subsidiaries
for all periods through and including December 31, 1994, has been made and is
reflected on the December 31, 1994 financial statements included in the UPC
Financial Statements, and have been and will continue to be made with respect
to periods ending after December 31, 1994.
(d) Deferred taxes of Franklin Acquisition and
each UPC Subsidiary have been and will be provided for in accordance with GAAP.
(e) To the best knowledge of UPC and Franklin
Acquisition, neither the Internal Revenue Service nor any foreign, state, local
or other taxing authority is now asserting or threatening to assert against UPC
or any UPC Subsidiary any deficiency or claim for additional taxes, or interest
thereon or penalties in connection therewith. All material income, payroll,
withholding, property, excise, sales, use, franchise and transfer taxes, and
all other taxes, charges, fees, levies or other assessments, imposed upon UPC
by the United States or by any state, municipality, subdivision or
instrumentality of the United States or by any other taxing authority,
including all interest, penalties or additions attributable thereto, which are
due and payable by UPC or any UPC Subsidiary, either have been paid in full, or
have been properly accrued and reflected in the UPC Financial Statements.
4.12 Litigation. Except as set forth in Schedule 4.12
hereto, there is no action, suit or proceeding pending against UPC or any UPC
Subsidiary, or to the best knowledge of UPC or Franklin Acquisition, threatened
against or affecting UPC, any UPC
AGREEMENT AND PLAN OF MERGER - PAGE 26
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Subsidiary or any of their assets, before any court or arbitrator or any
governmental body, agency or official that (i) would, if decided against UPC or
the UPC Subsidiary, have a material adverse impact on the business, properties,
assets, liabilities, condition (financial or other) or prospects of UPC and
that are not reflected in the UPC Financial Statements or (ii) has been brought
by or on behalf of any employee employed or formerly employed by UPC or any UPC
Subsidiary.
4.13 Absence of Undisclosed Liabilities. Except as
described in Schedule 4.13 hereto, neither UPC nor any UPC Subsidiary has any
obligation or liability (contingent or otherwise) that is material to the
financial condition or operations of UPC or any UPC Subsidiary, or that, when
combined with all similar obligations or liabilities, would be material to the
financial condition or operations of UPC or any UPC Subsidiary (i) except as
disclosed in the UPC Financial Statements delivered to FFGI prior to the date
of this Merger Agreement or (ii) except obligations or liabilities incurred in
the ordinary course of its business consistent with past practices or (iii)
except as contemplated under this Merger Agreement. Since December 31, 1994,
neither UPC nor any UPC Subsidiary has incurred or paid any obligation or
liability which would be material to the financial condition or operations of
UPC or such UPC Subsidiary, except for obligations paid in connection with
transactions made by it in the ordinary course of its business consistent with
past practices, laws and regulations applicable to UPC or any UPC Subsidiary.
4.14 Compliance with Laws. UPC and each UPC Subsidiary:
(a) Is in compliance with all laws, rules,
regulations, reporting and licensing requirements, and orders applicable to its
business or employees conducting its business (including, but not limited to,
those relating to consumer disclosure and currency transaction reporting) the
breach or violation of which would or could reasonably be expected to have a
material adverse effect on the financial condition or operations of UPC or any
UPC Subsidiary, or which would or could reasonably be expected to subject UPC
or any UPC Subsidiary or any of its directors or officers to civil money
penalties; and
(b) Has received no notification or communication
from any agency or department of federal, state, or local government or any of
the Regulatory Authorities, or the staff thereof (i) asserting that UPC or any
UPC Subsidiary is not in compliance with any of the statutes, rules,
regulations, or ordinances which such governmental authority or Regulatory
Authority enforces, which, as a result of such noncompliance, would result in a
material adverse impact on UPC or any UPC Subsidiary, (ii) threatening to
revoke any license, franchise, permit, or governmental authorization which is
material to the financial condition or operations of UPC or any UPC Subsidiary,
or (iii) requiring UPC or any UPC Subsidiary to enter into a cease and desist
order, consent, agreement, or memorandum of understanding.
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4.15 Material Contract Defaults. Neither UPC nor any UPC
Subsidiary is in default in any respect under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to which
it is a party or by which its respective assets, business, or operations may be
bound or affected or under which it or its respective assets, business, or
operations receives benefits, and which default is reasonably expected to have
either individually or in the aggregate a material adverse effect on UPC or any
UPC Subsidiary, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
4.16 Statements True and Correct. None of the information
prepared by, or on behalf of, UPC or any UPC Subsidiary regarding UPC, Franklin
Acquisition or any other UPC Subsidiary included or to be included in the Proxy
Statement to be mailed to the FFGI Stockholders in connection with the
Shareholders Meeting, and any other documents to be filed with the SEC or any
other Regulatory Authority in connection with the transaction contemplated
herein, will, at the respective times such documents are filed, and, with
respect to the Proxy Statement, when first mailed to the FFGI Stockholders, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders Meeting. All documents which UPC or any UPC
Subsidiary is responsible for filing with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby will comply
as to form in all material respects with the provisions of applicable law,
including applicable provisions of the Securities Laws and the rules and
regulations issued thereunder.
4.17 Disclosure. The information concerning, and the
representations or warranties made by UPC and/or Franklin Acquisition as set
forth in this Merger Agreement, or in any document, statement, certificate or
other writing furnished or to be furnished by UPC and/or Franklin Acquisition
to FFGI pursuant hereto, do not and will not contain any untrue statement of a
material fact or omit and will not omit to state a material fact required to be
stated herein or therein which is necessary to make the statements and facts
contained herein or therein, in light of the circumstances under which they
were or are made, not false or misleading. Copies of all documents heretofore
or hereafter delivered or made available to FFGI by UPC and/or Franklin
Acquisition pursuant hereto were or will be complete and accurate copies of
such documents.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FFGI AND SAVINGS BANK
Both as of the date hereof and as of the Effective Time of the Merger,
FFGI and Savings Bank represent and warrant to UPC and Franklin Acquisition as
follows:
5.1 Organization and Qualification of FFGI and
Subsidiaries. FFGI is a Tennessee corporation, and Savings bank is a federal
savings bank, duly organized, validly existing and in good standing under the
laws of the State of Tennessee as to FFGI and the United States as to Savings
Bank, and each (a) has in all material respects all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is currently being conducted; and (b) is in good standing and is
duly qualified to do business in each jurisdiction where the character of its
material properties owned or held under lease or the nature of its business
makes such qualification necessary, except to the extent that any failure to so
qualify would not have a material adverse effect on the business or financial
condition of FFGI or Savings Bank. Each FFGI Subsidiary is duly chartered,
validly existing and in good standing under the laws of the state or
jurisdiction of its incorporation and (a) has, in all material respects, all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is currently being conducted; and
(b) is in good standing and is duly qualified to do business in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its business makes such qualification necessary, except to the
extent that any failure to so qualify would not have a material adverse effect
on the business or financial condition of FFGI, Savings Bank or such FFGI
Subsidiary. FFGI and each of its Subsidiaries, including but not limited to
the Savings Bank, have in effect all federal, state, local and foreign
governmental authorizations, permits and licenses necessary for them to own or
lease their respective properties and assets and to carry on their business as
it is currently being conducted. The Savings Bank is a federal savings bank
duly organized, validly existing and in good standing under the laws of the
United States of America and engages only in activities (and holds properties
only of the types) permitted by the HOLA and the rules and regulations
promulgated by the OTS thereunder or the FDIC for insured depository
institutions. Savings Bank's deposit accounts are insured by the Savings
Association Insurance Fund (the "SAIF") as administered by the FDIC to the
fullest extent permitted under applicable law.
5.2 Authorization, Execution and Delivery; Merger
Agreement Not in Breach.
(a) FFGI and Savings Bank each have all requisite
power and authority to execute and deliver this Merger Agreement, the Plan of
Merger and the
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Escrow Agreement, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Merger Agreement, the Plan of
Merger and the Escrow Agreement and the consummation of the transactions
contemplated therein has been duly authorized by at least two-thirds of the
entire Boards of Directors of FFGI and Savings Bank and, except for the
approval of the FFGI Stockholders, no other corporate proceedings on the part
of FFGI or Savings Bank are necessary to authorize the execution and delivery
of this Merger Agreement, the Plan of Merger, the Escrow Agreement, and the
consummation of the transactions contemplated hereby and thereby. This Merger
Agreement and all other agreements and instruments herein contemplated to be
executed by FFGI and Savings Bank have been (or upon execution will have been)
duly executed and delivered by FFGI and Savings Bank and constitute (or upon
execution will constitute) the legal, valid and enforceable obligations of FFGI
and Savings Bank, subject, as to enforceability, to applicable bankruptcy,
insolvency, receivership, conservatorship, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and to
the application of equitable principles and judicial discretion.
(b) The execution and delivery of this Merger
Agreement, the Plan of Merger and the Escrow Agreement, the consummation of the
transactions contemplated hereby and thereby, and the fulfillment of the terms
hereof and thereof, will not result in a violation or breach of any of the
material terms or provisions of, or constitute a default under (or an event
which, with the passage of time or the giving of notice, or both, would
constitute a default under), or conflict with, or permit the acceleration of,
any obligation under any material mortgage, lease, covenant, agreement,
indenture or other instrument to which FFGI or any FFGI Subsidiary, including
but not limited to, the Savings Bank, is a party or by which FFGI or any FFGI
Subsidiary, including but not limited to, the Savings Bank, is bound; the
Charter or Bylaws of FFGI, Savings Bank or any other FFGI Subsidiary; or any
judgment, decree, order, regulatory letter of understanding or award of any
court, governmental body, authority or arbitrator by which FFGI, Savings Bank
or any other FFGI Subsidiary is bound, which could have a material adverse
impact or effect on the financial condition or results of operations of FFGI,
the Savings Bank or any other FFGI Subsidiaries; or any permit, concession,
grant, franchise, license, law, statute, ordinance, rule or regulation
applicable to FFGI, Savings Bank, or any other FFGI Subsidiary or the
properties of any of them; or result in the creation of any material lien,
claim, security interest, encumbrance, charge, restriction or right of any
third party of any kind whatsoever upon the properties or assets of FFGI,
Savings Bank, or any other FFGI Subsidiary, except that the Government
Approvals shall be required in order for FFGI to consummate the Merger.
5.3 No Legal Bar. Neither FFGI, Savings Bank nor any
other FFGI Subsidiary is a party to, or subject to, or bound by, any agreement
or judgment, order, letter of understanding, writ, prohibition, injunction or
decree of any court or other
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governmental authority or body, or any law which would prevent the execution of
this Merger Agreement, the Plan of Merger or the Escrow Agreement by FFGI and
Savings Bank, the delivery hereof and thereof to UPC and Franklin Acquisition,
or the consummation of the transactions contemplated hereby and thereby, and no
action or proceeding is pending against FFGI, Savings Bank, or any other FFGI
Subsidiary in which the validity of this Merger Agreement, the Plan of Merger
or the Escrow Agreement, or any of the transactions contemplated hereby or
thereby, or any action which has been taken by any of the Parties or, to the
best of FFGI's and Savings Bank's knowledge, the Class B Stockholders in
connection herewith or in connection with the transactions contemplated hereby
is at issue.
5.4 Government and Other Approvals. Except for the
Government Approvals described in Section 4.4, no consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
FFGI or Savings Bank in connection with the execution and delivery of this
Merger Agreement, the Plan of Merger or the Escrow Agreement, or the
consummation of the transactions contemplated hereby or thereby, nor, except as
set forth in Schedule 5.4 hereto, is any consent or approval required from any
landlord, licensor or other party which has granted rights to FFGI, Savings
Bank, or any other FFGI Subsidiary in order to avoid forfeiture or impairment
of such rights, including, but not limited to, any rights forming the basis of
the FFGI Pending Litigation or arising therefrom.
5.5 Licenses, Franchises, etc. FFGI, Savings Bank and
all other FFGI Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses.
The benefits of all of such licenses, franchises, permits and authorizations
are in full force and effect and may continue to be enjoyed by FFGI, Savings
Bank, and the other FFGI Subsidiaries subsequent to the Closing of the
transactions contemplated herein without any consent or approval. Neither
FFGI, Savings Bank nor any other FFGI Subsidiary has received notice of any
proceeding for the suspension or revocation of any such license, franchise,
permit, or authorization and no such proceeding is pending or has been
threatened by any governmental authority.
5.6 Charter Documents. Included in Schedule 5.6 hereto
are true and correct copies of the Charter and Bylaws of FFGI, Savings Bank and
each other FFGI Subsidiary, respectively. The Charter and Bylaws of FFGI,
Savings Bank, and each other FFGI Subsidiary, as amended to date, are in full
force and effect.
5.7 FFGI Financial Statements. FFGI has delivered and,
to the extent reference is made to financial statements not yet available or
capable of development, will deliver to UPC true and complete copies of the
FFGI Financial Statements. Such
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financial statements (i) were (or will be) prepared from the books and records
of FFGI, Savings Bank and each other FFGI Subsidiary; (ii) were (or will be)
prepared in accordance with generally accepted accounting principles
consistently applied; (iii) accurately present (or will accurately present)
FFGI's consolidated financial condition and the consolidated results of
operations, changes in stockholders' equity and cash flows at the relevant
dates thereof and for the periods covered thereby; (iv) contain or reflect (or
will contain and reflect) all necessary adjustments and accruals for an
accurate presentation of FFGI's consolidated financial condition and the
consolidated results of FFGI's operations and cash flows for the periods
covered by such Financial Statements; (v) contain and reflect (or will contain
and reflect) adequate provisions for loan losses, for ORE reserves and for all
reasonably anticipated liabilities for all federal, state, local or foreign
taxes, with respect to the periods then ended; and (vi) contain and reflect (or
will contain and reflect) adequate provisions for all reasonably anticipated
liabilities for Post Retirement Benefits Other Than Pensions ("OPEB") pursuant
to FASB 106 and 112 as of the date of such Financial Statements.
5.8 Absence of Certain Changes. Except as disclosed in
Schedule 5.8, or as provided for or contemplated in this Merger Agreement,
since the Balance Sheet Date there has not been:
(a) any material transaction by FFGI, Savings
Bank, or any other FFGI Subsidiary not in the ordinary course of business and
in conformity with past practice;
(b) any material adverse change in the business,
property, assets (including loan portfolios), liabilities (whether absolute,
accrued, contingent or otherwise), prospects, operations, liquidity, income,
condition (financial or otherwise) or net worth of FFGI, Savings Bank, or any
other FFGI Subsidiary;
(c) any damage, destruction or loss, whether or
not covered by insurance, which has had or is reasonably expected to have a
material adverse effect on any of the properties or business or prospects of
FFGI, Savings Bank, or any other FFGI Subsidiary or their future use and
operation by FFGI, Savings Bank or such FFGI Subsidiary;
(d) any acquisition or disposition by FFGI,
Savings Bank, or any other FFGI Subsidiary of any property or asset of FFGI,
Savings Bank or such other FFGI Subsidiary, whether real or personal, having a
fair market value, singularly or in the aggregate, in an amount greater than
Fifty Thousand Dollars ($50,000), except in the ordinary course of business and
in conformity with past practice;
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(e) any mortgage, pledge or subjection to lien,
charge or encumbrance of any kind on any of the respective properties or assets
of FFGI, Savings Bank, or any other FFGI Subsidiary, except to secure
extensions of credit in the ordinary course of business and in conformity with
past practice;
(f) any amendment, modification or termination of
any contract or agreement relating to FFGI, Savings Bank, or any other FFGI
Subsidiary, or to which FFGI, Savings Bank, or any other FFGI Subsidiary is a
party, which would have an adverse effect upon the financial condition or
operations of FFGI, Savings Bank or such other FFGI Subsidiary;
(g) any increase in, or commitment to increase,
the compensation payable or to become payable to any officer, director,
employee or agent of FFGI, Savings Bank, or any other FFGI Subsidiary, or any
bonus payment or similar arrangement made to or with any of such officers,
directors, employees or agents, other than routine increases made in the
ordinary course of business not exceeding the greater of ten percent (10%) per
annum or $6,000 for any of them individually;
(h) any incurring of, assumption of, or taking
of, by FFGI, Savings Bank, or any other FFGI Subsidiary, any property subject
to any liability, except for liabilities incurred or assumed or property taken
subsequent to the Balance Sheet Date in the ordinary course of business and in
conformity with past practice;
(i) any material alteration in the manner of
keeping the books, accounts or Records of FFGI, Savings Bank, or any other FFGI
Subsidiary, or in the accounting policies or practices therein reflected,
except as may be required by generally accepted accounting principles or as
required by the OTS;
(j) any release or discharge of any obligation or
liability of any person or entity related to or arising out of any loan made by
FFGI, Savings Bank, or any other FFGI Subsidiary of any nature whatsoever,
except in the ordinary course of business and in conformity with past practice;
or
(k) any loan (except credit card loans, passbook
loans or home loans) by FFGI, Savings Bank, or any other FFGI Subsidiary to any
Officer, director or known 5% shareholder of FFGI, Savings Bank, other FFGI
Subsidiary, or any Affiliate of FFGI; or to any member of the immediate family
of such Officer, director or known 5% shareholder of FFGI or any Affiliate of
FFGI; or to any Person in which such Officer, director or known 5% shareholder
directly or indirectly owns beneficially or of record ten percent (10%) or more
of any class of equity securities in the case of a corporation, or of any
equity interest, in the case of a partnership or other non-corporate entity; or
to any trust or estate in which such Officer, director or 5% shareholder has a
ten percent (10%)
AGREEMENT AND PLAN OF MERGER - PAGE 33
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or more beneficial interest; or as to which such Officer, director or 5%
shareholder serves as a trustee or in a similar capacity. As used in this
Section, "Officer" shall refer to a person who holds the title of chairman,
president, executive vice president, senior vice president, controller,
secretary, cashier or treasurer or who performs the normal duties of such
officer whether or not he or she is compensated for such service or has an
official title.
5.9 Deposits. None of the Deposits is a "brokered"
Deposit or subject to any encumbrance, legal restraint or other legal process.
Except as set forth in Schedule 5.9, no portion of the Deposits represents a
Deposit by any Affiliate of FFGI.
5.10 Properties. Except (i) for encumbrances which do not
materially effect the value thereof, (ii) liens for current taxes and special
assessments not yet due and payable, (iii) as described in Schedule 5.10 hereto
or in the FFGI Financial Statements, or (iv) adequately reserved against in the
FFGI Financial Statements, FFGI, Savings Bank, and each other FFGI Subsidiary
has good and marketable title free and clear of all material liens,
encumbrances, charges, defaults, or equities of whatever character to all of
the material properties and assets, tangible or intangible, reflected in the
FFGI Financial Statements as being owned by FFGI, Savings Bank, or any other
FFGI Subsidiary as of the dates thereof. All buildings, and all fixtures,
equipment, and other property and assets that are material to the business of
FFGI and its Subsidiaries on a consolidated basis, held under leases or
subleases by FFGI, Savings Bank, or any other FFGI Subsidiary, are held under
valid instruments enforceable in accordance with their respective terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting the enforcement of
creditors' rights generally, and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be pending). The
policies of fire, theft, liability, and other insurance maintained with respect
to the properties, assets or businesses of the FFGI Companies provide coverage
reasonably believed by management of FFGI and Savings Bank to be adequate
against loss, and the fidelity bonds in effect as to which any of the FFGI
Companies is a named insured are believed to be sufficient.
5.11 FFGI Subsidiaries. Schedule 5.11 hereto lists all of
the active and inactive FFGI Subsidiaries as of the date of this Merger
Agreement and describes generally the business activities conducted, or
permitted to be conducted, by each FFGI Subsidiary. No equity securities of
any of the FFGI Subsidiaries are or may become required to be issued (other
than to FFGI) by reason of any options, warrants, scrip, rights to subscribe
to, calls, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of any FFGI Subsidiary, and there are no contracts, commitments,
understandings, or arrangements by which any FFGI Subsidiary is bound to issue
(other than to FFGI) any
AGREEMENT AND PLAN OF MERGER - PAGE 34
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additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock. All of the
shares of capital stock of each FFGI Subsidiary held by FFGI or by any FFGI
Subsidiary are fully paid and nonassessable and are owned by FFGI or such FFGI
Subsidiary free and clear of any claim, lien, or encumbrance of any nature
whatsoever, whether perfected or not.
5.12 Condition of Fixed Assets and Equipment. Except as
disclosed in Schedule 5.12 hereto, each item of FFGI's, Savings Bank's and each
other FFGI Subsidiary's fixed assets and equipment having a net book value in
excess of Twenty-five Thousand Dollars ($25,000) included in the Fixed Assets
in the FFGI Financial Statements is in good operating condition and repair,
normal wear and tear excepted.
5.13 Tax Matters. Except as described in Schedule 5.13
hereto:
(a) all federal, state, local, and foreign tax
returns required to be filed by or on behalf of FFGI, Savings Bank, and each
other FFGI Subsidiary have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
the date of this Merger Agreement, and all returns filed are, and the
information contained therein is, complete and accurate. All tax obligations
reflected in such returns have been paid. As of the date of this Merger
Agreement, there is no audit examination, deficiency, or refund litigation or
matter in controversy with respect to any taxes that might result in a
determination materially adverse to FFGI, Savings Bank, or any other FFGI
Subsidiary except as fully reserved for in the FFGI Financial Statements. All
taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation have been paid.
(b) Neither FFGI, Savings Bank, nor any other
FFGI Subsidiary has executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due that is currently in
effect.
(c) Adequate provision for any federal, state,
local, or foreign taxes due or to become due for FFGI, Savings Bank, and all
other FFGI Subsidiaries for all periods through and including September 30,
1995, has been made and is reflected on the September 30, 1995 financial
statements included in the FFGI Financial Statements, and have been and will
continue to be made with respect to periods ending after September 30, 1995.
(d) Deferred taxes of FFGI, Savings Bank, and
each other FFGI Subsidiary have been and will be provided for in accordance
with GAAP.
(e) To the best knowledge of FFGI and Savings
Bank, neither the Internal Revenue Service nor any foreign, state, local or
other taxing authority is now
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asserting or threatening to assert against FFGI, Savings Bank, or any other
FFGI Subsidiary any deficiency or claim for additional taxes, or interest
thereon or penalties in connection therewith. All material income, payroll,
withholding, property, excise, sales, use, franchise and transfer taxes, and
all other taxes, charges, fees, levies or other assessments, imposed upon FFGI,
Savings Bank, or any other FFGI Subsidiary by the United States or by any
state, municipality, subdivision or instrumentality of the United States or by
any other taxing authority, including all interest, penalties or additions
attributable thereto, which are due and payable by FFGI, Savings Bank, or any
other FFGI Subsidiary, either have been paid in full, or have been properly
accrued and reflected in the FFGI Financial Statements.
5.14 Litigation. Except as set forth in Schedule 5.14
hereto, there is no action, suit or proceeding pending against FFGI, Savings
Bank, or any other FFGI Subsidiary, or to the best knowledge of FFGI and
Savings Bank, threatened against or affecting FFGI, Savings Bank, or any other
FFGI Subsidiary or any of their assets, before any court or arbitrator or any
governmental body, agency or official that (i) is reasonably expected to, if
decided against FFGI, Savings Bank or any other FFGI Subsidiary, have a
material adverse impact on the business, properties, assets, liabilities,
condition (financial or other) or prospects of FFGI and the FFGI Subsidiaries
taken as a whole and that are not reflected in the FFGI Financial Statements or
(ii) has been brought by or on behalf of any employee employed or formerly
employed by FFGI, Savings Bank, or any other FFGI Subsidiary.
5.15 Hazardous Materials.
(a) FFGI, Savings Bank, and all other FFGI
Subsidiaries have obtained all permits, licenses and other authorizations which
are required to be obtained by FFGI, Savings Bank, or any other FFGI
Subsidiaries with respect to the Property (as defined herein) under all
Applicable Environmental Laws (as defined herein). All Property controlled,
directly or indirectly, by FFGI, Savings Bank, or any other FFGI Subsidiary is
in compliance with the terms and conditions of all of such permits, licenses
and authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Applicable Environmental Laws or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except (i)
the noncompliance of which would not have a material adverse effect on the
financial condition or operations or prospects of FFGI, Savings Bank, or any
other FFGI Subsidiary or (ii) as described in detail in Schedule 5.15 hereto.
For purposes hereof, the following terms shall have the following meanings:
"APPLICABLE ENVIRONMENTAL LAWS" shall mean
all federal, state, local and municipal environmental laws, rules or
regulations to the extent applicable
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to the Property, including, but not limited to, (a) the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"); (b) the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. "RCRA"; (c) the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; (d) the Clean Air Act, 42 U.S.C. Section 7401 et
seq.; (e) the Hazardous Materials Transportation Act, 49 U.S.C. Section 1471 et
seq.; (f) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (g)
the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001
et seq.; (h) the National Environmental Policy Act, 42 U.S.C. Section 4321 et
seq.; (i) the Rivers and Harbours Act of 1899, 33 U.S.C. Section 401 et seq.;
(j) the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.; (k)
the Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq.; (l) the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; (m) the Hazardous Waste
Management Act of 1977, Sections 68-212-101 et seq. of the Tennessee Code; (n)
the Hazardous Waste Management Act of 1983, Sections 68-212-201 et seq. of the
Tennessee Code; (o) the Hazardous Waste Reduction Act of 1990, Sections
68-212-301 et seq. of the Tennessee Code; (p) the Petroleum Underground Storage
Tank Act, Sections 68-215-101 et seq. of the Tennessee Code; (q) the Tennessee
Water Quality Control Act of 1977, Sections 69-3-101 et seq. of the Tennessee
Code; (r) the Dry Cleaner's Environmental Response Act, Sections 68-217-102 et
seq. of the Tennessee Code; and (s) any amendments to the foregoing Acts as
adopted from time to time on or before the Closing; and (r) any rule,
regulation, order, injunction, judgment, declaration or decree implementing or
interpreting any of the foregoing Acts, as amended.
"HAZARDOUS SUBSTANCES" shall mean any
substance, material, waste, or pollutant that is now (or prior to the Closing)
listed, defined, characterized or regulated as hazardous, toxic or dangerous
under or pursuant to any statute, law, ordinance, rule or regulation of any
federal, state, regional, county or local governmental authority having
jurisdiction over the Property of FFGI, Savings Bank, or any other FFGI
Subsidiary or its use or operation, including, without limitation, (a) any
substance, material, element, compound, mixture, solution, waste, chemical or
pollutant listed, defined, characterized or regulated as hazardous, toxic or
dangerous under any Applicable Environmental Laws, (b) petroleum, petroleum
derivatives or by-products, and other hydrocarbons, (c) polychlorinated
biphenyls (PCBs), asbestos and urea formaldehyde, and (d) radioactive
substances, materials or waste.
"PROPERTY" shall be deemed to include, but
shall not be limited to, all real property owned, controlled, leased or held by
FFGI, Savings Bank, or any other FFGI Subsidiary, in whole or in part, solely
or in a joint venture or other business arrangement, either for operational or
investment purposes, and whether assigned, purchased, or obtained through
foreclosure (or similar action) or in satisfaction of debts previously
contracted.
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(b) In addition, except as set forth in Schedule
5.15(b) hereto:
(i) No notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending by any governmental or other entity with respect to any
alleged failure by FFGI, Savings Bank, or any other FFGI Subsidiary to have any
permit, license or authorization required in connection with the conduct of the
business of FFGI, Savings Bank, or any other FFGI Subsidiary or with respect to
any generation, treatment, storage, recycling, transportation, release or
disposal, or any release as defined in 42 U.S.C. Section 9601(22) ("Release"),
of any Hazardous Substances generated by FFGI, Savings Bank, any other FFGI
Subsidiary or any Affiliate of FFGI at the Property;
(ii) None of the Property has received or
held any Hazardous Substances in such amount and in such manner as to
constitute a violation of the Applicable Environmental Laws, and no Hazardous
Substances have been Released or disposed of on, in or under any of the
Property during FFGI's, Saving's Bank's, or any other FFGI Subsidiary's
occupancy thereof, or during the occupancy thereof by any assignee or sublessee
of FFGI, Savings Bank, or any other FFGI Subsidiary, except in compliance with
all Applicable Environmental Laws;
(iii) There are no Hazardous Substances
being stored at any Property or located in, on or upon, any Property (including
the subsurface thereof) or installed or affixed to structures or equipment on
the Property, other than in the ordinary course of business; and there are no
underground storage tanks for Hazardous Substances, active or abandoned, at any
Property; and
(iv) No Hazardous Substances have been
Released in a reportable quantity, where such a quantity has been established
by statute, ordinance, rule, regulation or order, at, on or under any Property.
(c) Neither FFGI, Savings Bank, any other FFGI
Subsidiary, nor any Affiliate of FFGI has transported or arranged for the
transportation of any Hazardous Substances to any location which is listed on
the National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in the CERCLA
Information System ("CERCLIS") or on any similar state list or which is the
subject of federal, state or local enforcement actions or other investigations
which may lead to claims against the owner of the Property for cleanup costs,
remedial work, damages to natural resources or for personal injury claims,
including, but not limited to, claims under CERCLA.
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<PAGE> 176
(d) Except as set forth in Schedule 5.15(d), no
Hazardous Substances have been generated, recycled, treated, stored, disposed
of or Released by, FFGI, Savings Bank, any other FFGI Subsidiary, or any
Affiliate of FFGI in violation of Applicable Environmental Laws.
(e) No oral or written notification of a Release
of Hazardous Substances has been filed by or on behalf of FFGI, Savings Bank,
any other FFGI Subsidiary, or any Affiliate of FFGI relating to the Property
and no Property is listed or proposed for listing on the National Priority List
promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of
sites requiring investigation or clean-up.
(f) There are no liens arising under or pursuant
to any Applicable Environmental Laws on any Property, and no government actions
have been taken or, to the best knowledge of FFGI and Savings Bank, threatened,
or are in process which could subject any of such properties to such liens and
none of the Property would be required to place any notice or restriction
relating to the presence of Hazardous Substances at any Property in any deed to
such Property.
(g) Except as described in Schedule 5.15(g)
hereto, there have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
FFGI, Savings Bank, any other FFGI Subsidiary, or any Affiliate of FFGI in
relation to any Property, which have not been made available to UPC.
(h) Except as described in Schedule 5.15(h)
hereto, neither FFGI nor Savings Bank is aware of any facts which might suggest
that FFGI, Savings Bank, or any other FFGI Subsidiary has engaged in any
management practice with respect to any of its past or existing borrowers which
could reasonably be expected to subject FFGI, Savings Bank, or any other FFGI
Subsidiary or the Property to any liability, either directly or indirectly,
under the principles of law as set forth in United States v. Fleet Factors
Corp., 901 F.2d 1550 (11th Cir. 1990) as modified by 40 C.F.R. Part 300.
5.16 Insurance. FFGI, Savings Bank and each other FFGI
Subsidiary has paid all material amounts due and payable under any insurance
policies and guaranties applicable to FFGI, Savings Bank, and all other FFGI's
Subsidiaries' assets and operations; all such insurance policies and guaranties
are in full force and effect; and all of FFGI's, Savings Bank's, and the other
FFGI Subsidiaries' material Realty and other material properties are insured
against fire, casualty, theft, loss, and such other events against which it is
customary to insure, all such insurance policies being in amounts that are
reasonably believed by FFGI and Savings Bank management to be adequate and
consistent with past practice and experience.
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5.17 Labor and Employment Matters. Except as reflected in
Schedule 5.17 hereto, there is no (i) collective bargaining agreement or other
labor agreement to which FFGI, Savings Bank, or any other FFGI Subsidiary is a
party or by which any of them is bound; (ii) employment, profit sharing,
deferred compensation, bonus, stock option, purchase, retainer, consulting,
retirement, welfare or incentive plan or contract to which FFGI, Savings Bank,
or any other FFGI Subsidiary is a party or by which it is bound; or (iii) plan
or agreement under which "fringe benefits" (including, but not limited to,
vacation plans or programs, sick leave plans or programs and related benefits)
are afforded any of the employees of FFGI, Savings Bank, or any other FFGI
Subsidiary. No party to any such agreement, plan or contract is in default
with respect to any material term or condition thereof, nor has any event
occurred which, through the passage of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto. Neither FFGI, Savings Bank, nor any other
FFGI Subsidiary has received notice from any governmental agency of any alleged
violation of applicable laws that remains unresolved respecting employment and
employment practices, terms and conditions of employment and wages and hours.
FFGI, Savings Bank, and each other FFGI Subsidiary have complied in all
material respects with all applicable laws, rules and regulations relating to
the employment of labor, including those related to its employment practices,
employee disabilities, wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by the appropriate governmental
authorities, except for failures to comply with such laws which would not have
a material adverse effect on the business or operations of FFGI, Savings Bank,
and the other FFGI Subsidiaries taken as a whole, and FFGI, Savings Bank, and
each other FFGI Subsidiary have withheld and paid to the appropriate
governmental authorities or are holding for payment not yet due to such
authorities, all amounts required to be withheld from the employees of FFGI,
Savings Bank, and each other FFGI Subsidiary and are not liable for any arrears
of wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. Except as set forth in Schedule 5.17, there is no: unfair labor
practice complaint against FFGI, Savings Bank, or any other FFGI Subsidiary
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other labor trouble affecting FFGI, Savings Bank, or
any other FFGI Subsidiary; labor grievance pending against FFGI, Savings Bank,
or any other FFGI Subsidiary; pending representation question respecting the
employees of FFGI, Savings Bank, or any other FFGI Subsidiary; pending
arbitration proceedings arising out of or under any collective bargaining
agreement to which FFGI, Savings Bank, or any other FFGI Subsidiary is a party,
or to the best knowledge of FFGI and Savings Bank, any basis for which a claim
may be made under any collective bargaining agreement to which FFGI, Savings
Bank, or any other FFGI Subsidiary is a party.
5.18 Records and Documents. The Records of FFGI, Savings
Bank, and each other FFGI Subsidiary are and will be sufficient to enable the
Resulting Corporation
AGREEMENT AND PLAN OF MERGER - PAGE 40
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to continue conducting the businesses of FFGI, Savings Bank, and each other
FFGI Subsidiary under similar standards as FFGI, Savings bank, and each other
FFGI Subsidiary has heretofore conducted such business.
5.19 Capitalization of FFGI. The authorized capital stock
of FFGI consists of 2,000,000 shares of FFGI Class A Common Stock, 1,000,000
shares of FFGI Class B Common Stock and 5,000,000 shares of FFGI Preferred
Stock, and no other class of equity security. As of the date of this Merger
Agreement, 712,320 Shares of FFGI Class A Common Stock and 500,000 shares of
FFGI Class B Common Stock were issued and outstanding, no shares of FFGI Common
Stock were held by FFGI as treasury stock and no shares of FFGI Preferred Stock
were issued and outstanding. All of the outstanding FFGI Common Stock is
validly issued, fully-paid and nonassessable and has not been issued in
violation of any preemptive rights of any FFGI Stockholder. Except as
described in Section 2.7 of this Merger Agreement or as described on Schedule
5.19 hereto, as of the date hereof, there are no outstanding securities or
other obligations which are convertible into FFGI Common Stock or into any
other equity or debt security of FFGI, and there are no outstanding options,
warrants, rights, scrip, rights to subscribe to, calls or other commitments of
any nature which would entitle the holder, upon exercise thereof, to be issued
FFGI Common Stock or any other equity or debt security of FFGI. Accordingly,
immediately prior to the Effective Time of the Merger, there will be not more
than 1,212,320 shares of FFGI Common Stock issued and outstanding, plus that
number of shares of FFGI Common Stock issued pursuant to the exercise of any
FFGI Stock Options.
5.20 Capitalization of Savings Bank. The authorized
capital stock of Savings Bank consists of 7,000,000 shares of common stock
having a par value of $1.00 per share (the "Savings Bank Common Stock"),
3,000,000 shares of preferred stock, $1.00 par value per share (the "Savings
Bank Preferred Stock"), and no other class of equity security. As of the date
of this Merger Agreement, 1,207,811 shares of Savings Bank Common Stock were
issued and outstanding and no shares of Savings Bank Common Stock were held by
Savings Bank as treasury stock. All of the outstanding shares of Savings Bank
Common Stock is validly issued, fully-paid and nonassessable and has not been
issued in violation of any preemptive rights of any person. As of the date
hereof, there are no outstanding securities or other obligations which are
convertible into Savings Bank Common Stock or into any other equity or debt
security of Savings Bank, and there are no outstanding options, warrants,
rights, scrip, rights to subscribe to, calls or other commitments of any nature
which would entitle the holder, upon exercise thereof, to be issued Savings
Bank Common Stock or any other equity or debt security of Savings Bank. FFGI
owns and is the beneficial record holder of, and has good and freely
transferable title to, all outstanding shares of Savings Bank Common Stock,
free and clear of all liens, charges or encumbrances, and such stock is not
subject to any voting trusts, agreements or similar arrangements or other
claims.
AGREEMENT AND PLAN OF MERGER - PAGE 41
<PAGE> 179
5.21 Sole Agreement. With the exception of this Merger
Agreement, neither FFGI, Savings Bank, nor any other FFGI Subsidiary has been
or is a party to: any letter of intent or agreement to merge, to consolidate,
to sell or purchase assets (other than in the normal course of its business) or
to any other agreement which contemplates the involvement of FFGI, Savings
Bank, or any other FFGI Subsidiary (or any of their assets) in any business
combination of any kind; or any agreement obligating FFGI to issue or sell or
authorize the issuance, sale or transfer of FFGI Common Stock, FFGI Preferred
Stock, any other capital stock of FFGI, or any capital stock of Savings Bank or
any other FFGI Subsidiary. Except as described in Section 2.7, Schedule 5.19
and Schedule 5.21 hereto, there are no (nor will there be at the Effective Time
of the Merger any) shares of capital stock or other equity securities of FFGI
outstanding, except for shares of FFGI Common Stock presently issued and
outstanding, and there are no (nor will there be at the Effective Time of the
Merger any) outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of FFGI, or
contracts, commitments, understandings, or arrangements by which FFGI is or may
be bound to issue additional shares of its capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital stock.
There are no (nor will there be at the Effective Time of the Merger any)
contracts, commitments, understandings, or arrangements by which FFGI, Savings
Bank, or any other FFGI Subsidiary is or may be bound to transfer or issue to
any third party any shares of the capital stock of Savings Bank or any other
FFGI Subsidiary, and there are no (nor will there be at the Effective Time of
the Merger any) contracts, agreements, understandings or commitments relating
to the right of FFGI to vote or to dispose of any such shares.
5.22 Disclosure. The information concerning, and
representations and warranties made by FFGI and Savings Bank as set forth in
this Merger Agreement, the Escrow Agreement, or in the Schedules of FFGI
hereto, or in any document, statement, certificate or other writing furnished
or to be furnished by FFGI or Savings Bank to UPC and Franklin Acquisition
pursuant hereto, do not and will not contain any untrue statement of a material
fact or omit and will not omit to state a material fact required to be stated
herein or therein which is necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they were or are
made, not false or misleading. Copies of all documents heretofore or hereafter
delivered or made available to UPC and Franklin Acquisition by FFGI and Savings
Bank pursuant hereto were or will be complete and accurate copies of such
documents.
5.23 Absence of Undisclosed Liabilities. Except as
described in Schedule 5.23 hereto, neither FFGI, Savings Bank, nor any other
FFGI Subsidiary has any obligation or liability (contingent or otherwise) that
is material to the financial condition or operations of FFGI, Savings Bank, or
any other FFGI Subsidiary, or that, when combined with all similar obligations
or liabilities, would be material to the financial condition or
AGREEMENT AND PLAN OF MERGER - PAGE 42
<PAGE> 180
operations of FFGI, Savings Bank, or any other FFGI Subsidiary (i) except as
disclosed in the FFGI Financial Statements delivered to UPC prior to the date
of this Merger Agreement, or (ii) except obligations or liabilities incurred in
the ordinary course of its business consistent with past practices, or (iii)
except as contemplated under this Merger Agreement. Since September 30, 1995,
neither FFGI, Savings Bank, nor any other FFGI Subsidiary has incurred or paid
any obligation or liability which would be material to the financial condition
or operations of FFGI, Savings Bank, or such other FFGI Subsidiary, except for
obligations paid in connection with transactions made by it in the ordinary
course of its business consistent with past practices, laws and regulations
applicable to FFGI, Savings Bank, or any other FFGI Subsidiary.
5.24 Allowance for Possible Loan or ORE Losses. Except as
disclosed in Schedule 5.24 hereto, as of the date hereof, neither Savings Bank
nor any other FFGI Subsidiary has any loan which has been criticized or
classified by bank examiners representing any Regulatory Authority or by its
independent auditors as "Other Assets Especially Mentioned," "Substandard,"
"Doubtful" or "Loss" or as a "Potential Problem Loan." The net book value of
ORE reflected on the December 31, 1994 financial statements included in the
FFGI Financial Statements is no greater than the net realizable value of the
ORE in accordance with Statement of Position 92-3.
5.25 Compliance with Laws. FFGI, Savings Bank, and each
other FFGI Subsidiary:
(a) Is in compliance with all laws, rules,
regulations, reporting and licensing requirements, and orders applicable to its
business or employees conducting its business (including, but not limited to,
those relating to consumer disclosure and currency transaction reporting) the
breach or violation of which would or could reasonably be expected to have a
material adverse effect on the financial condition or operations of FFGI,
Savings Bank, or any other FFGI Subsidiary taken as a whole, or which would or
could reasonably be expected to subject FFGI, Savings Bank, or any other FFGI
Subsidiary or any of its directors or officers to civil money penalties; and
(b) Has received no notification or communication
from any agency or department of federal, state, or local government or any of
the Regulatory Authorities, or the staff thereof (i) asserting that FFGI,
Savings Bank, or any other FFGI Subsidiary is not in compliance with any of the
statutes, rules, regulations, or ordinances which such governmental authority
or Regulatory Authority enforces, which, as a result of such noncompliance,
would result in a material adverse impact on FFGI, Savings Bank, or any other
FFGI Subsidiary, (ii) threatening to revoke any license, franchise, permit, or
governmental authorization which is material to the financial condition or
operations of FFGI, Savings Bank, or any other FFGI Subsidiary, or (iii)
requiring FFGI,
AGREEMENT AND PLAN OF MERGER - PAGE 43
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Savings Bank, or any other FFGI Subsidiary to enter into a cease and desist
order, consent, agreement, or memorandum of understanding.
5.26 Employee Benefit Plans.
(a) FFGI has previously provided to UPC true and
complete copies of each "employee benefit plan," as defined in ERISA, which, to
the best of its knowledge, is subject to any provision of ERISA and covers any
employee, whether active or retired, of FFGI, Savings Bank, or any other FFGI
Subsidiary, together with the most recent annual report (Form 5500 including,
if applicable, Schedule B thereto) prepared in connection with any such plan.
Such plans are hereinafter referred to collectively as the "Employee Plans",
and each such Employee Plan is listed in Schedule 5.26(a) hereto. Each
Employee Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code, is so qualified. Except as disclosed in Schedule
5.26(a) hereto, all Employee Plans were in effect for substantially all of
calendar year 1995 and there has been no material amendment thereof (other than
amendments required to comply with applicable law) or material increase in the
cost thereof or benefits thereunder on or after January 1, 1995.
(b) FFGI has furnished to UPC true and complete
copies and descriptions of each plan or arrangement maintained or otherwise
contributed to by FFGI, Savings Bank, or any other FFGI Subsidiary which is not
an Employee Plan and which (exclusive of base salary and base wages) provides
for any form of current or deferred compensation, bonus, stock option, profit
sharing, benefit, retirement, incentive, group health or insurance, welfare
plan (including, but not limited to, "employee welfare benefit plans" as that
term is defined in ERISA), or similar plan or arrangement for the benefit of
any employee or class of employees, whether active or retired, of FFGI, Savings
Bank, or any other FFGI Subsidiary (such plans and arrangements being
collectively referred to herein as "Benefit Arrangements" and all such Benefit
Arrangements of FFGI, Savings Bank, and the other FFGI's Subsidiaries are
listed on Schedule 5.26(b) hereto). Except as disclosed in Schedule 5.26(b)
hereto, there are no other Benefit Arrangements of the FFGI Companies and all
Benefit Arrangements which are in effect were in effect for substantially all
of calendar year 1995. Except as disclosed in Schedule 5.26(b) hereto or as
was required by applicable law, there has been with respect to Benefit
Arrangements no material amendment thereof or material increase in the cost
thereof or benefits payable thereunder on or after January 1, 1995, and no
material increase in the base salary and wage levels of FFGI, Savings Bank, or
any other FFGI Subsidiary and except in the ordinary course of business, no
change in the terms or conditions of employment (including severance benefits)
compared, in each case, to those prevailing for substantially all of calendar
year 1995. Except as disclosed in Schedule 5.26(b) hereto, there has been no
material increase in the compensation of or benefits payable to any senior
executive employee of FFGI, Savings Bank, or any other FFGI Subsidiary
AGREEMENT AND PLAN OF MERGER - PAGE 44
<PAGE> 182
since January 1, 1995, nor any employment, severance or similar contract
entered into with any such employee, nor any amendment to any such contract,
since January 1, 1995. Except as disclosed in Schedule 5.26(b) hereto, there
is no contract, agreement or Benefit Arrangement covering any employee of FFGI,
Savings Bank, or any other FFGI Subsidiary which individually or collectively
could give rise to the payment of any amount which would constitute an "excess
parachute payment," as such term is defined in Section 280(G) of the Internal
Revenue Code.
(c) With respect to all Employee Plans and
Benefit Arrangements, FFGI, Savings Bank, and each other FFGI Subsidiary are in
substantial compliance with the requirements prescribed by any and all
statutes, governmental or court orders, or rules or regulations currently in
effect, including but not limited to ERISA and the Internal Revenue Code,
applicable to such Employee Plans or Benefit Arrangements except to the extent
that any such non-compliance would not have a material adverse effect on the
financial condition, operations or prospects of FFGI, Savings Bank, or any
other FFGI Subsidiary. No condition exists that could constitute grounds for
the termination of any Employee Plan under Section 4042 of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975
of the Internal Revenue Code, has occurred with respect to any Employee Plan,
or any other employee benefit plan maintained by FFGI, Savings Bank, or any
other FFGI Subsidiary which is covered by Title I of ERISA, which could subject
any person (other than a person for whom neither FFGI, Savings Bank, nor any
other FFGI Subsidiary is directly or indirectly responsible) to liability under
Title I of ERISA or to the imposition of any tax under Section 4975 of the
Internal Revenue Code which could have an adverse effect on the business,
assets, financial condition, results of operations or prospects of any FFGI
Company. No Employee Plan subject to Part III of Subtitle B of Title I of
ERISA or Section 412 of the Internal Revenue Code, or both, has incurred any
"accumulated funding deficiency," as defined in Section 412 of the Code,
whether or not waived. Neither FFGI, Savings Bank, nor any other FFGI
Subsidiary has failed to make any contribution or pay any amount due and owing
as required by the terms of any Employee Plan or Benefit Arrangement. No
Benefit Arrangement has incurred, nor does any Benefit Arrangement have, any
unfunded plan liabilities, whether or not waived. Neither FFGI, Savings Bank,
nor any other FFGI Subsidiary has incurred or expects to incur, directly or
indirectly, any liability under Title IV of ERISA arising in connection with
the termination of, or a complete or partial withdrawal from, any plan covered
or previously covered by Title IV of ERISA which could constitute a liability
of UPC or any of its Affiliates (including FFGI, Savings Bank, or any other
FFGI Subsidiary) at or after the Effective Time of the Merger. Except as
disclosed in Schedule 5.26(c) hereto, to the best knowledge, information and
belief of FFGI and Savings Bank, no condition exists that could subject any
person (other than a person for whom neither FFGI, Savings Bank, nor any other
FFGI Subsidiary is directly or indirectly responsible) to liabilities, damages,
losses, taxes or sanctions that arise under Sections 106(b), 162(i) and 4980B
of the Internal Revenue Code or Sections 601 through 608 of
AGREEMENT AND PLAN OF MERGER - PAGE 45
<PAGE> 183
ERISA for failure to comply with the continuation health care coverage
requirements of Sections 162(k) and 4980B of the Internal Revenue Code with
respect to any current or former employee, including their beneficiaries, of
FFGI, Savings Bank, or any other FFGI Subsidiary.
(d) Except as described in Schedule 5.26(d)
hereto, each Employee Plan or Benefit Arrangement and each personal services
contract, fringe benefit, consulting contract or similar arrangement with or
for the benefit of any officer, director, employee or other person can be
terminated by FFGI or Savings Bank within a period of 30 days following the
Effective Time of the Merger, without payment of any amount as a penalty,
bonus, premium, severance pay or other compensation for such termination. Any
amounts representing or attributable to overfunding for a FFGI defined benefit
plan may be returned to FFGI, Savings Bank, or another FFGI Subsidiary in
accordance with the respective plan's arrangements as described in the
respective plan's organic documents.
5.27 Material Contracts. Except as reflected in the FFGI
Financial Statements, or as described in Schedule 5.27 hereto, neither FFGI,
Savings Bank, nor any other FFGI Subsidiary, nor any of their respective
assets, businesses, or operations, is as of the date of this Merger Agreement a
party to, or is bound or affected by, or receives benefits under any contract
or agreement or amendment thereto that in each case would (assuming that each
were a reporting company under the 1934 Act, whether or not it is so
registered) be required to be filed as an exhibit to an Annual Report on Form
10-K filed by FFGI as of the date of this Merger Agreement.
5.28 Material Contract Defaults. Neither FFGI Savings
Bank, nor any other FFGI Subsidiary is in default in any respect under any
contract, agreement, commitment, arrangement, lease, insurance policy, or other
instrument to which it is a party or by which its respective assets, business,
or operations may be bound or affected or under which it or its respective
assets, business, or operations receives benefits, and which default is
reasonably expected to have either individually or in the aggregate a material
adverse effect on FFGI, Savings Bank, or any other FFGI Subsidiary taken as a
whole, and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
5.29 Reports. Since January 1, 1990, FFGI, Savings Bank,
and each other FFGI Subsidiary have filed all reports and statements, together
with any amendments required to be made with respect thereto, that it was
required to file with (i) the FDIC, (ii) the OTS, (iii) the SEC, and (iv) any
other applicable federal or state securities or banking authorities (except, in
the case of federal or state securities authorities, filings that are not
material). As of their respective dates, each of such reports and documents,
including the financial statements, exhibits, and schedules
AGREEMENT AND PLAN OF MERGER - PAGE 46
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thereto, complied in all material respects with all of the requirements of
their respective forms and all of the statutes, rules, and regulations enforced
or promulgated by the Regulatory Authority with which they were filed. All
such reports were true and complete in all material respects and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. FFGI
has previously provided to UPC true and correct copies of all such reports
filed by FFGI, Savings Bank, and each other FFGI Subsidiary after January 1,
1990.
5.30 Statements True and Correct. None of the information
prepared by, or on behalf of, FFGI, Savings Bank, or any other FFGI Subsidiary
regarding FFGI, Savings Bank, or any other FFGI Subsidiary included or to be
included in the Proxy Statement to be mailed to the FFGI Stockholders in
connection with the FFGI Shareholders Meeting, and any other documents to be
filed with the SEC or any other Regulatory Authority in connection with the
transaction contemplated herein, will, at the respective times such documents
are filed, and, with respect to the Proxy Statement, when first mailed to the
FFGI Stockholders, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Shareholders Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders Meeting. All documents which FFGI, Savings Bank, or
any other FFGI Subsidiary is responsible for filing with the SEC or any other
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Laws and the
rules and regulations issued thereunder.
ARTICLE 5A
REPRESENTATIONS AND WARRANTIES OF EACH CLASS B SHAREHOLDER
Both as of the date hereof and as of the Effective Time of the
Merger, each Class B Shareholder, by execution of this Merger Agreement,
represents and warrants to UPC, Franklin Acquisition, FFGI, Savings Bank, and
each other that, except as set forth and described in Schedule 5A attached
hereto:
5A.1 Ownership: No Liens or Transfer. (a) Such Class B
Stockholder owns the number of shares of FFGI Class B Common Stock
set forth next to such stockholder's name on the signature page hereof as well
as on Exhibit A to the
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<PAGE> 185
Escrow Agreement, free and clear of any liens or encumbrances of any nature
whatsoever.
(b) Such Class B Stockholder has not, directly or
indirectly entered into any agreement or arrangement of any nature to sell,
transfer, assign, pledge, lend, hypothecate or alienate in any manner such
shares of FFGI Class B Common Stock, or any rights to any distributions of any
nature with respect to such shares of Class B Common Stock, other than this
Merger Agreement or a last will and testament.
5A.2 Authority. (a) Such Class B Stockholder has
all requisite power and authority, corporate or otherwise, to execute and
deliver this Merger Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby and thereby. If the Class B Stockholder is
other than a natural person, the execution and delivery of this Merger
Agreement and the Escrow Agreement and the consummation of the proposed
transactions has been duly authorized by the requisite number of the members of
the Board of Directors or similar governing body of such stockholder, as well
as the requisite number of the shareholders or similar holders of an interest
in the Class B Stockholder, and, no other corporate or similar proceedings on
the part of the Class B Stockholder are necessary to authorize the execution
and delivery of this Merger Agreement or the Escrow Agreement. This Merger
Agreement, the Escrow Agreement, and all other agreements and instruments
herein or therein contemplated to be executed by or on behalf of the Class B
Stockholder have been duly executed and delivered by or on behalf of the Class
B Stockholder and each constitutes (or upon execution will constitute) the
legal, valid and enforceable obligations of the Class B Stockholder, subject,
as to enforceability, to applicable bankruptcy, insolvency, receivership,
conservatorship, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and to the application of equitable
principles and judicial discretion.
(b) The execution and delivery of this Merger
Agreement and the Escrow Agreement, the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof and
thereof, will not result in a violation or breach of any of the terms or
provisions of, or constitute a default under (or an event which, with the
passage of time or the giving of notice, or both, would constitute a default
under), or conflict with, or permit the acceleration of, a material obligation
under any material mortgage, lease, covenant, agreement, indenture or other
instrument to which such Class B Stockholder is a party or by which such Class
B Stockholder is bound, directly or indirectly; the Charter or Bylaws (or
similar governing instruments) of such Class B Stockholder; or any material
judgment, decree, order, regulatory letter of understanding or award of any
court, governmental body, authority or arbitrator by which such Class B
Stockholder is directly or indirectly bound; or any material permit,
concession, grant, franchise, license, law, statute, ordinance, rule or
regulation applicable
AGREEMENT AND PLAN OF MERGER - PAGE 48
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to such Class B Stockholder or such stockholder's properties of any of them; or
result in the creation of any lien, claim, security interest, encumbrance,
charge, restriction or right of any third party of any kind whatsoever upon
such FFGI Class B Common Stock or upon any rights of such Class B Stockholder
pursuant to the Escrow Agreement.
5A.3 No Legal Bar. Such Class B Stockholder is not a
party to, or subject to, or bound by, any agreement or judgment, order, letter
of understanding, writ, prohibition, injunction or decree of any court or other
governmental authority or body, or any law which would prevent the execution of
either this Merger Agreement or the Escrow Agreement, the delivery hereof or
thereof, or the consummation of the transactions contemplated hereby and
thereby, and no action or proceeding is pending against such Class B
Stockholder in which the validity of this Merger Agreement, the Escrow
Agreement, or any of the transactions contemplated hereby or thereby, or any
action which has been taken by any of the Parties or Class B Stockholders in
connection herewith or therewith or in connection with the transactions
contemplated hereby or thereby is at issue.
5A.4 Government and Other Approvals. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any federal, state or local governmental authority, landlord, licensor,
shareholder, court, administrative agency, co-owner, spouse, trustee,
beneficiary, or other party in required to be made or obtained by such Class B
Stockholder in connection with the execution and delivery of this Merger
Agreement and the Escrow Agreement or the consummation of the transactions
contemplated hereby or thereby, which have not already been obtained and which
are in full force and effect.
5A.5 Indemnification. Each Class B Stockholder
does hereby agree to indemnify and reimburse UPC, its Subsidiaries and
Affiliates, including, but not limited to, FFGI, Savings Bank and the Escrow
Agent, and their successors and assigns, for any and all claims, losses,
liabilities, damages (including without limitation fines, penalties, and
criminal or civil judgments and settlements), costs (including without
limitation court costs) and expenses (including without limitation attorneys'
and accountants' fees) suffered or incurred by UPC, its Subsidiaries and
Affiliates, or the Escrow Agent, or any of their successors and assigns, with
respect to the breach or violation of any of that particular Class B
Stockholder's representations, warranties and covenants set forth herein. This
Section shall survive the Closing and the Effective Time of the Merger and
shall terminate on the second anniversary of the Effective Date of the Merger,
and only then as to any such claims, losses, liabilities, damages, costs and
expenses incurred by UPC, its Subsidiaries and Affiliates, and their successors
and assigns with respect to breaches or violations of which UPC is not aware on
such second anniversary date. On or prior to the second anniversary of the
Effective Date of the Merger, UPC will give notice to all Class B Stockholders
listing the breaches or violations of which UPC is
AGREEMENT AND PLAN OF MERGER - PAGE 49
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aware as of the Effective Date of the Merger and for which UPC would be
entitled to indemnification pursuant to this Section 5A.5. The indemnification
provided by this Section with respect to representations and warranties made
under this Article 5A, shall not be applicable to any other breaches or
violations arising after the Effective Date of the Merger, but the termination
of the indemnification provided by this Section shall not prevent UPC from
exercising such other rights as it may have hereunder or under law against the
breaching party. Further, as to the representation and warranty of Section
5A(1)(b), the indemnification provided in Section 7A.2, and the covenant to pay
their respective share of FFGI Pending Litigation expenses set forth in Section
7A.3, the indemnification provided by this Section shall terminate only after
the FFGI Pending Litigation is finally settled or resolved and all payments to
be made pursuant to this section have been received by UPC, its Subsidiaries
and Affiliates as contemplated hereby and by the Escrow Agreement. It is,
however, understood and agreed that the indemnity provided by this Section 5A.5
shall be a several indemnity and not joint, and no Class B Stockholder shall be
liable to indemnify or reimburse UPC, its Subsidiaries or Affiliates for the
breach or breaches of any other Class B Stockholder unless, and only to the
extent, such Class B Stockholder specifically assumes or undertakes another
Class B Stockholder's obligation or obligations hereunder.
5A.6 Release and Hold Harmless. Each Class B
Stockholder, individually and for his or her heirs, representatives and
permitted assigns, does hereby release and forever hold harmless UPC, its
Subsidiaries and Affiliates, (including, but not limited to, FFGI and Savings
Bank and the Escrow Agent), their successors and assigns, and their respective
directors, officers, employees, agents and representatives, from and against
any all loss, cost, damage or expense, including but not limited to, any FFGI
Pending Litigation Expenses, in the event the FFGI Pending Litigation shall be
dismissed or adversely affected as a result of the Merger and/or the terms and
provisions of this Merger Agreement or the Escrow Agreement. This Section
shall survive the effective consummation of the Merger, the termination of the
Escrow Agreement, and the consummation of the transaction contemplated herein
and therein.
ARTICLE 6
COVENANTS OF UPC
6.1 Regulatory Approvals. Within sixty (60) days after
execution of this Merger Agreement, UPC shall file any and all applications
with the appropriate government Regulatory Authorities in order to obtain the
Government Approvals and shall take such other actions as may be reasonably
required to consummate the transactions contemplated in this Merger Agreement
and the Plan of Merger with reasonable promptness. UPC shall at least two days
prior to filing such applications provide FFGI with copies thereof for its
review. UPC shall pay all fees and expenses arising in connection with such
applications for regulatory approval and for all SEC filing fees and
AGREEMENT AND PLAN OF MERGER - PAGE 50
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the costs of qualifying the shares of UPC Common Stock under State blue sky
laws as necessary. UPC agrees to provide the appropriate Regulatory
Authorities with the information required by such authorities in connection
with UPC's applications for regulatory approval and UPC agrees to use its best
efforts to obtain such regulatory approvals, and any other approvals and
consents as may be required for the Closing, as promptly as practicable;
provided, however, that nothing in this Section 6.1 shall be construed to
obligate UPC to take any action to meet any condition required to obtain prior
regulatory approval which would require UPC to increase UPC's capital ratios to
amounts in excess of the Federal Reserve's minimum capital ratio guidelines
which may be in effect from time to time.
6.2 Registration of UPC Common Stock under the Securities
Laws. UPC shall cooperate with FFGI in the preparation of the Proxy Statement
to be used at the Shareholders Meeting (and which shall serve also as UPC's
prospectus with respect to UPC's issuance of shares of UPC Common Stock) and
shall cause a registration statement (the "Registration Statement") on the
appropriate form of the SEC to be prepared and filed so as to cause any shares
of UPC Common Stock which may be delivered to the FFGI Record Holders and the
Escrow Agent in payment of the Consideration to be registered under the 1933
Act and to be duly qualified under appropriate state securities laws. UPC
shall also list for trading on the New York Stock Exchange the UPC Common
Stock. Such registration, qualification and listing shall be effected prior to
the Closing. Nothing herein shall be deemed to obligate UPC to register any
interests in the Escrow Agreement with the SEC or any other authority, or to
require UPC to file such forms or take such actions as would be necessary to
register any shares of UPC Common Stock delivered in connection with the Merger
to be available for resale by "Affiliates" of FFGI without compliance with
Rules 144 or 145 as promulgated by the SEC, or any similar regulations of any
state authorities.
6.3 Employee Benefits. Following the consummation of the
transactions contemplated herein, UPC shall not be obligated to make further
contributions to any of the Employee Plans or Benefit Arrangements of FFGI or
the FFGI Subsidiaries and all employees of FFGI and the FFGI Subsidiaries
immediately prior to the Effective Time of the Merger who shall continue as
employees of the Resulting Corporation or as employees of any other UPC
Subsidiary will be afforded the opportunity to participate in any employee
benefit plans maintained by UPC or UPC's Subsidiaries, including but not
limited to any "employee benefit plan," as that term is defined in ERISA, on an
equal basis with employees of UPC or any UPC Subsidiaries with comparable
positions, compensation, and tenure. Service with FFGI or with any FFGI
Subsidiary prior to the Effective Time of the Merger by such former FFGI
Company employees shall not be deemed to be service with UPC or any UPC
Subsidiary for purposes of vesting in such employee benefit plans of UPC and
UPC's Subsidiaries. In its sole discretion, UPC may elect to postpone until
the first day of January next following the Effective Time of the
AGREEMENT AND PLAN OF MERGER - PAGE 51
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Merger the participation of the employees of FFGI and FFGI's Subsidiaries in
the employee benefit plans maintained by UPC or UPC's Subsidiaries; provided,
however, during any such postponement period, the FFGI Employee Plans and all
related employee benefit plans shall continue in full force and effect, except
as expressly modified or amended by the terms of this Merger Agreement, or
until such time as the plans are replaced by benefit plans maintained by UPC.
Should UPC determine to terminate any employee benefit plans maintained by FFGI
or any of its Subsidiaries, such termination will only be made in accordance
with the terms of the particular plan and applicable law.
ARTICLE 7
COVENANTS OF FFGI AND SAVINGS BANK
7.1 Proxy Statement; FFGI Stockholder Approval. FFGI
shall call the Shareholders Meeting to be held as soon as reasonably
practicable after the date of this Merger Agreement for the purpose of (i)
approving this Merger Agreement and the Plan of Merger, (ii) approving the
Charter Amendment, and (iii) such other related matters as it deems
appropriate. In connection with the Shareholders Meeting, (i) FFGI shall, with
UPC's assistance, prepare a Proxy Statement to be filed with the SEC as part of
UPC's Registration Statement and with any other appropriate Regulatory
Authority; shall mail or cause to be mailed such Proxy Statement to its
shareholders and shall provide UPC the opportunity to review and comment on the
Proxy Statement at least five (5) business days prior to the filing of the
Proxy Statement with the Regulatory Authorities for prior review and at least
five (5) business days prior to the mailing of the Proxy Statement to the FFGI
Stockholders; (ii) the Parties shall furnish to each other all information
concerning them that the other Party may reasonably request in connection with
the preparation of such Proxy Statement; (iii) the Board of Directors of FFGI
shall recommend (subject to compliance with its legal and fiduciary duties as
advised by outside counsel) to FFGI Stockholders the approval of both the
proposed Charter Amendment and this Merger Agreement and the Plan of Merger;
and (iv) FFGI shall use its best efforts, subject to compliance with its legal
and fiduciary duty as advised by outside counsel, to obtain such approvals of
the FFGI Stockholders.
7.2 Conduct of Business -- Affirmative Covenants. Until
the Effective Time, unless the prior written consent of UPC shall have been
obtained and except as otherwise contemplated herein:
(a) FFGI shall, and shall cause each FFGI
Subsidiary to:
(i) Operate its business only in the
usual, regular, and ordinary course;
AGREEMENT AND PLAN OF MERGER - PAGE 52
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(ii) Preserve intact its business
organizations and assets and to maintain its rights and franchises;
(iii) Take no action, unless otherwise
required by law, rules or regulation, that would (A) adversely affect the
ability of any of them or UPC to obtain any necessary approvals of Regulatory
Authorities required to consummate the transactions contemplated by this Merger
Agreement, or (B) adversely affect the ability of such Party to perform its
covenants and agreements under this Merger Agreement;
(iv) Except as they may terminate in
accordance with their terms, keep in full force and effect, and not default in
any of its obligations under, all material contracts;
(v) Keep in full force and effect
insurance coverage with responsible insurance carriers which is reasonably
adequate in coverage and amount for companies the size of FFGI or such FFGI
Subsidiary and for the businesses and properties owned by each and in which
each is engaged, to the extent that such insurance is reasonably available;
(vi) Use its best efforts to retain
FFGI's and each FFGI Subsidiary's present customer base and to facilitate the
retention of such customers by the Resulting Corporation and its branches after
the Effective Time of the Merger; and
(vii) Maintain, renew, keep in full force
and effect, and preserve its business organization and material rights and
franchises, permits and licenses, and to use its best efforts to maintain
positive relations with its present employees so that such employees will
continue to perform effectively and will be available to UPC and UPC's
Subsidiaries at and after the Effective Time of the Merger, and to use its best
efforts to maintain its existing, or substantially equivalent, credit
arrangements with banks and other financial institutions and to assure the
continuance of the customer relationships of FFGI and each FFGI Subsidiary;
(b) FFGI agrees to use its best efforts to assist
UPC in obtaining the Government Approvals necessary to complete the
transactions contemplated hereby and does not know of any reason that such
Government Approvals can not be obtained, and FFGI shall provide to UPC or to
the appropriate governmental authorities all information reasonably required to
be submitted in connection with obtaining such approvals;
(c) FFGI, at its own cost and expense, shall use
its best efforts to secure all necessary consents and all consents and
releases, if any, required of FFGI
AGREEMENT AND PLAN OF MERGER - PAGE 53
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or any FFGI Subsidiary, or third parties, and shall comply with all applicable
laws, regulations and rulings in connection with this Merger Agreement and the
consummation of the transactions contemplated hereby;
(d) At all times to and including, and as of, the
Closing, FFGI and Savings Bank shall inform UPC in writing of any and all facts
necessary to amend or supplement the representations and warranties made herein
and the Schedules attached hereto as necessary so that the information
contained herein and therein will accurately reflect the current status of FFGI
and each FFGI Subsidiary; provided, however, that any such updates to Schedules
shall be required prior to the Closing only with respect to matters which
represent material changes to the Schedules and the information contained
therein; and provided further, that before such amendment, supplement or update
may be deemed to be a part of this Merger Agreement, UPC shall have agreed in
writing to each amendment, supplement or update to the Schedules made
subsequent to the date of this Merger Agreement as an amendment to this Merger
Agreement;
(e) On and after the Closing Date, FFGI, Savings
Bank, and each other FFGI Subsidiary shall give such further assistance to UPC
and shall execute, acknowledge and deliver all such documents and instruments
as UPC may reasonably request and take such further action as may be necessary
or appropriate effectively to consummate the transaction contemplated by this
Merger Agreement;
(f) Between the date of this Merger Agreement and
the Closing Date, FFGI shall afford UPC and its authorized agents and
representatives reasonable access during normal business hours to the
properties, operations, books, records, contracts, documents, loan files and
other information of, or relating to FFGI and its Subsidiaries. FFGI and
Savings Bank shall provide reasonable assistance to UPC in its investigation of
matters relating to FFGI and its Subsidiaries; and
(g) Subject to the terms and conditions of this
Merger Agreement, FFGI agrees to use all reasonable efforts and to take, or to
cause to be taken, all actions, and to do, or to cause to be done, all things
necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, with reasonable promptness after the date of
this Merger Agreement, the transaction contemplated by this Merger Agreement,
including, without limitation, using reasonable efforts to lift or rescind any
injunction or restraining or other order adversely affecting the ability of the
Parties to consummate the transaction contemplated by this Merger Agreement.
FFGI shall use, and shall cause each of its Subsidiaries to use, its and their
best efforts to obtain consents of all third parties and Regulatory Authorities
necessary or desirable for the consummation of each of the transactions
contemplated by this Merger Agreement.
AGREEMENT AND PLAN OF MERGER - PAGE 54
<PAGE> 192
7.3 Conduct of Business -- Negative Covenants. From the
date of this Merger Agreement until the earlier of the Effective Time of the
Merger or the effective termination of this Merger Agreement, FFGI and Savings
Bank each covenants and agrees that it will not do, nor agree or commit to do,
nor permit any other FFGI Subsidiary to do or commit or agree to do any of the
following without the prior written consent of the chief executive officer,
president, or chief financial officer of UPC, which consent will not be
unreasonably withheld:
(a) Except as expressly contemplated by this
Merger Agreement or the Plan of Merger, amend its Charter or Bylaws; or
(b) Impose, or suffer the imposition, on any
share of capital stock held by it or by any of the FFGI Subsidiaries of any
lien, charge, or encumbrance, or permit any such lien, charge, or encumbrance
to exist; or
(c) (i) Repurchase, redeem, or otherwise acquire
or exchange, directly or indirectly, any shares of its capital stock or other
equity securities or any securities or instruments convertible into any shares
of its capital stock, or any rights or options to acquire any shares of its
capital stock or other equity securities except as expressly permitted by this
Merger Agreement or the Plan of Merger or upon advice of counsel in the event
of an Acquisition Proposal (as defined in Section 7.4) under the terms and
conditions set forth in Section 7.4; or (ii) split or otherwise subdivide its
capital stock; or (iii) recapitalize in any way; or (iv) declare a stock
dividend on the FFGI Common Stock; or (v) pay any cash dividend on the FFGI
Common Stock, other than its normal cash dividend of not more than $0.17 per
share semi-annually, the declaration date of which shall be consistent with
past practice.
(d) Except as expressly permitted by this Merger
Agreement, acquire direct or indirect control over any corporation,
association, firm, organization or other entity, other than in connection with
(i) mergers, acquisitions, or other transactions approved in writing by UPC,
(ii) internal reorganizations or consolidations involving existing FFGI
Subsidiaries, (iii) foreclosures in the ordinary course of business and not
knowingly exposing it to liability by reason of Hazardous Substances, (iv)
acquisitions of control in its fiduciary capacity, or (v) the creation of new
subsidiaries organized to conduct or continue activities otherwise permitted by
this Merger Agreement; or
(e) Except as expressly permitted by this Merger
Agreement or the Plan of Merger, (i) issue, sell, agree to sell, or otherwise
dispose of or otherwise permit to become outstanding any additional shares of
FFGI Common Stock, FFGI Preferred Stock or any other capital stock of FFGI or
of any FFGI Subsidiary, or any stock appreciation rights, or any option,
warrant, conversion, call, scrip, or other right to acquire any such stock, or
any security convertible into any such stock, unless any such shares
AGREEMENT AND PLAN OF MERGER - PAGE 55
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of such stock are directly sold or otherwise directly transferred to FFGI or
any FFGI Subsidiary, including, but not limited to, any of the above-described
securities encompassed in the FFGI Option Plan, or (ii) sell, agree to sell, or
otherwise dispose of any substantial part of the assets or earning power of
FFGI or of any FFGI Subsidiary; or (iii) sell, agree to sell, or otherwise
dispose of any asset of FFGI or any FFGI Subsidiary other than in the ordinary
course of business for reasonable and adequate consideration; or (iv) buy,
agree to buy or otherwise acquire a substantial part of the assets or earning
power of any other Person or entity; or
(f) Incur, or permit any FFGI Subsidiary to
incur, any additional debt obligation or other obligation for borrowed money
[other than (i) in replacement of existing short-term debt with other
short-term debt of an equal or lesser amount, or (ii) financing of banking
related activities consistent with past practices] in excess of an aggregate of
$50,000 (for FFGI and its Subsidiaries on a consolidated basis) except in the
ordinary course of the business of FFGI or such FFGI Subsidiary consistent with
past practices (and such ordinary course of business shall include, but shall
not be limited to, creation of deposit liabilities, entry into repurchase
agreements or reverse repurchase agreements, purchases or sales of federal
funds, Federal Reserve advances, and sales of certificates of deposit); or
(g) Grant any increase in compensation or
benefits to any of its employees, directors or officers, except in accordance
with past practices or as required by law; pay any bonus except in accordance
with past practices; enter into any severance agreements with any of its
directors, officers or employees; grant any material increase in fees or other
increases in compensation or other benefits to any director officer or employee
of FFGI or of any FFGI Subsidiary; or effect any change in retirement benefits
for any class of its employees, directors or officers, unless such change is
required by applicable law; or
(h) Amend any existing employment contract
between it and any person having a salary thereunder in excess of $30,000 per
year (unless such amendment is required by law) to increase the compensation or
benefits payable thereunder; or to enter into any new employment contract with
any person having an annual salary thereunder in excess of $30,000 that FFGI
(or their respective successors) does not have the unconditional right to
terminate without liability (other than liability for services already
rendered), at any time on or after the Effective Time of the Merger; or
(i) Adopt any new employee benefit plan or
terminate or make any material change in or to any existing employee benefit
plan other than any change that is required by law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax-qualified status of any
such plan; or
AGREEMENT AND PLAN OF MERGER - PAGE 56
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(j) Enter into any new lease agreements that are
material to FFGI or any FFGI Subsidiary; or
(k) Make any capital expenditure except for
ordinary purchases, repairs, renewals or replacements; or
(l) Enter into any transactions other than in the
ordinary course of business;
(m) Grant or commit to grant any new extension of
credit to any officer, director or holder of 2% or more of the outstanding FFGI
Common Stock, or to any corporation, partnership, trust or other entity
controlled by any such person, if such extension of credit, together with all
other credits then outstanding to the same borrower and all affiliated persons
of such borrower, would exceed two percent (2%) of the capital of FFGI or amend
the terms of any such credit outstanding on the date hereof; or
(n) Register for transfer of transfer on its
books and records any shares of FFGI Class B Common Stock, except for transfers
pursuant to a valid, probated last will and testament, intestate succession or
pursuant to a valid qualified domestic relations order, and only in any of
those cases after notifying UPC of such proposed transfer and requiring such
proof of validity of such transfers as FFGI and UPC should reasonably require.
7.4 Conduct of Business -- Certain Actions.
(a) Except to the extent necessary to consummate
the transactions specifically contemplated by this Merger Agreement, FFGI shall
not, and shall use its best efforts to ensure that its respective directors,
officers, employees, and advisors do not, directly or indirectly, institute,
solicit, or knowingly encourage (including by way of furnishing any information
not legally required to be furnished) any inquiry, discussion or proposal, or
participate in any discussions or negotiations with, or provide any
confidential or non-public information to, any corporation, partnership, person
or other entity or group (other than to UPC or any UPC Subsidiary) concerning
any "Acquisition Proposal" (as defined below), except for actions reasonably
considered by the Board of Directors of FFGI, based upon the advice of outside
legal counsel after copies of which shall have been delivered to UPC, to be
required in order to fulfill its fiduciary obligations. FFGI shall notify UPC
immediately if any Acquisition Proposal has been or should hereafter be
received by FFGI, such notice to contain, at a minimum, the identity of such
persons, and, subject to disclosure being consistent with the fiduciary
obligations of FFGI's Board of Directors, a copy of any written inquiry, the
terms of any proposal or inquiry, any information requested or discussions
sought to be initiated, and the status of any reports, negotiations or
expressions of interest. For purposes of this Section,
AGREEMENT AND PLAN OF MERGER - PAGE 57
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"Acquisition Proposal" means any tender offer, agreement, understanding or
other proposal of any nature pursuant to which any corporation, partnership,
person or other entity or group, other than UPC or any UPC Subsidiary, would
directly or indirectly (i) acquire or participate in a merger, share exchange,
consolidation or any other business combination involving FFGI or any FFGI
Subsidiary; (ii) acquire the right to vote ten percent (10%) or more of any
class of FFGI Common Stock; or (iii) acquire a significant portion of the
assets or earning power of FFGI or Savings Bank.
(b) As a condition of and as an inducement to
UPC's entering into this Merger Agreement, FFGI hereby grants to UPC an option
to purchase from FFGI that number of shares of FFGI Class A Common Stock and
FFGI Class B Common Stock as would give UPC nineteen percent (19%) of the total
aggregate amount of all outstanding shares of FFGI Common Stock in each such
class after exercise of such option by UPC, and counting all other convertible
securities, options, warrants and similar instruments convertible into or
representing the right of the holder thereof to purchase or otherwise acquire
any capital stock of FFGI as if they had been exercised in full for FFGI Common
Stock. The exercise price per share for each share of FFGI Common Stock
covered by such option shall be the lesser or the book value per share of FFGI
Common Stock at December 31, 1995, or the book value per share for each share
of FFGI Common Stock at the month ended immediately prior to the date of the
exercise of the option by UPC. The option is contingent, however, in that UPC
shall have no right to exercise the option, in whole or in part, unless or
until FFGI violates Section 7.4(a) above or until FFGI enters into a letter of
intent, agreement in principle, or definitive agreement (whether or not
considered binding, non-binding, conditional or unconditional) with any
third-party with respect to an Acquisition Proposal, or supports or indicates
an intent to support an Acquisition Proposal, other than pursuant to this
Merger Agreement and the transactions contemplated in this Merger Agreement,
and regardless of whether FFGI has otherwise complied with the provisions of
Section 7.4(a) hereof. FFGI covenants, acknowledges, and agrees that it shall
be a specific, absolute, and unconditionally binding condition precedent to
FFGI's entering into a letter of intent, agreement in principle, or definitive
agreement (whether or not considered binding, non-binding, conditional or
unconditional) with any third-party with respect to an Acquisition Proposal, or
supporting or indicating an intent to support an Acquisition Proposal, other
than this Merger Agreement and the transactions contemplated in this Merger
Agreement, and regardless of whether FFGI has otherwise complied with the
provisions of Section 7.4(a) hereof, that (i) FFGI set aside and reserve for
issuance to UPC that number of shares of both FFGI Class A Common Stock and
FFGI Class B Common Stock which shall be sufficient for UPC to exercise this
option in full should UPC choose to do so; (ii) FFGI shall promptly notify UPC
of such event or occurrence giving rise to UPC's ability to exercise the option
and notifying UPC that the option may be exercised anytime thereafter and prior
to the expiration of such option; and (iii) FFGI shall take, or cause to be
taken, such further actions as may be necessary for UPC to be able to exercise
such option in full. The option granted to UPC
AGREEMENT AND PLAN OF MERGER - PAGE 58
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hereunder shall expire the latter of one hundred twenty (120) days after UPC's
receipt of the notice from FFGI, or the effective time of the Acquisition
Proposal. This option, represents compensation to UPC for UPC's (i) direct
costs and expenses (including, but not limited to, fees and expenses incurred
by UPC's financial or other consultants, printing costs, investment bankers,
accountants, and counsel) incurred by or on behalf of UPC in negotiating and
undertaking to carry out the transactions contemplated by this Merger
Agreement; and (ii) indirect costs and expenses incurred in connection with the
transactions contemplated by this Merger Agreement, including UPC's management
time devoted to negotiation and preparation for the transactions contemplated
by this Merger Agreement; and (iii) loss incurred as a result of the
transactions contemplated by this Merger Agreement not being consummated. On
exercise of the option by UPC or its assignee, UPC and Franklin Acquisition
shall have no cause of action or claim (either in law or equity) whatsoever
against FFGI, or any officer or director of FFGI, or the other party to the
Acquisition Proposal with respect to or in connection with such Acquisition
Proposal, this Merger Agreement or the Plan of Merger. Notwithstanding any
other provision hereof to the contrary, UPC may sell, transfer or assign its
rights under the option granted to it pursuant to this section, in whole or in
part, to any third-party.
(c) The requirements, conditions, and obligations
imposed by this Section 7.4 shall continue in full force and effect from the
date of this Merger Agreement until the earlier of any of the following events
shall have occurred, in which event the option shall expire and FFGI shall not
be obligated to sell the shares of FFGI Common Stock pursuant to the option as
a condition precedent to such Acquisition Proposal:
(1) This Merger Agreement shall have
been effectively terminated (i) mutually by the Parties pursuant to Section
9.1(a) of this Merger Agreement; (ii) by UPC and Franklin Acquisition or FFGI
pursuant to Section 9.1(c) of this Merger Agreement; (iii) by UPC and Franklin
Acquisition or FFGI pursuant to Section 9.1(d) of this Merger Agreement; (iv)
by UPC and Franklin Acquisition or FFGI pursuant to Section 9.1(e) of this
Merger Agreement, and in the case of termination pursuant to Section 9.1(e),
only on the basis of the failure to satisfy the conditions enumerated in
subparagraph (2) below; (v) by UPC and Franklin Acquisition pursuant to Section
9.1(f) of this Merger Agreement; (vi) by FFGI pursuant to Section 9.1(g) of
this Merger Agreement; or (vii) by UPC and Franklin Acquisition pursuant to
Section 9.1(i) of this Merger Agreement; or
(2) In the event the Merger should not
be consummated as a result of the failure to satisfy any of the following
conditions:
(i) Material inaccuracy (without
waiver thereof) of representations and warranties of UPC as contemplated by the
provisions of Section 8.1(b) of this Merger Agreement;
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(ii) Noncompliance by UPC or
Franklin Acquisition with their respective obligations as required by the
provisions of Section 8.1(a) of this Merger Agreement;
(iii) The failure by UPC or Franklin
Acquisition to effect all corporate action necessary on their respective parts
as required by the provisions of Section 8.1 of this Merger Agreement;
(iv) The failure to receive the
requisite approvals as required by the provisions of Section 8.3(b) of this
Merger Agreement, other than any such failure arising out of any action or
inaction on the part of FFGI or Savings Bank;
(v) The occurrence of material
legal proceedings as contemplated by the provisions of Section 8.3(a) of this
Merger Agreement;
(vi) UPC shall have determined that
the Merger is impractical pursuant to Section 6.1 of this Merger Agreement;
(vii) The failure on the part of
counsel to UPC to deliver the requisite opinion required by the provisions of
Section 8.1(e) of this Merger Agreement;
(viii) UPC shall have determined not
to consummate the Merger pursuant to Section 8.2(i); or
(ix) The failure by UPC to deliver
to FFGI the certificates contemplated by Section 8.1(c) of this Merger
Agreement.
ARTICLE 7A
COVENANTS OF CLASS B STOCKHOLDERS
Each Class B Stockholder, individually, and not for one another or jointly for
all, hereby covenants and agrees with UPC, Franklin Acquisition, FFGI and
Savings Bank as follows:
7A.1 No Transfer of FFGI Class B Common Stock. After the
date hereof and prior to the earlier of the effective termination of this
Merger Agreement or the Effective Time of the Merger, such Class B Stockholder
will not, directly or indirectly, sell, transfer, assign, pledge, encumber or
alienate in any manner, or to enter into, or agree to enter into, any agreement
or arrangement whether, written or oral, to sell, transfer, assign, pledge,
encumber or alienate in any manner, any shares of FFGI Class B Common Stock,
except under circumstances specifically set forth herein or otherwise
AGREEMENT AND PLAN OF MERGER - PAGE 60
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approved by UPC and Franklin Acquisition, in their sole and absolute
discretion. For purposes hereof, transfers by will, intestate succession,
pursuant to a qualified domestic relations order, and transfers to other
existing FFGI Class B Stockholders shall be permitted; provided, however, that
in the event of a transfer to an existing FFGI Class B Stockholder, upon the
acceptance of such transfer the receiving Class B Stockholder shall be liable
and responsible for all indemnities, releases and obligations of the
transferring party arising hereunder or under he Escrow Agreement with respect
to the shares of FFGI Class B Common Stock so transferred regardless of the
fact that the signature page of this Merger Agreement and the signature page or
an exhibit to the Escrow Agreement would reflect that the receiving Class B
Stockholder held a lesser number of shares of FFGI Class B Common Stock. In
the event of any such transfer, the parties to such transfer covenant and agree
with each other and with UPC, Franklin Acquisition and the Escrow Agent to
amend the signature page hereof and of the Escrow Agreement, or an exhibit to
the Escrow Agreement, to reflect the number of shares of FFGI Class b Common
Stock owned by them.
7A.2 No Transfer of Rights With Respect to Escrow
Agreement: Indemnification. In the event the Merger becomes effective,
except as specifically authorized in the Escrow Agreement, such Class B
Stockholder will not, directly or indirectly, sell, transfer, assign, pledge,
encumber or alienate in any manner, or enter into, or agree to enter into, any
agreement or arrangement, whether written or oral, to sell, transfer, assign,
pledge, encumber or alienate in any manner, any rights of such Class B
Stockholder under, or interest in, the Escrow Agreement, including, but not
limited to, any rights of such Class B Stockholder to any distributions
pursuant to the Escrow Agreement, such Class B Stockholder, individually and
for his or her heirs, representatives and any permitted assigns, if any, hereby
agrees to indemnify and hold harmless UPC, Resulting Corporation, Savings Bank,
the Escrow Agent, their successors and assigns, and their respective officers,
directors, employees, agents and representatives, from and against any losses,
costs or expenses, including but not limited to attorneys fees and expenses,
related to or arising out of any claim made by or on behalf of any third person
with respect to such particular Class B Stockholder's interest in or rights
under the Escrow Agreement. UPC and the Escrow Agent shall be entitled to
setoff against any amounts that are or may be owed to a particular Class B
Stockholder, his or her heirs, representatives or permitted assigns, if any,
and any person or entity claiming for or on behalf of such particular Class B
Stockholder, under the Escrow Agreement in satisfaction of such particular
Class B Stockholder's indemnification and hold harmless responsibilities set
forth herein or in the Escrow Agreement, and such right to setoff shall be in
addition to such other rights as UPC, FFGI, Resulting Corporation, Savings
Bank, Escrow Agent, or any of their successors or assigns, may have hereunder
or under the Escrow Agreement or otherwise at law or in equity, including, but
not limited to, rights pursuant to the security interest in all assets held by
the Escrow Agent pursuant to the Escrow Agreement.
AGREEMENT AND PLAN OF MERGER - PAGE 61
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7A.3 Payment of FFGI Pending Litigation Expenses: Setoff
Rights. As a material inducement to UPC and Franklin Acquisition to enter into
this Merger Agreement and the Plan of Merger, each Class B Stockholder
covenants for such Class B Stockholder and his, her or its heirs, successors,
representative or permitted assigns, to promptly pay such Class B Stockholder's
entire proportionate share of one-half of all FFGI Pending Litigation Expenses
incurred by or on behalf of UPC, FFGI, Resulting Corporation or Savings Bank,
or any of their successors or assigns, after the date of this Merger Agreement,
as set forth in the Escrow Agreement.
ARTICLE 8
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of FFGI. Unless waived
in writing by FFGI, the obligation of FFGI to consummate the transaction
contemplated by this Merger Agreement is subject to the satisfaction at or
prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and
undertakings of UPC and Franklin Acquisition to be performed at or prior to the
Closing Date pursuant to this Merger Agreement shall have been duly performed;
(b) Representations and Warranties. The
representations and warranties of UPC and Franklin Acquisition contained in
Article 4 of this Merger Agreement shall be true and complete, in all material
respects, on and as of the Effective Time of the Merger with the same effect as
though made on and as of the Effective Time of the Merger;
(c) Documents. In addition to the other
deliveries of UPC or Franklin Acquisition described elsewhere in this Merger
Agreement, FFGI shall have received the following documents and instruments:
(i) a certificate signed by the Secretary
or an assistant secretary of UPC and Franklin Acquisition dated as of the
Closing Date certifying that:
(A) UPC's and Franklin
Acquisition's respective Boards of Directors have duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of this Merger Agreement (including the Plan of Merger and
Escrow Agreement) and authorizing the consummation of the transactions
contemplated by this Merger Agreement and certifying that such resolutions have
not been amended or modified and remain in full force and effect;
AGREEMENT AND PLAN OF MERGER - PAGE 62
<PAGE> 200
(B) each person executing this
Merger Agreement on behalf of UPC or Franklin Acquisition is an officer of UPC
or Franklin Acquisition, as the case may be, holding the office or offices
specified therein and that the signature of each person set forth on such
certificate is his or her genuine signature;
(C) the charter documents of UPC
and Franklin Acquisition attached to such certificate remain in full force and
effect; and
(D) UPC and Franklin Acquisition
are in good standing under their respective corporate charters; and
(ii) a certificate signed
respectively by duly authorized officers of UPC or Franklin Acquisition stating
that the conditions set forth in Section 8.1(a) and Section 8.1(b) of this
Merger Agreement have been fulfilled;
(d) Consideration. FFGI shall have received a
certificate executed by an authorized officer of the Exchange Agent to the
effect that the Exchange Agent has received and holds in its possession
certificates evidencing and representing that number of shares of UPC Common
Stock and cash funds sufficient to meet the obligations of UPC to the FFGI
Record Holders to deliver the Consideration under this Merger Agreement and the
Plan of Merger, other than the shares of UPC Common Stock to be deposited in
escrow with the Escrow Agent; and FFGI shall have received a certificate
executed by an authorized officer of the Escrow Agent to the effect that the
Escrow Agent has received and holds in its possession a stock certificate or
certificate evidencing and representing that number of shares of UPC Common
Stock as was represented to it by UPC to equal or exceed the Escrow Deposit.
(e) Opinion of UPC's and Franklin Acquisition's
Counsel. FFGI shall have been furnished with an opinion of counsel to UPC and
Franklin Acquisition, dated as of the Closing Date, addressed to and in form
and substance satisfactory to FFGI, to the effect that:
(i) UPC is a Tennessee corporation duly
organized, validly existing, and in good standing under the laws of the State
of Tennessee; and Franklin Acquisition is a Tennessee corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee;
(ii) this Merger Agreement, the Plan of
Merger and the Escrow Agreement have been duly and validly authorized, executed
and delivered by UPC, Franklin Acquisition and, as to the Escrow Agreement, the
Escrow Agent, and (assuming this Merger Agreement and the Plan of Merger is a
binding obligation of FFGI) constitutes a valid and binding obligation of UPC
and Franklin Acquisition enforceable in
AGREEMENT AND PLAN OF MERGER - PAGE 63
<PAGE> 201
accordance with its terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and to the application of
equitable principles and judicial discretion;
(iii) neither the execution and delivery
by UPC or Franklin Acquisition of this Merger Agreement, the Plan of Merger or
the Escrow Agreement, nor any of the documents to be executed and delivered by
UPC or Franklin Acquisition in connection herewith or therewith, nor the
consummation of any of the transactions contemplated hereby or thereby,
violates or conflicts with UPC's or Franklin Acquisition' corporate charters or
bylaws or, to the best of the knowledge, information and belief (without making
special inquiry) of such counsel, any material contracts, agreements or other
commitments of UPC or Franklin Acquisition;
(iv) to the knowledge of such counsel
after due inquiry, no consent or approval by any Governmental Authority which
has not already been obtained is required for execution and delivery by UPC and
Franklin Acquisition of this Merger Agreement or any of the documents to be
executed and delivered by UPC or Franklin Acquisition in connection herewith;
and
(v) the shares of UPC Common Stock to be
issued to the FFGI Record Holders and delivered in exchange for their share of
FFGI Common Stock will be, when issued in accordance herewith or, where
applicable, in accordance with the Escrow Agreement, and against the proper
surrender of certificates evidencing and representing validly issued shares of
FFGI Common Stock, duly authorized, validly issued, fully paid and
non-assessable.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of UPC, Franklin Acquisition, the Escrow
Agent, or appropriate government officials; (ii) in the case of matters of law
governed by the laws of the states in which they are not licensed, reasonably
rely upon the opinions of legal counsel duly licensed in such states and may be
limited, in any event, to Federal Law and the State of Tennessee; and (iii)
incorporate, be guided by, and be interpreted in accordance with, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
(f) Fairness Opinion. FFGI shall have
received a "fairness opinion" letter from Professional Bank Services to the
effect that, in the opinion of Professional bank Services, the Consideration to
be received by the FFGI Record Holders is fair to the shareholders of FFGI from
a financial point of view, and such "fairness opinion" shall not have been
withdrawn prior to the Closing Date,
AGREEMENT AND PLAN OF MERGER - PAGE 64
<PAGE> 202
(g) Tax Opinion. FFGI shall have received a
written opinion from its counsel to the effect that the transactions
contemplated by this Merger Agreement, the Plan of Merger and the Escrow
Agreement will constitute one or more tax-free reorganizations under Section
368 of the Internal Revenue Code and that the FFGI Record Holders will not
recognize any gain or loss to the extent that such FFGI Record Holders exchange
shares of FFGI Common Stock for shares of UPC Common Stock as contemplated by
this Merger Agreement, the Plan of Merger and the Escrow Agreement, assuming
that the shares of FFGI Common Stock so exchanged by such FFGI Record Holders
are held by them as capital assets at the time of the Closing.
8.2 Conditions to the Obligations of UPC and Franklin
Acquisition. Unless waived in writing by UPC and Franklin Acquisition, the
obligation of UPC and Franklin Acquisition to consummate the transactions
contemplated by this Merger Agreement is subject to the satisfaction at or
prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts,
covenants and undertakings of FFGI and the Class B Stockholders to be performed
at or before the Closing Date pursuant to this Merger Agreement shall have been
duly performed;
(b) Representations and Warranties. The
representations and warranties of FFGI and Savings Bank contained in Article 5
of this Merger Agreement, and those of the Class B Stockholders contained in
Article 5A of this Merger Agreement, shall be true and correct, in all material
respects, on and as of the Closing Date with the same effect as though made on
and as of the Closing Date;
(c) Documents. In addition to the documents
described elsewhere in this Merger Agreement, UPC shall have received the
following documents and instruments:
(i) certificates signed by the Secretary of
FFGI and of Savings Bank dated as of the Closing Date certifying that:
(A) FFGI's and Savings Bank's Board
of Directors and not less than two- thirds of the FFGI Stockholders have duly
adopted resolutions (copies of which shall be attached to such certificate)
approving the substantive terms of this Merger Agreement (including the Plan of
Merger and Escrow Agreement) and, as to FFGI, the proposed Charter Amendment,
and authorizing the execution and delivery of this Merger Agreement and Plan of
Merger and the consummation of the transactions contemplated hereby and
thereby, and certifying that such resolutions have not been amended or modified
and remain in full force and effect;
AGREEMENT AND PLAN OF MERGER - PAGE 65
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(B) each person executing this
Merger Agreement on behalf of FFGI and Savings Bank is an officer of FFGI or
Savings Bank, as the case may be, holding the office or offices specified
therein and that the signature of each person set forth on such certificate is
his or her genuine signature;
(C) the charter documents of FFGI
and Savings Bank attached to such certificate remain in full force and effect;
and
(D) FFGI and Savings Bank are in
good standing under their respective corporate charters;
(E) a list of all transactions
occurring after the date of this Merger Agreement where shares of FFGI Class B
Common Stock have been registered for transfer, or transferred, on the books
and records of FFGI, or as to which FFGI is aware, specifically identifying the
all parties to the transactions and the number of shares transferred or sought
to be transferred;
(F) no holders of FFGI Class B
Common Stock exercised or attempted to exercise their right to dissent to the
proposed Merger;
(G) the holders of at least
two-thirds (2/3ds) of the outstanding FFGI Class A Common Stock shall have
voted in favor of the Charter Amendment and such Charter Amendment shall have
been filed with the Secretary of State of Tennessee, and such other authorities
as necessary or appropriate, and become effective; and
(ii) a certificate signed by the President,
Chief Executive Officer and Chief Financial Officer of FFGI stating that the
conditions set forth in Sections 8.2(a), 8.2(b), 8.2(f), 8.2(h), 8.2(i) and
8.2(o) of this Merger Agreement have been satisfied;
(d) Destruction of Property. Between the date of
this Merger Agreement and the Closing Date there shall have been no damage to
or destruction of real property, improvements or personal property of FFGI or
any FFGI Subsidiary which materially reduces the market value of such property,
and no zoning or other order, limitation or restriction imposed against the
same that might have a material adverse impact upon the operations, business or
prospects of FFGI; provided, however, that the availability of insurance
coverage shall be taken into account in determining whether there has been such
a material adverse impact or material reduction in market value. In the event
of such damage, destruction, order, limitation or restriction, UPC or Franklin
Acquisition may elect either (i) to close the contemplated transaction in
accordance with
AGREEMENT AND PLAN OF MERGER - PAGE 66
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the terms of this Merger Agreement or (ii) to terminate this Merger Agreement
without penalty;
(e) Inspections Permitted. Between the date of
this Merger Agreement and the Closing Date, FFGI and Savings Bank shall have
afforded UPC and its authorized agents and representatives reasonable access
during normal business hours to the properties, operations, books, records,
contracts, documents, loan files and other information of or relating to FFGI
and its Subsidiaries. FFGI shall have caused all FFGI personnel to provide
reasonable assistance to UPC in its investigation of matters relating to FFGI
and each of its Subsidiaries;
(f) No Material Adverse Change. No material
adverse change in the business, property, assets (including loan portfolios),
liabilities (whether absolute, contingent or otherwise), prospects, operations,
liquidity, income, or condition (financial or otherwise) of FFGI and its
Subsidiaries taken as a whole shall have occurred since the Balance Sheet Date.
In the event of such a material adverse change with respect to FFGI and its
Subsidiaries, UPC and Franklin Acquisition may elect either (i) to close the
contemplated transaction in accordance with the terms of this Merger Agreement
or (ii) to terminate this Merger Agreement without penalty;
(g) Opinion of FFGI's Counsel. UPC shall have
been furnished with an opinion of McCampbell & Young, P.C., counsel to FFGI,
dated the Closing Date, addressed to and in form and substance satisfactory to
UPC, to the effect that:
(i) FFGI is a Tennessee corporation duly
organized, validly existing and in good standing under the laws of Tennessee;
(ii) Savings Bank is a federal savings
bank duly organized, validly existing and in good standing under the laws of
the United States of America;
(iii) this Merger Agreement and the Plan
of Merger has been duly and validly authorized, executed and delivered by FFGI,
the Merger Agreement and the Escrow Agreement have been duly executed and
delivered by the Class B Stockholders and (assuming that this Merger Agreement
and the Escrow Agreement are each a binding obligation of UPC and Franklin
Acquisition and the Plan of Merger is a binding obligation of UPC and Franklin
Acquisition) constitutes a valid and binding obligation of FFGI and the Class B
Stockholders enforceable in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and to
the application of equitable principles and judicial discretion; and
AGREEMENT AND PLAN OF MERGER - PAGE 67
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(iv) neither the execution and delivery
by FFGI and Savings Bank of this Merger Agreement, the Plan of Merger or the
Escrow Agreement, nor any of the documents to be executed and delivered by FFGI
and Savings Bank in connection herewith or therewith, nor the consummation of
the transactions contemplated hereby or thereby, violates or conflicts with
FFGI's or Savings Bank's corporate charter or bylaws or, to the best of the
knowledge, information and belief (without making special inquiry) of such
counsel, any material contracts, agreements or other commitments of FFGI,
Savings Bank or any other FFGI Subsidiary;
(iv) to the knowledge of such counsel
after due inquiry, no consent or approval, which has not already been obtained,
by any governmental authority is required for execution and delivery by FFGI
and Savings Bank of this Merger Agreement, the Plan of Merger, the Escrow
Agreement, Articles of Merger, or any of the documents to be executed and
delivered by FFGI and Savings Bank in connection herewith or therewith, or the
consummation of the transactions contemplated hereby or thereby;
(v) the shares of FFGI Common Stock
outstanding are duly authorized, validly issued, fully paid and non-assessable
and have not been issued in violation of any preemptive rights; and
(vi) the Charter Amendment has been
adopted and approved by all requisite corporate and shareholder action, has
been properly filed in accordance with applicable laws and regulations, and is
at that time in full force and effect.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of FFGI or appropriate government officials;
(ii) in the case of matters of law governed by the laws of the states in which
they are not licensed, reasonably rely upon the opinions of legal counsel duly
licensed in such states and may be limited, in any event, to Federal Law and
the State of Tennessee and (iii) incorporate, be guided by, and be interpreted
in accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991); and
(h) Other Business Combinations Etc. FFGI shall
not have entered into any agreement, letter of intent, understanding or other
arrangement pursuant to which FFGI would merge; consolidate with; effect a
business combination with; sell any substantial part of FFGI's assets or
earning power; acquire a significant part of the shares or assets of any other
Person or entity (financial or otherwise); adopt any "poison pill" or other
type of anti-takeover arrangement, any stockholder rights provision, any
"golden parachute" or similar program which would have the effect of materially
decreasing the value of FFGI or the benefits to UPC of acquiring the FFGI
Common Stock; and
AGREEMENT AND PLAN OF MERGER - PAGE 68
<PAGE> 206
(i) Maintenance of Certain Covenants, Etc. At
the time of Closing: (i) the total assets of FFGI shall be not less than
$130,000,000; (ii) the tangible equity capital of FFGI shall have been not less
than $13,008,474 as of June 30, 1995, and shall have increased since that time
through normal earnings growth; (iii) FFGI shall not have issued or repurchased
from the date hereof any FFGI Common Stock, FFGI Preferred Stock, or any other
capital or equity or debt securities of FFGI, or any rights to purchase or
repurchase such securities, except as set forth in this Agreement (therefore,
there shall be not more than 1,233,320 shares of FFGI Common Stock validly
issued and outstanding at the Effective Time of the Merger, counting all such
shares as may be granted pursuant to any FFGI Stock Options outstanding as of
the date of this Merger Agreement); (iv) from and after September 30, 1995,
there shall have been no extraordinary sale of assets, nor any investment
portfolio restructuring or dividend declaration by FFGI or Savings Bank, except
as contemplated by this Merger Agreement; and (v) neither FFGI nor Savings Bank
shall have issued or granted since September 30, 1995, through the Closing Date
any additional shares of restricted or unrestricted FFGI Common Stock, stock
appreciation rights or any other rights in connection with the FFGI Option
Plan, except as expressly provided for in this Merger Agreement. The criteria
and calculations set forth above shall be determined in accordance with GAAP
assuming that FFGI shall have been operated consistently in the normal course
of their business; provided, however, that the effects of any balance sheet
expansion through abnormal, unusual or out of the ordinary borrowings or by the
realization of extraordinary gains or other income from the disposition of
assets or liabilities or through similar transactions shall be eliminated from
the calculations; and
(j) Non-Compete Agreements. Each member of the
Board of Directors of FFGI and Savings Bank, and Charles G. Robinette, shall
have entered into a non-compete agreement with UPC substantially in the form of
UPC's standard form of non-compete agreement, providing for a term of not less
than two (2) years and covering Hamblen County and any counties adjacent
thereto; and
(k) Pooling of Interests Accounting Treatment.
UPC shall have received (i) from Price Waterhouse, or other independent
accountants acceptable to UPC, a letter dated within five (5) days prior to the
Closing Date, in form and substance acceptable to UPC, stating the accountants'
opinion that, based upon the information furnished to them, the Merger should
be accounted for by UPC as a "pooling of interests" for financial statement
purposes and that such accounting treatment is in accordance with generally
accepted accounting principles and (ii) from FFGI's regularly retained
independent accountants or other independent accountants acceptable to UPC, a
letter dated within five (5) days prior to the Closing Date stating that, upon
a review of FFGI's books and records, the accountants are aware of no reason
why a business combination, such as the one contemplated in this Merger
Agreement, to which FFGI is a party may
AGREEMENT AND PLAN OF MERGER - PAGE 69
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not be accounted for as a "pooling of interests" under generally accepted
accounting principles; and
(l) Limited Dissenters as to Class A Common
Stock: No Class B Dissenting Shareholders. The holders of not more than 10%
of the outstanding shares of FFGI Class A Common Stock shall not have perfected
their dissenters rights as to any of the shares of Class A Common Stock they
own or control. No Class B Stockholders shall have perfected their dissenters
rights with respect to any shares of FFGI Class B Common Stock they own or
control; and
(m) Effectiveness of Registration Statement. The
Registration Statement (including any post effective amendments thereto) shall
be effective under the 1933 Act, and no proceedings shall be pending or to the
knowledge of UPC threatened by the Commission to suspend the effectiveness of
such Registration Statement, and UPC shall have received all state securities
or "blue sky" permits and other authorizations necessary to consummate the
Merger; and
(n) FFGI Pending Litigation. UPC shall have
received a letter from Winston & Strawn, and any other attorneys representing
FFGI, Savings Bank and/or the Class B Stockholders, or any of them, in form and
substance satisfactory to UPC, confirming that the Class B Stockholders shall
be personally responsible for all fees, costs and expenses (including
attorneys' fees) incurred in connection with the FFGI Pending Litigation as it
relates to claims by such Class B Stockholders for damages in their own
personal names or individual capacity, and not derivitively on behalf of FFGI
or Savings Bank, and that UPC, its Subsidiaries and Affiliates, including but
not limited to FFGI and Savings Bank, shall not be responsible for any such
fees, costs or expenses incurred by Winston & Strawn or such other attorneys,
except in accordance with the terms of the Escrow Agreement; and
(o) Merger Agreement and Escrow Agreement.
Each Class B Stockholder, including all persons who may have acquired FFGI
Class B Common Stock after the date hereof and prior to the Effective Time of
the Merger by of through a will, intestate succession, a qualified domestic
relations order, or other permitted transfer, shall have executed and delivered
both this Merger Agreement and the Escrow Agreement, and no actions shall have
been taken by any such Class B Stockholder to withdraw from or contest the
validity of, or their participation in or rights under, either this Merger
Agreement or the Escrow Agreement.
8.3 Conditions to Obligations of All Parties. The
obligation of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment, at or prior to the Closing, of the following
conditions:
AGREEMENT AND PLAN OF MERGER - PAGE 70
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(a) No Pending or Threatened Claims. That no
claim, action, suit, investigation or other proceeding shall be pending or
threatened before any court or governmental agency which presents a substantial
risk of the restraint or prohibition of the transactions contemplated by this
Merger Agreement or the obtaining of material damages or other relief in
connection therewith; and
(b) Governmental Approvals and Acquiescence
Obtained. The Parties hereto shall have received all applicable Governmental
Approvals for the consummation of the transactions contemplated herein and all
waiting periods incidental to such approvals or notices given shall have
expired.
(c) Shareholder Approval of Merger. This Merger
Agreement and the Plan of Merger shall have been approved by two-thirds of the
FFGI Stockholders at the Shareholders Meeting.
(d) Shareholder Approval of Charter Amendment.
The FFGI Shareholders shall have approved an amendment to the last sentence of
Section 7(C)(2)(a) (the "Charter Amendment") of the Amended and Restated
Charter of FFGI to read as follows:
"In the event of a merger or a consolidation of the corporation with
or into another entity (whether or not the corporation is the
surviving entity), the effective time of which is after the time that
the corporation has paid in full the special cash dividend
contemplated in subparagraph 7(C)(2)(b) next, (the "Special Cash
Dividend"), then each holder of Class A Common Stock shall be entitled
to receive the same per share consideration, if any, received by each
holder of Class B Common Stock in such merger or consolidation and
each holder of Class B Common Stock shall be entitled to receive only
the same per share consideration, if any, received by each holder of
Class A Common Stock in such merger or consolidation. However, in the
event of a merger or a consolidation of the corporation with or into
another entity (whether or not the corporation is the surviving
entity), the effective time of which is prior to the time that the
corporation has paid in full the Special Cash Dividend, then each
holder of Class B Common Stock shall be entitled to receive the same
per share consideration, if any, received by each holder of Class A
Common Stock in such merger or consolidation, as well as any
additional consideration, if any, as may be agreed upon by the Board
of Directors of the corporation, which is designed to compensate the
holders of Class B Common Stock for the additional value of their
Class B Common Stock represented by the right of the holders of such
Class B Common Stock to the Special Cash Dividend, including, but not
being limited to, the escrow of shares or other consideration for the
benefit of the holders of the corporation's Class B Common Stock to be
delivered to the then such former
AGREEMENT AND PLAN OF MERGER - PAGE 71
<PAGE> 209
holders of such Class B Common Stock in the event that the "FIRREA
Lawsuit", as defined in Subparagraph 7(C)(2)(b) next, is resolved in
such a manner as would give rise to the obligation of the corporation
to declare and pay the Special Cash Dividend."
ARTICLE 9
TERMINATION
9.1 Termination. This Merger Agreement and the Plan of
Merger may be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By UPC or Franklin Acquisition, should FFGI
or any FFGI Subsidiary fail to conduct its business pursuant to FFGI's
Covenants made in Article 7;
(c) By UPC, Franklin Acquisition or FFGI in the
event the Closing shall not have occurred by August 31, 1996 (the "Target
Date"), unless the failure of the Closing to occur shall be due to the failure
of the Party seeking to terminate this Agreement to perform its obligations
hereunder in a timely manner. If UPC shall have filed any and all applications
to obtain the requisite Government Approvals within sixty (60) days of the date
hereof, and if the Closing shall not have occurred solely because of a delay
caused by a government regulatory agency or authority in its review of the
application before it, or a delay caused by a review of the Registration
Statement by the Commission, then FFGI shall, upon UPC's written request,
extend the Closing Date for sixty (60) days.
(d) By either UPC, Franklin Acquisition or FFGI,
upon written notice to the other Party, upon denial of any Governmental
Approval necessary for the consummation of the Merger (or should such approval
be conditioned upon a substantial deviation from the transaction contemplated);
provided, however, that either UPC or FFGI may, upon written notice to the
other, extend the term of this Merger Agreement for only one sixty (60) day
period to prosecute diligently and overturn such denial, provided that such
denial has been appealed within ten (10) business days of the receipt thereof;
(e) By UPC or Franklin Acquisition if the
conditions set forth in Sections 8.2 or 8.3 are not satisfied in all material
respects as of the Closing Date, or by FFGI if the conditions set forth in
Section 8.1 or 8.3 are not satisfied in all material respects as of the Closing
Date, and such failure has not been waived prior to the Closing;
AGREEMENT AND PLAN OF MERGER - PAGE 72
<PAGE> 210
(f) By UPC or Franklin Acquisition in the event
that there shall have been, in UPC's good faith opinion, a material adverse
change in the business, property, assets (including loan portfolios),
liabilities (whether absolute, accrued, contingent or otherwise), prospects,
operations, liquidity, income, condition (financial or otherwise) or net worth
of FFGI and its Subsidiaries taken as a whole;
(g) By UPC, Franklin Acquisition or FFGI in the
event that there shall have been a material breach of any obligation of the
other Party hereunder and such breach shall not have been remedied within
thirty (30) days after receipt by the breaching Party of written notice from
the other Party specifying the nature of such breach and requesting that it be
remedied;
(h) By UPC or Franklin Acquisition should FFGI or
any FFGI Subsidiary enter into any letter of intent or agreement with a view to
being acquired by or effecting a business combination with any other Person; or
any agreement to merge, to consolidate, to combine or to sell a material
portion of its assets or to be acquired in any other manner by any other Person
or to acquire a material amount of assets or a material equity position in any
other Person, whether financial or otherwise; or
(i) By UPC or Franklin Acquisition should FFGI or
any FFGI Subsidiary enter into any formal agreement, letter of understanding,
memorandum or other similar arrangement with any bank regulatory authority
establishing a formal capital plan requiring FFGI to raise additional capital
or to sell a substantial portion of its assets.
If a Party should elect to terminate this Merger Agreement pursuant to
subsections (b), (c), (d), (e), (f), (g), (h), or (i) of this Section 9.1, it
shall give notice to the other Party and to the Class B Stockholders, in
writing, of its election in the manner prescribed in Section 10.1 ("Notices")
of this Merger Agreement.
9.2 Effect of Termination. In the event that this Merger
Agreement should be terminated pursuant to Section 9.1 hereof, all further
obligations of the Parties under this Merger Agreement shall terminate without
further liability of any Party to another; provided, however, that a
termination under Section 9.1 hereof shall not relieve any Party or Class B
Stockholder of any liability for a breach of this Merger Agreement or for any
misstatement or misrepresentation made hereunder or in the Escrow Agreement
prior to such termination, or be deemed to constitute a waiver of any available
remedy for any such breach, misstatement or misrepresentation; and provided,
however, that any such termination would not effect any provisions hereof which
specifically provide that they will survive the termination hereof and/or the
consummation of the Merger, including, but not limited to, the provisions of
Section 7.4 granting UPC certain options and payment rights in the event of a
subsequent Acquisition Proposal and the obligations and agreements of the Class
B Stockholders regarding indemnification and release of
AGREEMENT AND PLAN OF MERGER - PAGE 73
<PAGE> 211
UPC and its Subsidiaries, including but not limited to, FFGI and Savings Bank,
and their respective directors, officers, employees, agents and
representatives. The effective termination of this Merger Agreement shall
likewise constitute the effective termination of the Escrow Agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. Any notice, request, demand and other
communication which either Party hereto may desire or may be required hereunder
to give shall be in writing and shall be deemed to be duly given if delivered
personally or mailed by certified or registered mail (postage prepaid, return
receipt requested), air courier or facsimile transmission, addressed or
transmitted to such other Party as follows:
If to FFGI or Savings Bank:
Franklin Financial Group, Inc.
622 West First North Street
Morristown, Tennessee 37814
Attn: Charles G. Robinette, President
Phone: (423) 586-3820
Fax: (423) 587-5481
With a copy to: McCampbell & Young, P.C.
2021 Plaza Tower
Knoxville, TN 37929 (deliveries)
OR
P. O. Box 550
Knoxville, Tennessee 39701 (mail)
Attn: Robert S. Marquis, Esq.
Phone: (423) 637-1440
Fax: (423) 546-9731
If to the Class B Stockholders Their addresses set forth to their
respective names on the signature
page of this Merger Agreement
If to UPC or Franklin Acquisition:
Union Planters Corporation
P.O. Box 387 (mailing address)
Memphis, Tennessee 38147
AGREEMENT AND PLAN OF MERGER - PAGE 74
<PAGE> 212
OR
7130 Goodlett Farms Parkway (deliveries)
Memphis, Tennessee 38018
Attn: Jackson W. Moore, President and
E. James House, Jr., Manager, Legal
Division
Fax: (901) 383-2939
With a copy to: Wyatt, Tarrant & Combs
6075 Poplar Avenue
Suite 650
Memphis, TN 38119
Attention: R. Nash Neyland, Esq.
Phone: (901) 527-1023 (direct)
Fax: (901) 537-1010
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the
date reflected in the proof or evidence of delivery, or if none, on the date
actually received.
10.2 Assignability and Parties in Interest. This Merger
Agreement shall not be assignable by any of the Parties hereto; provided,
however, that UPC or Franklin Acquisition may assign, set over and transfer all
or any part of its rights and obligations under this Merger Agreement to any
one or more of its present or future Affiliates, and UPC may assign its rights
under Section 7.4 hereof to acquire up to nineteen percent of the outstanding
FFGI Common Stock, in certain instances, to any third-party of its choice.
This Merger Agreement shall inure to the benefit of, and be binding only upon
the Parties hereto and their respective successors and permitted assigns, and
on the Class B Stockholders, their heirs, estates, representatives and
permitted transferees, and no other Persons.
10.3 Governing Law. This Merger Agreement, the Plan of
Merger and the Escrow Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws, and not the laws pertaining to
choice or conflicts of laws, of the State of Tennessee, unless and to the
extent that federal law controls. Any dispute arising between or among the
Parties and/or the Class B Stockholders in connection with the transactions
which are the subject of this Merger Agreement shall be heard in a court of
competent jurisdiction located in Shelby County, Tennessee.
10.4 Counterparts. This Merger Agreement and the Escrow
Agreement may be executed simultaneously in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute but one
and the same instrument.
AGREEMENT AND PLAN OF MERGER - PAGE 75
<PAGE> 213
10.5 Best Efforts. FFGI, Savings Bank, UPC, Franklin
Acquisition and each Class B Stockholder agrees to use its or their respective
best efforts to complete the transactions contemplated by this Merger
Agreement; provided, however, that the use of best efforts by UPC shall not
obligate UPC to obtain or to provide FFGI additional capital in any amount, to
divest any Subsidiary or branch, or to meet any other condition which may be
imposed by any Regulatory Authority as a condition to approval which UPC shall
deem, in good faith, to be unreasonable in the circumstances.
10.6 Publicity. The Parties agree that press releases and
other public announcements to be made by any of them with respect to the
transactions contemplated hereby shall be subject to mutual agreement.
Notwithstanding the foregoing, each of the Parties hereto may respond to
inquiries relating to this Merger Agreement and the transactions contemplated
hereby by the press, employees or customers without any notice or further
consent of the other Parties.
10.7 Entire Agreement. This Merger Agreement, together
with the Plan of Merger which is Exhibit A hereto, the Escrow Agreement which
is Exhibit B hereto, the Schedules, Annexes, Exhibits and certificates required
to be delivered hereunder or thereunder, and any amendments or addenda
hereafter executed and delivered in accordance with Section 10.9 hereof, or the
applicable provision of such other document, constitute the entire agreement of
the Parties and the Class B Stockholders hereto pertaining to the transaction
contemplated hereby and thereby, and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the Parties and the
Class B Stockholders hereto concerning the subject matter hereof and thereof.
The Schedules, Annexes, Exhibits and certificates attached hereto or furnished
pursuant to this Merger Agreement are hereby incorporated as integral parts of
this Merger Agreement. Except as provided herein, by specific language and not
by mere implication, this Merger Agreement is not intended to confer upon any
other person not a Party to this Merger Agreement any rights or remedies
hereunder.
10.8 Severability. If any portion or provision of this
Merger Agreement should be determined by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any jurisdiction, such portion or
provision shall be ineffective as to that jurisdiction to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
validity or enforceability of the remaining portions or provisions hereof in
such jurisdiction or rendering that or any other portions or provisions of this
Merger Agreement invalid, illegal or unenforceable in any other jurisdiction.
10.9 Modifications, Amendments and Waivers. At any time
prior to the Closing or termination of this Merger Agreement, the Parties may,
solely by written agreement executed by their duly authorized officers:
AGREEMENT AND PLAN OF MERGER - PAGE 76
<PAGE> 214
(a) extend the time for the performance of any of
the obligations or other acts of the other Party hereto;
(b) waive any inaccuracies in the representations
and warranties made by the other Party contained in this Merger Agreement or in
the Annexes, Schedules or Exhibits hereto or any other document delivered
pursuant to this Merger Agreement;
(c) waive compliance with any of the covenants or
agreements of the other Party contained in this Merger Agreement; and
(d) amend or add to any provision of this Merger
Agreement or the Plan of Merger; provided, however, that no provision of this
Merger Agreement may be amended or added to except by an agreement in writing
signed by the Parties hereto or their respective successors in interest and
expressly stating that it is an amendment to this Merger Agreement.
10.10 Interpretation. The headings contained in this
Merger Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Merger Agreement.
10.11 Payment of Expenses. Except as set forth herein,
UPC, Franklin Acquisition and FFGI shall each pay its own fees and expenses
(including, without limitation, legal fees and expenses) incurred by it in
connection with the transactions contemplated hereunder.
10.12 Finders and Brokers. UPC, Franklin Acquisition,
FFGI, Savings Bank and the Class B Stockholders represent and warrant to each
other that they have employed no broker or finder in connection with the
transactions described in this Merger Agreement under an arrangement pursuant
to which a fee is, or may be due to such broker or finder as a result of the
execution of this Merger Agreement or the closing of the transaction
contemplated herein. This section shall survive the termination of this Merger
Agreement.
10.13 Equitable Remedies. The Parties hereto agree that,
in the event of a breach of this Merger Agreement by FFGI, Savings Bank, or any
of the Class B Stockholders, UPC and Franklin Acquisition will be without an
adequate remedy at law by reason of the unique nature of FFGI and Savings Bank
and the fact that only those persons who are members of the Board of Directors
of FFGI own or control any FFGI Class B Common Stock (other than Jean
Jarnagin). In recognition thereof, in addition to (and not in lieu of) any
remedies at law which may be available to UPC and Franklin Acquisition, UPC and
Franklin Acquisition shall be entitled to obtain equitable relief,
AGREEMENT AND PLAN OF MERGER - PAGE 77
<PAGE> 215
including the remedies of specific performance and injunction, in the event of
a breach of this Merger Agreement by FFGI, Savings Bank or any of the Class B
Stockholders, and no attempt on the part of UPC or Franklin Acquisition to
obtain such equitable relief shall be deemed to constitute an election of
remedies by UPC or Franklin Acquisition which would preclude either of them
from obtaining any remedies at law to which they would otherwise be entitled.
FFGI, Savings Bank and each Class B Stockholder (and as to the Class B
Stockholder, for himself or herself and their heirs, estates, representatives
and permitted transferees, if any) covenants that he, she or it shall not
contend in any such proceeding that UPC or Franklin Acquisition is not entitled
to a decree of specific performance by reason of having an adequate remedy at
law.
10.14 Attorneys' Fees. If any Party or Class B Stockholder
hereto shall bring an action at law or in equity to enforce his, her or its
rights under this Merger Agreement (including an action based upon a
misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party or Class B Stockholder in
such action shall be entitled to recover from the other Party (or Class B
Stockholders) his, her or its reasonable costs and expenses necessarily
incurred in connection with such action (including fees, disbursements and
expenses of attorneys and costs of investigation).
10.15 Survival of Representations and Warranties. Except
as hereafter set forth in this Section 10.15, all representations and
warranties made by the Parties and each of the Class B Stockholders hereto or
in any instrument or document furnished in connection herewith, shall survive
the Closing, and any investigation made by or on behalf of the Parties hereto,
and such representations and warranties shall expire at the Effective Time of
the Merger, except as to any matter which is based upon willful fraud with
respect to which the representations and warranties set forth in this Merger
Agreement shall expire only upon expiration of the applicable statutes of
limitation or as otherwise provided herein or therein. The representations and
warranties of the Class B Stockholders set forth in Sections 5A.5 and 5A.6, and
the covenants of the Class B Stockholders set forth in Article 7A of this
Agreement, shall survive the Closing and the Effective Time of the Merger, and
shall expire only in accordance with their specific terms or upon the
expiration of the applicable statute of limitations, whichever is the latter.
Nothing in this Section 10.15 shall limit FFGI's, UPC's or Franklin
Acquisition's rights or remedies for misrepresentations, breaches of this
Merger Agreement or any other improper action or inaction by the other Party or
Class B Stockholder hereto prior to its termination.
10.16 No Waiver. No failure, delay or omission of or by
any Party or Class B Stockholder in exercising any right, power or remedy upon
any breach or default of any other Party or Class B Stockholder shall impair
any such rights, powers or remedies of the Party or Class B Stockholders not in
breach or default, nor shall it be construed to be
AGREEMENT AND PLAN OF MERGER - PAGE 78
<PAGE> 216
a waiver of any such right, power or remedy, or an acquiescence in any similar
breach or default; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Party of any provisions of this Merger Agreement must be in
writing and must be executed by the Parties to this Merger Agreement and shall
be effective only to the extent specifically set forth in such writing.
10.17 Remedies Cumulative. All remedies provided in this
Merger Agreement or the Escrow Agreement, by law or otherwise, shall be
cumulative and not alternative.
IN WITNESS WHEREOF, each of the Parties and, where applicable,
Class B Stockholders hereto, has duly executed and delivered this Merger
Agreement, the Plan of Merger attached hereto as Exhibit A, and the Escrow
Agreement attached hereto as Exhibit B, or has caused this Merger Agreement,
the Plan of Merger and Escrow Agreement to be executed and delivered in his,
her or its name and on his, her or its behalf by his, her or its representative
thereunto duly authorized, all as of the date first written above.
FRANKLIN FINANCIAL GROUP, INC.
ATTEST:
/s/ Richard C. Jessee By: /s/ Charles G. Robinette
----------------------- -----------------------------
, Secretary CHARLES G. ROBINETTE
- ------------ Its: President and Chief Executive
Officer
FRANKLIN FEDERAL SAVINGS BANK
ATTEST:
/s/ Richard C. Jessee By: /s/ Charles G. Robinette
- -------------------------- ----------------------------
, Secretary CHARLES G. ROBINETTE
- ------------ Its: President and Chief Executive
Officer
UNION PLANTERS CORPORATION
ATTEST:
/s/ E. James House, Jr. By: /s/ Jackson W. Moore
- -------------------------- --------------------
E. JAMES HOUSE, JR., Secretary JACKSON W. MOORE
Its: President and Chief Operating
Officer
AGREEMENT AND PLAN OF MERGER - PAGE 79
<PAGE> 217
FRANKLIN ACQUISITION CORP.
ATTEST:
/s/ E. James House, Jr. By: /s/ Jackson W. Moore
------------------------- --------------------------
, Secretary JACKSON W. MOORE
- ----------------- Its: President and Chief Executive
Officer
CLASS B STOCKHOLDERS:
George O. Haggard, Jr. . /s/ A. E. Jolley
- --------------------------- --------------------------
George O. Haggard, Jr. A.E. Jolley
724 Barton Drive c/o Lakeway Container
Morristown, TN 37814 5715 Superior Drive
No. of Class B Shares - 72,500 Morristown, TN 37814
No. of Class B Shares - 100,000
/s/ Ben B. Jarnagin Jean S. Keener
- ---------------------------------- ------------------------
Ben B. Jarnagin Jean S. Keener
2616 Lake Front Drive 325 E 2nd Street
Morristown, TN 37814 Morristown, TN 37814
No. of Class B Shares - 36,250 No. of Class B Shares - 50,000
/s/ Marjorie C. Jarnigan /s/ George B. McGuffin
- ---------------------------------- -------------------------
Marjorie C. Jarnagin George B. McGuffin
2280 Cambridge Drive c/o Sunbelt Developers, Inc.
Morristown, TN 37814 1843 W. Morris Blvd.
No. of Class B Shares - 36,250 Morristown, TN 37814
No. of Class B Shares - 145,000
/s/ Richard C. Jessee /s/ Charles G. Robinette
- ----------------------- ------------------------
Richard C. Jessee Charles G. Robinette
1135 W. 3rd N. Street 2778 Lake Forest Circle
Morristown, TN 37814 Morristown, TN 37877
No. of Class B Shares - 50,000 No. of Class B Shares - 10,000
AGREEMENT AND PLAN OF MERGER - PAGE 80
<PAGE> 218
EXHIBIT A
PLAN OF MERGER
SETTING FORTH THE PLAN OF MERGER
OF
FRANKLIN ACQUISITION CORP.
(A TENNESSEE CORPORATION)
WITH AND INTO
FRANKLIN FINANCIAL GROUP, INC.
(A TENNESSEE CORPORATION)
THIS PLAN OF MERGER ("Plan of Merger") is made and entered into as of
the 4th day of March, 1996, by and between FRANKLIN ACQUISITION CORP.
("Franklin Acquisition"), a corporation chartered and existing under the laws
of the State of Tennessee whose principal offices are located at 7130 Goodlett
Farms Parkway, Cordova, Shelby County, Tennessee 38018; UNION PLANTERS
CORPORATION ("UPC"), a corporation organized and existing under the laws of the
State of Tennessee having its principal office at 7130 Goodlett Farms Parkway,
Cordova, Shelby County, Tennessee 38018; and FRANKLIN FINANCIAL GROUP, INC.
("FFGI"), a corporation chartered and existing under the laws of the State of
Tennessee, whose principal place of business is located at 622 West First North
Street, Morristown, Tennessee 37814. All of the authorized, issued and
outstanding shares of capital stock of Franklin Acquisition are owned and held
of record by UPC.
PREAMBLE
WHEREAS, UPC, Franklin Acquisition and FFGI have entered into an
Agreement and Plan of Merger dated as of the 4th day of March, 1996 ("Merger
Agreement") to which this Plan of Merger is Exhibit A and is incorporated by
reference as a part thereof providing for the merger of Franklin Acquisition
with and into FFGI (which latter corporation would survive the merger and be
the Resulting Corporation) and the acquisition of all of the FFGI Common Stock
outstanding immediately prior to the Effective Time of the Merger by UPC for
the Consideration set forth in the Merger Agreement; and
PLAN OF MERGER - EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
PAGE 81
<PAGE> 219
WHEREAS, As provided in the Merger Agreement, UPC has caused Franklin
Acquisition to join in this Plan of Merger by executing and delivering same;
and
WHEREAS, The Boards of Directors of UPC, Franklin Acquisition and FFGI
are each of the opinion that the interests of their respective corporations and
their corporations' respective shareholders would best be served if Franklin
Acquisition were to be merged with and into FFGI, which latter corporation
would survive the Merger, on the terms and conditions provided in the Merger
Agreement, this Plan of Merger and in the Escrow Agreement, a copy of which is
attached to the Merger Agreement and this Plan of Merger as Exhibit B and
incorporated herein by reference. As a result of such Merger becoming
effective, the Resulting Corporation, FFGI, would become a wholly-owned
subsidiary of UPC.
NOW, THEREFORE, in consideration of the covenants and agreements of
the Parties contained herein, FFGI, UPC, and Franklin Acquisition hereby make,
adopt and approve this Plan of Merger in order to set forth the terms and
conditions for the merger of FFGI with and into Franklin Acquisition (the
"Merger").
ARTICLE I.
DEFINITIONS
1.1 As used in this Plan of Merger and in any amendments hereto, all
capitalized terms herein shall have the meanings assigned to such terms in the
Merger Agreement or Escrow Agreement, unless otherwise defined herein.
ARTICLE 2
CAPITALIZATION
2.1 Franklin Acquisition. The authorized capital stock of Franklin
Acquisition consists of 1,000 shares of common stock having no par value per
share (the "Franklin Acquisition Common Stock") and no shares of preferred
stock. As of the date of this Plan of Merger, 1,000 shares of Franklin
Acquisition Common Stock are issued and outstanding, and no shares of Franklin
Acquisition Common Stock are held by it as treasury stock. All such issued and
outstanding shares of Franklin Acquisition Common Stock are owned beneficially
and of record by UPC.
2.2 Union Planters Corporation. (a) The authorized capital stock
of UPC consists of 10,000,000 shares of preferred stock having no par value
(the "UPC Preferred Stock"), and 100,000,000 shares of common stock having a
par value of $5.00 per share (the "UPC Common Stock"). As of January 31, 1996,
UPC had issued and outstanding:
PLAN OF MERGER - EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
PAGE 82
<PAGE> 220
44,000 shares of $8.00 Nonredeemable Cumulative Convertible Preferred Stock,
Series B; and 3,496,419 shares of 8% Cumulative, Convertible Preferred Stock,
Series E. In addition, 250,000 shares of UPC Preferred Stock have been
reserved for issuance as Series A Preferred Stock pursuant to the UPC Share
Purchase Rights Agreement dated January 19, 1989, between UPC and Union
Planters National Bank as Rights Agent (the "UPC Share Purchase Rights
Agreement"); 317,459 shares of Series E Preferred Stock and 482,922 shares of
UPC Common Stock have been reserved for issuance in connection with pending UPC
acquisitions other than the Merger contemplated hereby, and 861,460 shares of
UPC Common Stock have been reserved for issuance in connections with UPC stock
option plans, employee benefit plans and its dividend reinvestment plan. As of
January 31, 1996, approximately 45,494,183 shares of UPC Common Stock were
validly issued and outstanding. As of the date of this Merger Agreement, UPC
owns and is the beneficial record holder, directly or indirectly, of all of the
outstanding capital stock of its Subsidiaries, except for directors' qualifying
shares, free and clear of all liens, charges or encumbrances.
2.3 FFGI. The authorized capital stock of FFGI consists of
2,000,000 shares of Class A common stock having a par value of $1.00 per share
(the "FFGI Class A Common Stock"),1,000,000 shares of Class B common stock
having a par value of $1.00 per share (the "FFGI Class B Common Stock") (the
FFGI Class A Common Stock and the FFGI Class B Common Stock are collectively
referred to herein as of the "FFGI Common Stock") and 5,000,000 shares of
preferred stock (the "FFGI Preferred Stock). As of the date hereof, 712,320
shares of FFGI Class A Common Stock and 500,000 shares of FFGI Class B Common
Stock were issued and outstanding; 21,000 shares of FFGI Class A Common Stock
were reserved for issuance in connection with FFGI's stock option plans; no
shares of FFGI Common Stock were held by FFGI as FFGI Treasury Stock; and no
shares of FFGI Preferred Stock were issued and outstanding.
ARTICLE 3
PLAN OF MERGER
3.1 Constituent Corporations. The name of each constituent
corporation to the Merger is:
FRANKLIN ACQUISITION CORP.
and
FRANKLIN FINANCIAL GROUP, INC.
3.2 Resulting Corporation. The Resulting Corporation shall be
Franklin Financial Group, Inc.. which as of the Effective Time of the Merger
shall continue to be named Franklin Financial Group, Inc.
PLAN OF MERGER - EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
PAGE 83
<PAGE> 221
3.3 Terms and Conditions of Merger. The Merger shall be
consummated only pursuant to, and in accordance with this Plan of Merger and
the Merger Agreement. Conditioned upon the satisfaction or lawful waiver (by
the Party or Parties entitled to the benefit thereof) of all conditions
precedent to consummation of the Merger, the Merger will become effective on
the date and at the time (the "Effective Time of the Merger") of the filing of
Articles of Merger with the Secretary of State of the State of Tennessee, or at
such later time and/or date as may be agreed upon by the Parties and set forth
in the Articles of Merger. At the Effective Time of the Merger, Franklin
Acquisition shall be merged with and into FFGI, which latter corporation shall
survive the Merger, and the separate existence of Franklin Acquisition shall
cease thereupon, and without further action, FFGI shall thereafter possess all
of the assets, rights, privileges, appointments, powers, licenses, permits and
franchises of both FFGI and Franklin Acquisition, whether of a public or
private nature, and shall be subject to all of the liabilities, restrictions,
disabilities, and duties of both FFGI and Franklin Acquisition.
3.4 Charter. Immediately subsequent to the Effective Time of the
Merger, the Charter of FFGI, as in effect immediately prior to the Effective
Time of the Merger, shall constitute the Charter of the Resulting Corporation,
unless and until the same shall be amended as provided by law and the terms of
such Charter.
3.5 Bylaws. Immediately subsequent to the Effective Time of the
Merger, the Bylaws of FFGI, as in effect immediately prior to the Effective
Time of the Merger, shall continue to be its Bylaws as the Resulting
Corporation, unless and until amended or repealed as provided by law, its
Charter and such Bylaws.
3.6 Directors and Officers. At the Effective Time of the Merger,
the directors and officers of Franklin Acquisition in office immediately prior
to the Effective Time of the Merger shall become the directors and officers of
the Resulting Corporation, to hold office as provided in the Charter and Bylaws
of the Resulting Corporation, unless and until their successors shall have been
elected or appointed and shall have qualified or they shall be removed as
provided therein.
ARTICLE 4
DESCRIPTION OF THE TRANSACTION
4.1 Conversion of the Franklin Acquisition Common Stock.
Immediately subsequent to the Effective Time of the Merger, each share of no
par value common stock of Franklin Acquisition (the "Franklin Acquisition
Common Stock") issued and outstanding immediately prior to the Effective Time
of the Merger shall, by virtue of the
PLAN OF MERGER - EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
PAGE 84
<PAGE> 222
Merger becoming effective and without any further action on the part of anyone,
be converted into and become one share of the issued and outstanding common
stock of FFGI, the Resulting Corporation.
4.2 Conversion and Cancellation of Shares of FFGI. Immediately
subsequent to the Effective Time of the Merger, each share of FFGI Class A
Common Stock and FFGI Class B Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
becoming effective and without any further action on the part of anyone, be
converted, exchanged and cancelled as provided in Sections 4.3 and 4.4 hereof.
4.3 Conversion and Exchange of FFGI Shares; Exchange Ratio; Escrow
of UPC Common Stock for the Benefit of Class B Stockholders. At the Effective
Time of the Merger, the outstanding shares of FFGI Common Stock held by the
FFGI Record Holders immediately prior to the Effective Time of the Merger
shall, without any further action on the part of anyone, cease to represent any
interest (equity, shareholder or otherwise) in FFGI or the Resulting
Corporation, and shall, except for those shares of FFGI Common Stock held and
registered in the name of any FFGI Record Holder who shall have perfected his
dissenter's rights and shall have continued such dissenting status through the
Effective Time of the Merger (a "FFGI Dissenting Shareholder"), automatically
be converted exclusively into, and constitute only the right of the FFGI Record
Holders to receive in exchange for their shares of FFGI Common Stock, the
Consideration set forth in this Section 4.3 to which they are entitled.
(1) The number of shares of UPC Common
Stock to be exchanged for each share of FFGI Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger shall be
based on an exchange ratio (the "Exchange Ratio") of 0.5440 shares of UPC
Common Stock for each share of FFGI Common Stock, based on an aggregate of no
more than 1,233,320 fully diluted shares of FFGI Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger (which, for
purposes of this paragraph, shall be determined by counting all FFGI Stock
Options issued and outstanding immediately prior to the Effective Time of the
Merger as shares of FFGI Common Stock); and further based on the understanding
that there shall be no shares of $1.00 par value preferred stock of FFGI ("FFGI
Preferred Stock") outstanding and no other options, warrants, rights or other
instruments outstanding or subject to issuance which are convertible into or
otherwise represent the right to acquire any FFGI Common Stock, FFGI Preferred
Stock or any other capital stock of FFGI. No fractional shares of UPC Common
Stock shall be issued and if, after aggregating all of the shares of UPC Common
Stock to which a FFGI Record Holder is entitled based upon the Exchange Ratio,
there shall be a fractional share of UPC Common Stock remaining, such
fractional share shall be settled by a cash payment
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therefor pursuant to the Mechanics of Payment of the Purchase Price set forth
in Section 4.4 hereof, which shall be calculated based upon the Current Market
Price Per Share of one (1) full share of UPC Common Stock as defined in Section
4.4 hereof.
(2) In addition to the Consideration to
be exchanged for each share of FFGI Class B Common Stock set forth in Section
4.3(1) above, UPC shall issue to the Escrow Agent named in the Escrow
Agreement, a copy of which is attached hereto as Exhibit B and incorporated
fully herein, that number of shares of UPC Common Stock as shall equal the
"Escrow Deposit" (as defined below) to be held by such Escrow Agent pursuant to
the Escrow Agreement for the benefit of UPC and the Class B Stockholders (other
than any Class B Stockholders who are FFGI Dissenting Shareholders as to a
share or shares of FFGI Class B Common Stock). The "Escrow Deposit" shall
equal ten percent (10%) of the remainder after subtracting from the aggregate
number of whole shares of UPC Common Stock as UPC shall be obligated to issue
to FFGI Record Holders pursuant to Section 4.3(1) above, (x) any shares of UPC
Common Stock as would be issued to any FFGI Dissenting Shareholders had they
not perfected their dissenters' rights as to any FFGI Class A Common Stock, (y)
any fractional shares of UPC Common Stock which would have been issued if UPC
had issued fractional shares, and (z) that number of the shares of UPC Common
Stock which would have been deposited with the Escrow Agent hereunder equal to
the proportionate interest(s) of all shares of FFGI Class B Common Stock for
which dissenters rights have been perfected as to their FFGI Class B Common
Stock to the total number of shares of Class B Common Stock; provided, however,
that UPC shall have no obligation to escrow shares or pay any Consideration
pursuant to this Section 4.3(1), should the FFGI Pending Litigation be resolved
or otherwise settled prior to the Effective Date of the Merger and should FFGI
have declared and paid, or set aside for payment, the dividends, or a portion
thereof, contemplated by Section 7(C)(2)(b) of FFGI's Charter to be paid to the
holders of FFGI Class B Common Stock.
For example, should the Exchange Ratio equal
two (2) shares of UPC Common Stock for each of the 1,233,320 shares of FFGI
Common Stock outstanding at the Effective Time of the Merger, the total number
of shares of UPC Common Stock to be issued would equal 2,466,640 shares. If
the FFGI Record Holders of 5,000 shares of FFGI Class A Common Stock perfect
dissenters' rights thereby becoming FFGI Dissenting Shareholders, and should
UPC cash- out 1000 fractional shares of UPC Common Stock, the aggregate number
of whole shares of UPC Common Stock which UPC would be required to issue upon
consummation of the Merger would equal 2,455,640 shares (2,466,640 less 10,000
(2 X 5,000) and less 1000). If no Record Holders of Class B Common Stock
perfect dissenters' rights with respect to any of their shares of FFGI Class B
Common Stock, the Escrow Deposit would equal 10% of 2,455,640 or 245,564 shares
of UPC Common Stock. If, however, the holders of 25% of the outstanding shares
of FFGI Class B Common Stock perfect dissenter's rights with
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respect to such shares, and should UPC, in its sole discretion, determine to
proceed with the Merger, the Escrow Deposit would be reduced by 25% of 245,564
(61,391) to 184,173 shares of UPC Common Stock.
The shares of UPC Common Stock and the cash
settlement of any remaining fractional share of UPC Common Stock deliverable by
UPC to the FFGI Record Holders upon consummation of the Merger and proper
surrender in accordance with Section 4.4 of certificates evidencing and
representing shares of FFGI Common Stock outstanding immediately prior to the
Effective Time of the Merger, and the additional rights of the Class B
Stockholders under the Escrow Agreement are sometimes collectively referred to
herein as the "Consideration."
(i) Definition of "Current Market Price
Per Share". The "Current Market Price Per Share" shall be the closing price
per share of the "last" real time trade (i.e., closing price) of the UPC Common
Stock on the NYSE (as published in The Wall Street Journal) for the Effective
Date of the Merger (the "Pricing Period").
(ii) Effect of Stock Splits, Reverse
Stock Splits, Stock Dividends and Similar Changes in the Capital of UPC or
FFGI. Should either UPC or FFGI effect any stock splits, reverse stock splits,
stock dividends, reclassification, recapitalization, exchange of shares or
similar changes in their respective capital accounts or capitalization
subsequent to the date of this Merger Agreement but prior to the Effective Time
of the Merger, the Exchange Ratio and the Escrow Deposit shall be
proportionally adjusted, to the extent necessary, in order to give effect to
such changes.
4.4 Mechanics of Payment of Purchase Price. As soon as reasonably
practicable after the Effective Time of the Merger and the receipt by UPC of
the Certified FFGI Shareholder List from the transfer agent of FFGI, the
Exchange Agent shall deliver to each of the FFGI Record Holders such materials
and information deemed necessary by the Exchange Agent to advise the FFGI
Record Holders of the procedures required for proper surrender of their
certificates evidencing and representing shares of the FFGI Common Stock in
order for the FFGI Record Holders to receive the Consideration to which they
are entitled pursuant to the terms of this Merger Agreement and the Plan of
Merger. Such materials shall include, without limitation, a Letter of
Transmittal and an Instruction Sheet (collectively the "Shareholder
Materials"). All Shareholder Materials shall be sent by United States mail to
the FFGI Record Holders at the addresses set forth on a certified shareholder
list to be delivered by FFGI to UPC at the Closing (the "Certified FFGI
Shareholder List"). As soon as reasonably practicable thereafter, the FFGI
Record Holders of all of the outstanding shares of FFGI Common Stock, shall
deliver, or cause to be delivered, to the Exchange Agent, pursuant to the
Shareholder Materials, the certificates formerly evidencing and representing
all of the shares of FFGI Common Stock which were validly issued and
outstanding immediately prior to the
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Effective Time of the Merger, and the Exchange Agent shall take prompt action
to process such certificates formerly evidencing and representing shares of
FFGI Common Stock received by it (including the prompt return of any defective
submissions with instructions as to those actions which may be necessary to
remedy any defects). Upon receipt of the proper submission of the
certificate(s) formerly representing and evidencing ownership of the shares of
FFGI Common Stock, the Exchange Agent shall mail to the former FFGI
Stockholders in exchange for the certificate(s) surrendered by them, the
Consideration to be paid for each such FFGI Shareholder's shares of FFGI Common
Stock pursuant to Section 4.3(1) hereof evidenced by the certificate or
certificates which were cancelled and converted exclusively into the right to
receive the Consideration set forth in Section 4.3(1) upon the Merger becoming
effective. After the Effective Time of the Merger and until properly
surrendered to the Exchange Agent, each outstanding certificate or certificates
which formerly evidenced and represented the shares of FFGI Common Stock of an
FFGI Record Holder, subject to the provisions of this Section, shall be deemed
for all corporate purposes to represent and evidence only the right to receive
the Consideration into which such FFGI Record Holder's shares of FFGI Common
Stock were converted and aggregated at the Effective Time of the Merger.
Unless and until the outstanding certificate or certificates, which immediately
prior to the Effective Time of the Merger evidenced and represented the FFGI
Record Holder's FFGI Common Stock, shall have been surrendered as provided
above, the Consideration payable to the FFGI Record Holder(s) of the cancelled
shares as of any time after the Effective Date shall not be paid to the FFGI
Record Holder(s) of such certificate(s) until such certificate(s) shall have
been surrendered in the manner required. Each FFGI Record Holder will be
responsible for all federal, state and local taxes which may be incurred by him
on account of his receipt of the Consideration to be paid in the Merger. The
FFGI Record Holder(s) of any certificate(s) which shall have been lost or
destroyed may nevertheless, subject to the provisions of this Section, receive
the Consideration to which each such FFGI Record Holder is entitled, provided
that each such FFGI Record Holder shall deliver to UPC and to the Exchange
Agent: (i) a sworn statement certifying such loss or destruction and specifying
the circumstances thereof and (ii) a lost instrument bond in form satisfactory
to UPC and the Exchange Agent which has been duly executed by a corporate
surety satisfactory to UPC and the Exchange Agent, indemnifying the Resulting
Corporation, UPC, the Exchange Agent (and their respective successors) to their
satisfaction against any loss or expense which any of them may incur as a
result of such lost or destroyed certificates being thereafter presented. Any
costs or expenses which may arise from such replacement procedure, including
the premium on the lost instrument bond, shall be for the account of the FFGI
Record Holder.
4.5 Stock Transfer Books. At the Effective Time of the Merger,
the stock transfer books of FFGI shall be closed and no transfer of shares of
FFGI Common Stock shall be made thereafter.
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4.6 Effects of the Merger. As of the Effective Time of the
Merger, the separate existence of Franklin Acquisition shall cease, and
Franklin Acquisition shall be merged with and into FFGI which, as the Resulting
Corporation, shall thereupon and thereafter possess all of the assets, rights,
privileges, appointments, powers, licenses, permits and franchises of the two
merged corporations, whether of a public or a private nature, and shall be
subject to all of the liabilities, restrictions, disabilities and duties of
both FFGI and Franklin Acquisition.
4.7 Transfer of Assets. At the Effective Time of the Merger, all
rights, assets, licenses, permits, franchises and interests of FFGI and
Franklin Acquisition in and to every type of property, whether real, personal,
or mixed, whether tangible or intangible, and to choices in action shall be
deemed to be vested in FFGI as the Resulting Corporation by virtue of the
Merger and without any deed or other instrument or act of transfer whatsoever.
4.8 Assumption of Liabilities. At the Effective Time of the
Merger, the Resulting Corporation shall become and be liable for all debts,
liabilities, obligations and contracts of Franklin Acquisition as well as those
of the Resulting Corporation, 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 Franklin Acquisition or the
Resulting Corporation.
4.9 Dissenting Shareholders' Rights. Any FFGI Record Holder of
shares of FFGI Common Stock who shall comply strictly with the provisions of
Section 48-23-201 et seq. of the Tennessee Code Annotated (the "Tennessee
Code"), shall be entitled to dissent from the Merger and to seek those
appraisal remedies afforded by the Tennessee Code. Such an FFGI Shareholder is
referred to herein as an "FFGI Dissenting Shareholder." However, UPC and
Franklin Acquisition shall not be obligated to consummate the Merger if FFGI
Record Holders holding or controlling more than ten percent (10%) of the shares
of the FFGI Common Stock , or any shares of FFGI Class B Common Stock, issued
and outstanding immediately prior to the Effective Time of the Merger shall
have perfected their dissenter's rights in accordance with the Tennessee Code
and the perfected status of said dissenter's rights shall have continued to the
time of Closing.
4.10 Approvals of Shareholders of FFGI and Franklin Acquisition.
In order to become effective, the Merger must be approved by the respective
shareholders of FFGI and of Franklin Acquisition at meetings to be called for
that purpose by their respective Boards of Directors, or by their unanimous
action by written consent complying fully with the laws of Tennessee.
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4.11 FFGI Stock Options. At the Effective Time of the Merger, the FFGI
Option Plan and any FFGI Stock Options issued and outstanding shall be affected
as follows:
(a) Continuation of the FFGI Option Plan. FFGI's
Option Plan shall continue in effect but no additional options shall be
available for grant thereunder after the Effective Time of the Merger. At the
Effective Time of the Merger, each outstanding option under the Option Plan
shall continue outstanding as an option to purchase, in place of the purchase
of a share of FFGI Common Stock, that number of shares (rounded down to the
nearest whole share) of UPC Common Stock that would have been received by the
optionee in connection with the Merger had such option been exercised in full
(without regard to any limitations contained thereon on exercise) for shares of
FFGI Common Stock immediately prior to the Effective Time of the Merger upon
the same terms and conditions under the relevant option as were applicable
immediately prior to the Effective Time of the Merger, except for appropriate
pro rata adjustments as to the relevant option price for shares of UPC Common
Stock substituted therefor so that the aggregate option exercise price of
shares subject to an option immediately following the assumption and
substitution shall be the same as the aggregate option exercise price for such
shares immediately prior to such assumption and substitution. UPC, Franklin
Acquisition and FFGI agree to take such actions as shall be necessary to give
effect to the foregoing.
(b) Reclassification, etc. In case of any
reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
the UPC Common Stock or in case of any consolidation or merger of UPC with or
into any other corporation, or in the case of any sale or transfer of all or
substantially all of UPC's assets, then the rights of the optionees under the
FFGI Option Plan shall be appropriately adjusted so that the optionees will be
in the same position as if their options had been exercised immediately before
such corporate action or transaction. The provisions hereof shall similarly
apply to successive reclassification, reorganizations, recapitalization, stock
dividends or distributions, subdivisions, combinations or exchanges,
consolidations, mergers, sales or transfers.
(c) Limited Obligations. Nothing contained in this
Plan of Merger or in the other documentation of the proposed transactions shall
be deemed to have reduced, contracted, enlarged, ratified, affirmed,
undertaken, authorized, approved or otherwise to have affected whatever
contractual rights the holders of FFGI Stock Options may have under applicable
documentation other than as expressly stated in this Plan of Merger with
respect to the outstanding FFGI Stock Options identified in the Merger
Agreement which are outstanding under the FFGI Option Plan at the Effective
Time of the Merger.
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ARTICLE 5
AMENDMENTS AND WAIVERS
5.1 AMENDMENTS. To the extent permitted by law, this Plan of
Merger may be amended unilaterally by UPC and Franklin Acquisition as set forth
in Section 2.5 of the Merger Agreement; provided, however, that the provisions
of Section 4.3 of this Plan of Merger relating to the manner or basis upon
which shares of FFGI Common Stock will be converted into the exclusive right to
receive the Consideration from UPC, or the delivery of shares of UPC Common
Stock in escrow as contemplated by Section 4.3(2) hereof, shall not be amended
in such a manner as to reduce the amount of the Consideration payable to the
FFGI Record Holders determined as provided in Section 4.3 of the Merger
Agreement nor shall this Plan of Merger be amended to permit UPC to utilize
assets other than its UPC Common Stock or cash to make payment of the
Consideration as provided in Section 3.1(e) of the Merger Agreement at any time
after the Shareholders' Meeting without the requisite approval (except as
provided for in the Merger Agreement) of the FFGI Record Holders of the shares
of FFGI Common Stock outstanding, and that no amendment to this Plan of Merger
shall modify the requirements of regulatory approval as set forth in Section
8.3(b) of the Merger Agreement.
5.2 AUTHORITY FOR AMENDMENTS AND WAIVERS. Prior to the
Effective Time of the Merger, UPC and Franklin Acquisition, acting through
their respective Boards of Directors or chief executive officers or presidents
or other authorized officers, shall have the right to amend this Plan of Merger
to postpone the Effective Time of the Merger to a date and time subsequent to
the time of filing of the Plan of Merger with the Tennessee Secretary of State,
to waive any default in the performance of any term of this Plan of Merger by
FFGI, to waive or extend the time for the compliance or fulfillment by FFGI of
any and all of its obligations under this Plan of Merger, and to waive any or
all of the conditions precedent to the obligations of UPC and Franklin
Acquisition under this Plan of Merger, except any condition that, if not
satisfied, would result in the violation of any law or applicable governmental
regulation. Prior to the Effective Time of the Merger, FFGI, acting through
its Board of Directors or chief executive officer or president or other
authorized officer, shall have the right to amend this Plan of Merger to
postpone the Effective Time of the Merger to a date and time subsequent to the
time of filing of the Plan of Merger with the Tennessee Secretary of State, to
waive any default in the performance of any term of this Plan of Merger by UPC
or Franklin Acquisition, to waive or extend the time for the compliance or
fulfillment by UPC or Franklin Acquisition of any and all of their obligations
under this Plan of Merger, and to waive any or all of the conditions precedent
to the obligations of FFGI under this Plan of Merger except any condition that,
if not satisfied, would result in the violation of any law or applicable
governmental regulation.
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ARTICLE 6
MISCELLANEOUS
6.1 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, or by registered or certified mail, postage
pre-paid to the persons at the addresses set forth below (or at such other
addresses or facsimile numbers as may hereafter be designated as provided
below), and shall be deemed to have been delivered as of the date received by
the Party to which, or to whom it is addressed:
If to UPC or Franklin Acquisition:
Union Planters Corporation
P.O. Box 387 (mailing)
Memphis, Tennessee 38147
7130 Goodlett Farms Parkway (deliveries)
Cordova, Tennessee 38018
Fax: (901) 383-2877
Attn: Mr. Jackson W. Moore, President
If to FFGI :
Franklin Financial Group, Inc.
622 West First North Street
Morristown, Tennessee 37814
Fax: (423) 587-5481
Attn: Mr. Charles G. Robinette
President and CEO
With a copy to: McCampbell & Young, P.C.
2021 Plaza Tower
800 S. Gay Street
Knoxville, Tennessee 37929 (deliveries)
OR
P. O. Box 550
Knoxville, Tennessee 37901
Attn: Robert S. Marquis, Esq.
Phone: (423) 637-1440
Fax: (423) 546-9731
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or at such other address as shall be furnished in writing by any of the Parties
to the others by notice given as provided in this section 6.1.
6.2 GOVERNING LAW. Except to the extent federal law shall be
controlling, this Plan of Merger shall be governed by and construed and
enforced in accordance with the laws of the State of Tennessee disregarding,
however, the Tennessee conflicts of laws rules.
6.3 CAPTIONS. The Captions heading the Sections in this Plan
of Merger are for convenience only and shall not affect the construction or
interpretation of this Plan of Merger.
6.4 COUNTERPARTS. This Plan of Merger may be executed in two
or more counterparts, each of which shall be deemed an original instrument, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Parties has caused this Plan of Merger
to be duly executed and delivered by its duly authorized officers as of the
date first above written.
ATTEST: UNION PLANTERS CORPORATION
/s/ E. James House, Jr. By: /s/ Jackson W. Moore
- ----------------------- ---------------------------
E. James House, Jr. Jackson W. Moore
Its: Secretary Its: President
ATTEST: FRANKLIN ACQUISITION CORP.
/s/ E. James House, Jr. By: /s/Jackson W. Moore
- -------------------------- ----------------------------
Jackson W. Moore
Its: Secretary Its: President
ATTEST: FRANKLIN FINANCIAL GROUP, INC.
/s/ Richard C. Jessee By: /s/ Charles G. Robinette
- --------------------- -----------------------------
Charles G. Robinette
Its: Secretary Its: President and CEO
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APPENDIX B
ESCROW AGREEMENT
This Escrow Agreement made this 4th day of March, 1996, by and between Union
Planters Corporation ("UPC"), a Tennessee corporation, Franklin Financial
Group, Inc. ("FFGI"), a Tennessee corporation, Franklin Federal Savings Bank, a
federal savings and loan association ("Savings Bank"), which is a wholly-owned
subsidiary of FFGI, and George O. Haggard, Jr., Ben B. Jarnagin, Ms. Marjorie
C. Jarnagin, Richard C. Jessee, A. Eugene Jolley, Jean S. Keener, George B.
McGuffin, Charles G. Robinette, all resident citizens of Tennessee (the "FFGI
Class B Stockholders"), and Union Planters National Bank, a national banking
association ("UPNB"), acting by and through its Trust Department (the "Escrow
Agent").
WHEREAS, in January of 1989, the Savings Bank, by agreement with the Federal
Home Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance
Corporation ("FSLIC"), was converted by a supervisory merger from a mutual to a
stock form of ownership by a capital contribution from FFGI in the amount of
Five Million Dollars ($5,000,000). At the time of the conversion, the Savings
Bank had a negative net worth of $9.4 million, which was classified upon
acquisition by FFGI as "supervisory goodwill" of the Savings Bank and permitted
to be treated as regulatory capital and to be amortized over a 25 year period;
and
WHEREAS, in August of 1989, Congress passed the Financial Institutions Reform
and Recovery and Enforcement Act ("FIRREA") which required, among other things,
new capital requirements and the phase out of supervisory goodwill as part of
regulatory capital by January 1, 1995; and
WHEREAS, in June 1990, FFGI, its shareholders and the Savings Bank filed a
complaint in the Federal District Court for the Eastern District of Tennessee
seeking to enjoin the Office of Thrift Supervision ("OTS") and the Federal
Deposit Insurance Corporation ("FDIC") (successor in interest to the FSLIC),
from appointing a conservator and/or receiver for the Savings Bank and from
taking any action inconsistent with the parties' agreements entered into at the
time of the voluntary supervisory conversion; and
WHEREAS, in July of 1990, the Federal District Court held that FIRREA did not
abrogate the parties' agreement and entered a permanent injunction enjoining
the OTS from excluding supervisory goodwill from the Savings Bank's regulatory
capital calculations. In March of 1991, the United States Court of Appeals for
the Sixth Circuit reversed the Federal District Court's decision and dissolved
the permanent injunction. The Court of Appeals held that FIRREA overruled any
agreements between the parties and that if there were a contract between the
parties, Congress may have "effected a taking" through the enactment of
FIRREA; and
WHEREAS, in October of 1992, FFGI, the Savings Bank and certain of the
stockholders filed suit captioned Franklin Financial Group, Inc., et al. v.
United States of America, Civil Action No. 92-7397 (U.S. Claims Court)
("Lawsuit") seeking
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unspecified monetary damages, attorneys' fees, and court costs. The
plaintiffs allege breach of contract and an unconstitutional taking of
property; and
WHEREAS, in order to bring the Savings Bank into capital compliance, FFGI
completed a private placement offering in March of 1993, whereby stock was
issued to Class B Stockholders. As a result of the decision of the Court of
Appeals, the Savings Bank was not in compliance with the new capital
requirements. With the issuance of Class B Stock, the charter of Franklin
Financial Group, Inc. was amended and restated by agreement dated August 26,
1993, which provided that if the corporation received proceeds from the
lawsuit, that the Board of Directors "is hereby authorized and required to
declare and pay a special cash dividend to the extent permitted by the
applicable law and regulations payable to holders of Class B Common Stock to
the exclusion of the holders of the Class A Common Stock;" and
WHEREAS, FFGI, the Savings Bank, and the Class B Stockholders retained the law
firm of Winston and Strawn ("Winston") to represent them in the Lawsuit; and
WHEREAS, Winston and FFGI, the Savings Bank and the Class B Stockholders
entered into an Engagement Letter (which is attached hereto as Exhibit A)
("Engagement Letter"); and
WHEREAS, UPC, Franklin Acquisition Company ("Franklin Acquisition"), a
Tennessee corporation which is a wholly-owned subsidiary of UPC, FFGI, Savings
Bank, and the Class B Stockholders have entered into an Agreement and Plan of
Reorganization ("Merger Agreement") and related Plan of Merger which provides
for the acquisition by UPC of all of the outstanding shares of FFGI Common
Stock through a merger ("Merger") between Franklin Acquisition and FFGI; and
WHEREAS, pursuant to the Merger Agreement, in addition to the Consideration to
be received by both the FFGI Class A Stockholders and FFGI Class B Stockholders
(collectively referred to as the "FFGI Stockholders") upon the Merger becoming
effective, pursuant to Section 3.1(e)(2) of the Merger Agreement and the Plan
of Merger, UPC may be required to deposit with an escrow agent a certain number
of shares of UPC Common Stock to be held by the escrow agent for the benefit of
UPC and the holders of the FFGI Class B Common Stock outstanding immediately
prior to the Effective Time of the Merger, and to be distributed by the escrow
agent under terms and conditions set forth in the escrow agreement; and
WHEREAS, this escrow agreement ("Escrow Agreement") is being entered into by
the parties hereto to set forth the terms and conditions pursuant to which all
of the shares of UPC Common Stock which are deposited in escrow by UPC pursuant
to Section 3.1(e)(2) of the Merger Agreement and the Plan of Merger (the
"Escrowed Shares"), if any, will be distributed, if at all, to the persons who
immediately prior to the Effective Time of the Merger were the holders of
record of the then outstanding FFGI Class B
2
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Common Stock, or such of them as still have a right to a distribution under
this Escrow Agreement at the time of any such distribution, if any; the
responsibilities of the escrow agent with respect to the Escrowed Shares prior
to any distribution; and certain other matters related thereto; and
WHEREAS, it is contemplated that the FFGI Class B Stockholders executing and
delivering this Escrow Agreement prior to the Effective Time of the Merger will
continue to be the record holders of all FFGI Class B Common Stock immediately
prior to the Effective Time of the Merger; however, should any transfer be made
of any shares of FFGI Class B Common Stock after the date hereof and prior to
the Effective Time of the Merger, it shall be a condition precedent to FFGI's
obligation to register such transfer on its books and records that the
recipient or recipients of such transfer(s) join in this Escrow Agreement and
the interests of all of the FFGI Class B Stockholder's adjusted to the extent
necessary; and
WHEREAS, the FFGI Class B Stockholders, including those listed herein on the
date hereof and those persons becoming FFGI Class B Stockholders after the date
hereof, understand that their entering into this Escrow Agreement, and the
representations, warranties and covenants they make herein and in the Merger
Agreement, are a material inducement to UPC's and Franklin Acquisition's
entering into the Merger Agreement and undertaking the tasks necessary to
obtain all required regulatory and shareholder approvals necessary to
consummate the Merger; and
WHEREAS, the parties understand that this agreement is entered into on the
basis of certain statements of assumptions and covenants as listed in Paragraph
14; and
WHEREAS, this Escrow Agreement shall be and is incorporated by reference into
the Merger Agreement and Plan of Merger;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) paid in hand to the
Escrow Agent, the mutual agreements contained herein and in the Merger
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Unless otherwise specifically defined herein,
capitalized words and terms used herein shall have the same meanings as
ascribed thereto in the Merger Agreement.
2. Representations and Warranties. Each of the FFGI Class B
Stockholders, in their individual capacities and not jointly, represents and
warrants to UPC, the Escrow Agent, FFGI and Savings Bank that (i) as of the
date hereof, and as of the Effective Time of the Merger, such FFGI Class B
Stockholder owns, and will own, free and clear of any liens or encumbrances of
any nature whatsoever, that number of shares of FFGI Class B Common Stock set
forth next to such stockholder's names in Exhibit
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A attached hereto; (ii) such FFGI Class B Stockholder has not entered into, or
agreed to enter into, any contract or agreement of any nature, other than the
Merger Agreement, pursuant to which such stockholder has agreed to sell,
transfer, assign, pledge, encumber or otherwise alienate any shares of FFGI
Class B Common Stock to any third party, other than by a last will and
testament or qualified domestic relations order; (iii) after the date hereof
and prior to the earlier of the Effective Time of the Merger or the effective
termination of the Merger Agreement, such FFGI Class B Stockholder will not
sell, transfer, assign, pledge, encumber or otherwise alienate, or enter into,
or agree to enter into, any agreement, whether written or oral, to sell,
transfer, assign, pledge, encumber or otherwise alienate in any manner, any
shares of FFGI Class B Common Stock such FFGI Class B Stockholder owns or
controls, directly or indirectly; (iv) such FFGI Class B Stockholder has full
power and authority to execute and deliver this Escrow Agreement; (v) such FFGI
Class B Stockholder's execution and delivery of this Escrow Agreement, and
agreement to be bound by its terms, does not and will not violate any terms or
constitute a default under any material contract, agreement, instrument,
judgement, lien or understanding pursuant to which such stockholder is a party
or to which such stockholder is bound, or which could result in the imposition
of a lien or encumbrance of any nature whatsoever upon any of such FFGI Class B
Stockholder's shares of FFGI Class B Common Stock or any interest of such FFGI
Class B Stockholder arising under this Escrow Agreement or the Merger
Agreement; (vi) all consents, approvals and authorities required for such FFGI
Class B Stockholder's execution and delivery of this Escrow Agreement have been
obtained and are in full force and effect as of the date hereof; (vii) such
FFGI Class B Stockholder has received no notice of any nature whatsoever that
any third party has objected to, or intends to object to, such stockholder's
execution and delivery of this Escrow Agreement, or that any third party
claims, or may claim, any interest of any nature whatsoever to any shares of
FFGI Class B Common Stock owned or controlled by such FFGI Class B Stockholder,
or to any rights of such FFGI Class B Stockholder pursuant to this Escrow
Agreement or the Merger Agreement.
3. Deposit into Escrow. On the date of the Closing, UPC shall deliver to
the Escrow Agent, in the name of the Escrow Agent, and the Escrow Agent agrees
to accept and hold pursuant to this Escrow Agreement, one certificate
evidencing and representing that number of shares of UPC Common Stock, if any,
as UPC reasonably believes would equal the Escrow Deposit required by Section
3.1(e)(2) of the Merger Agreement the Plan of Merger (the "Initial Escrow
Deposit"). UPC shall determine the Initial Escrow Deposit from certified
stockholder lists and other certificates provided to UPC at or prior to
Closing. Should it be subsequently determined that the number of shares of UPC
Common Stock deposited in the Initial Escrow Deposit was less than the number
of shares of UPC Common Stock required as the Escrow Deposit, UPC shall, and
covenants hereby, to promptly deposit that number of additional shares of UPC
Common Stock required to equal the Escrow Deposit with the Escrow Agent
pursuant to this Escrow Agreement, with any and all
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distributions which would have been made on these additional shares of UPC
Common Stock if they had in fact been deposited with the Escrow Agent in the
Initial Escrow Deposit. Should the number of shares of UPC Common Stock
included in the Initial Escrow Deposit exceed the number of shares required as
the Escrow Deposit, then these extra shares of UPC Common Stock, plus any and
all distributions made on such extra shares, shall be returned to UPC in
accordance with Section 4(h)(2) of this Escrow Agreement.
4. Permitted Transfers of Proportionate Interests. Except as
specifically set forth herein, only those persons or entities who or which are
the holders of record of FFGI Class B Common Stock immediately prior to the
Effective Time of the Merger and who have not perfected dissenters rights as to
their shares of FFGI Class B Common Stock, shall be entitled to any rights with
respect to the Escrowed Shares or under this Escrow Agreement. Such persons
who or which are the holders of record of FFGI Class B Common Stock immediately
prior to the Effective Time of the Merger and who have not perfected dissenters
rights as to their shares of FFGI Class B Common Stock, as well as those
persons who are the recipients of a Permitted Transfer (as defined herein) of a
Proportionate Interest (as defined herein), shall hereinafter be referred to as
an "Escrow Participant." Initially only those Class B Stockholders who are a
party hereto will be an Escrow Participant. Subject to the terms and
conditions of this Escrow Agreement, each original Escrow Participant shall
have an undivided interest in the Escrowed Shares and earnings or distributions
thereon (a "Proportionate Interest") equal to the percentage determined by
dividing (i) the number of shares of FFGI Class B Common Stock such original
Escrow Participant held of record immediately prior to the Effective Time of
the Merger, by (ii) the remainder after subtracting (x) the number of shares of
FFGI Class B Common Stock for which dissenters rights were perfected from (y)
the total number of shares of FFGI Class B Common Stock outstanding immediately
prior to the Effective Time of the Merger. In the event an Escrow Participant
withdraws from participation in this Escrow Agreement, whether voluntarily or
involuntarily, that Withdrawn Participant (as defined herein) forfeits all of
his or her Proportionate Interest in, and rights under, this Escrow Agreement.
Upon the effective time of such a withdrawal, the remaining Escrow
Participants' respective Proportionate Interests shall adjust to take such
withdrawal into account.
For example, stockholder A owned 25,000 shares of the 500,000
outstanding shares of FFGI Class B Common Stock at the Effective Time
of the Merger, and dissenters rights were not perfected on any shares
of FFGI Class B Common Stock. Stockholder A would be an original
Escrow Participant and his Proportionate Interest would be
25,000/500,000 or 5%. If another Escrow Participant withdraws and
forfeits his 10% Proportionate Interest, then stockholder A's
Proportionate Interest would increase to 5.5555% (25,000 / 450,000).
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An Escrow Participant's Proportionate Interests shall not be transferable
except through intestate succession, pursuant to a last will and testament or
pursuant to a final qualified domestic relations order (such transfers
hereinafter referred to as a "Permitted Transfer"). Permitted Transfers shall
vest in the recipient all of the rights and responsibilities, including, but
not limited to, the obligation to pay a portion of the FFGI Pending Litigation
Expenses, of the transferring Escrow Participant in and to the Proportionate
Interest, or portion thereof, transferred to the recipient. Upon an Escrow
Participant's failure to pay his or her share of FFGI Pending Litigation
Expenses in accordance with Section 6(a) hereof, the defaulting Escrow
Participant's Proportionate Interest shall be automatically forfeited and shall
no longer represent any interest whatsoever in this Escrow Agreement or the
assets held in escrow pursuant hereto, and the Escrow agent shall distribute to
UPC all assets held pursuant to this Escrow Agreement relative to the withdrawn
or forfeited Proportionate Interest. Each FFGI Class B Stockholder, and each
person or entity who subsequently becomes an Escrow Participant through a
Permitted Transfer, in such person's individual capacity and on behalf of his
or her estate, heirs, devisees and representatives, understands and agrees that
these are the only Permitted Transfers which will be registered or recognized
on the Escrow Agent's books and records and that in no other instance shall the
Escrow Agent be required to recognize or register any transfer of a
Proportionate Interest or any interest whatsoever in this Escrow Agreement.
Nor shall the Escrow Agent register or recognize any lien or encumbrance of any
nature whatsoever on an Escrow Participant's Proportionate Interest or any
interest whatsoever in this Escrow Agreement. Should there be any distribution
to Escrow Participants pursuant to this Escrow Agreement, the Escrow Agent
shall make such distributions only to those persons who are Escrow Participants
as reflected in the Escrow Agent's books and records.
In the event of a Permitted Transfer of a Proportionate Interest, or a portion
thereof, the recipient shall promptly notify the Escrow Agent and all other
Escrow Participant's of such transfer, designating from which Escrow
Participant the transfer came, the amount transferred (designated as a
percentage - for example, one-half of X's Proportionate Interest), and that
Escrow Participant's aggregate Proportionate Interest after giving effect to
such Permitted Transfer. The Escrow Agent shall be entitled to rely upon the
information provided in such notice unless within twenty (20) days after its
receipt of such notice, the Escrow Participant from whom the Proportionate
Interest, or part thereof, was allegedly transferred notifies the Escrow Agent,
all other Escrow Participants, and the person claiming to have received the
alleged transfer, that the prior notice of transfer was inaccurate, in which
case the Escrow Agent shall not recognize the alleged Permitted Transfer until
all participants in such transfer notify the Escrow Agent in a single writing
as to the Permitted Transfer and the amount thereof; provided, however, that
upon receipt of a notice from UPC, FFGI or Savings Bank, or any of their
successors, that an Escrow Participant has defaulted in the payment of his or
her share of the FFGI Pending Litigation Expenses the Escrow Agent shall be
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entitled to rely exclusively upon the information provided in such notice as to
the Proportionate Interests of the affected parties.
5. Duties of the Escrow Agent.
a. Hold Escrowed Shares. The Escrow Agent shall hold the Escrowed
Shares solely for the benefit of UPC and the Escrow Participant's pursuant to
this Escrow Agreement. The Escrow Agent shall not, directly or indirectly,
sell, transfer, assign, pledge, lend, hypothecate or otherwise alienate any
Escrowed Shares, or any interest in such Escrowed Shares, or any dividends,
earnings or distributions on or with respect to such Escrowed Shares, or any
earnings thereon, except as specifically set forth herein.
b. No Certificates Issued. The Escrow Agent shall not issue a
certificate or other document or instrument of any nature whatsoever evidencing
or representing a Proportionate Interest in, or right to participate in, this
Escrow Agreement.
c. Registration of Transfer. The Escrow Agent shall maintain books
and records registering the Escrow Participants and their respective
Proportionate Interests. The Escrow Agent shall not register or recognize any
transfer of a Proportionate Interest except for Permitted Transfers, and then
only after receipt of such documentation, information and assurances as it
deems reasonably necessary to verify that the purported Permitted Transfer in
fact qualifies as a Permitted Transfer pursuant hereto. The Escrow Agent shall
not recognize any lien or encumbrance of any nature whatsoever upon an Escrow
Participant's Proportionate Interest, except as may otherwise be required by
law upon advice of counsel.
d. Earnings on Escrowed Shares. The Escrow Agent shall accept cash
dividends and other distributions made by UPC on the Escrowed Shares, including
any stock or similar distributions or distributions made with respect to
mergers, acquisitions or similar transactions on such Escrowed Shares, pursuant
to this Escrow Agreement. Dividends paid on Escrowed Shares in stock of UPC or
some other entity shall not be deemed to be "Escrowed Shares", but shall be
referred to as "Dividend Shares". Dividend Shares shall be held by the Escrow
Agent in the same manner and for the benefit of the same parties as Escrowed
Shares are held. Cash dividends and distributions shall be deposited by the
close of the next Business Day after the date the Escrow Agent receives the
cash dividend or distribution, in a money market account entitled (the "Money
Market Account") with Union Planters National Bank, Memphis, Tennessee. The
Escrow Agent shall make no withdrawals from the Money Market Account except as
specifically authorized herein.
e. Withholding and Payment of Taxes. Each FFGI Class B Stockholder
has been informed and clearly understands that such stockholder's Proportionate
Interest in any earnings on or other distributions made on or with respect to
the Escrowed
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Shares, including, but not limited to, cash dividends paid by Union Planters
Corporation, as well as any income or earnings thereon, including, but not
limited to, interest earnings, will be taxed to the Escrow Participant's in
accordance with their respective Proportionate Interest even though such
distributions, and earnings thereon, if any, will be held by the Escrow Agent
pursuant to this Escrow Agreement. Escrow Agent will comply with the
applicable reporting and withholding obligations, if any, as may be imposed by
law or regulation. Notwithstanding the foregoing, however, in no event may the
Escrow Agent distribute any cash or other items or instruments held hereunder
except as specifically set forth herein.
f. Reports The Escrow Agent shall provide a written report to each
Escrow Participant, other than a Withdrawn Participant (as defined below), on
or before the fifteenth (15th) day of each January, April, July and October,
beginning the January 15, April 15, July 15 or October 15 first occurring
after the Effective Date of the Merger, and through the first such date
occurring after the date this Escrow Agreement is terminated. The report shall
set forth the total number of shares of UPC Common Stock held as Escrowed
Shares, the amount of cash on deposit in the Money Market Account, the amount
of cash dividends or other distributions received by the Escrow Agent in the
preceding quarter, any distributions made in the previous quarter, such Escrow
Participant's Proportionate Interest, and such other information as the Escrow
Agent should determine to provide with respect to this Escrow Agreement and
assets held pursuant hereto. The Escrow Agent shall have no responsibility to
provide such information to any Escrow Participant on less than a quarterly
basis in the manner set forth herein, but should such information be requested,
the Escrow Agent may do so and charge the requesting Escrow Participant a
reasonable fee for such services.
g. Voting With Respect to Shares of UPC Common Stock. Each Escrow
Participant shall have all voting rights with respect to that number of shares
of UPC Common Stock held by the Escrow Agent pursuant to this Escrow Agreement
equal to his or her Proportionate Interest of such shares of UPC Common Stock
until the earlier of the time as this Escrow Agreement is terminated or, with
respect to the Escrow Participant on an individual basis, until such time as he
or she becomes a Withdrawn Participant. UPC will send all proxies, proxy
information statements and other information it provides to the holders of UPC
Common Stock directly to the Escrow Agent which shall, within five (5) Business
Days thereafter, mail such information and materials to the Escrow Participants
at the last addresses for such Escrow Participant then reflected on the books
and records of the Escrow Agent. The Escrow Participants as of the record date
for the particular UPC shareholder vote shall have ten (10) Business Days from
the date the information was mailed to them, as reflected in the cover letter
accompanying such documents and information, to provide the Escrow Agent
written advice as to how that particular Escrow Participant would like the
Escrow Agent to vote such Escrow Participant's proportionate number of shares
of UPC Common Stock held by the Escrow Agent pursuant to this Escrow
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Agreement. If no directions are given by any or all of the Escrow
Participants, the Escrow Agent shall abstain from voting with respect to the
proportionate number of shares allocated to each such non-voting Escrow
Participant, and vote the remaining number of shares of UPC Common Stock as
directed. The Escrow Agent shall have no responsibility with respect to the
voting of the shares of UPC Common Stock it holds pursuant to this Escrow
Agreement other than as set forth herein. It is expressly understood and
agreed that the Escrow Agent may rely on its books and records for the
addresses of the Escrow Participants; has no responsibility to check to see
that a package of information properly deposited with the U.S. Mail was
actually delivered to or received by the Escrow Participant to whom it was
mailed; or to contact an Escrow Participant who has been sent such material but
who has not provided the Escrow Agent with a written notice of direction as to
how to vote prior to the end of the ten day period, or otherwise. Should an
Escrow Participant elect to direct the Escrow Agent to perfect dissenters'
rights with respect to his or her proportionate number of shares of UPC Common
Stock or revoke a previously granted proxy, such Escrow Participant shall
provide the Escrow Agent with specific written instructions with respect
thereto, the Escrow Agent may retain its own counsel to assist in determining
what steps it should take to properly comply with the request, and the Escrow
Agent may charge a reasonable fee for such extra activities and otherwise be
entitled to full and complete reimbursement for all fees and expenses incurred
in connection with such request.
h. Distributions. The Escrow Agent shall not make any distributions
whatsoever of any of the assets it holds pursuant to this Escrow Agreement,
including, but not limited to, the Escrowed Shares, distributions thereon and
earnings thereon or with respect thereto, except as specifically set forth
herein.
(1) Upon receipt of a certificate signed by an Authorized
Officer of UPC, the Escrow Agent may withdraw funds in the Money Market
Account sufficient to pay any accrued taxes or assessments based on any assets
deposited with or paid to the Escrow Agent pursuant to this Escrow Agreement,
including any accumulated interest or penalties, for which the Escrow Agent may
be liable in its capacity as Escrow Agent pursuant to this Escrow Agreement.
The certificate shall verify the amount to be paid, or a formula by which the
amount to be paid will be determined. Nothing herein, however, shall be deemed
to obligate the Escrow Agent to pay any taxes or similar charges from any
assets held pursuant to this Escrow Agreement for or on behalf of any Escrow
Participant. Within five (5) Business Days of receipt of its request for
payment of any accrued taxes or assessments, the Escrow Agent shall send to
each Escrow Participant a copy of the notice received by the Escrow Agent.
(2) Upon receipt of a certificate signed by an Authorized
Officer of UPC certifying the number of shares of UPC Common Stock required as
the Escrow Deposit and the number of Escrowed Shares in excess of the required
Escrow Deposit, the Escrow Agent shall return to UPC's designated transfer
agent the
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certificate evidencing and representing the Escrowed Shares, duly endorsed for
transfer, with instructions to the transfer agent to issue to UPC that number
of excess shares of UPC Common Stock set forth in the certificate, and to
return to the Escrow Agent a certificate evidencing and representing that
number of shares of UPC Common Stock as shall equal the Escrow Deposit set
forth in the certificate. In addition, should there have been any
distributions on or with respect to the Escrowed Shares returned to UPC, the
Escrow Agent shall return the full amount of such distributions, plus any
earnings thereon, to UPC as soon after its receipt of the certificate as
reasonably practicable.
(3) Upon receipt of a certificate executed by an Authorized
Officer of UPC identifying one or more Withdrawn Participants and certifying
each such identified Withdrawn Participant's Proportionate Interest, the Escrow
Agent shall return to UPC's designated transfer agent the certificate
evidencing and representing the Escrowed Shares it then holds, duly endorsed
for transfer, with instructions to the transfer agent to issue to UPC that
number of Escrowed Shares equal to the Withdrawn Participant (s') Proportionate
Interest set forth in the certificate, and to return to the Escrow Agent a
certificate evidencing and representing the remaining number of Escrowed
Shares. In addition, should there have been any distributions on or with
respect to the Escrowed Shares returned to UPC, the Escrow Agent shall pay the
full amount of such distributions, plus any earnings thereon, to UPC as soon
after its receipt of the certificate as reasonably practicable.
(4) Upon receipt of a certificate executed by an Authorized
Officer of UPC certifying either (i) that the FFGI Pending Litigation has been
finally settled or resolved in favor of FFGI or the Savings Bank, or either of
their successors, for an amount of money which is less than the aggregate
amount of FFGI Pending Litigation Expenses incurred by FFGI, Savings Bank, UPC,
or any of their successors, after the date of this Escrow Agreement, less the
aggregate amount of such FFGI Pending Litigation Expenses for which FFGI or
Savings Bank have been reimbursed by Escrow Participants after the date hereof
pursuant to Section 6(a) hereof (the "Net FFGI Pending Litigation Expenses") or
(ii) that the FFGI Pending Litigation was finally resolved adverse to FFGI and
Savings Bank, then the Escrow Agent shall deliver to UPC the certificate
evidencing and representing all Escrowed Shares it then holds, and pay to UPC
all distributions received with respect to such Escrowed Shares, all earnings
thereon, and any other assets then in its possession and held pursuant to this
Escrow Agreement.
(5) Upon receipt of a certificate executed by an Authorized
Officer of UPC certifying (i) that the FFGI Pending Litigation has been finally
settled or resolved in favor of FFGI and Savings Bank for an amount of money
which is greater than the Net FFGI Pending Litigation Expenses incurred by
FFGI, Savings Bank, UPC, or any of their successors, after the date of this
Escrow Agreement, (such settlement amount less expenses referred to as the "Net
Settlement Amount") and (ii) each Escrow
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Participant's Distributable Interest (as defined in subparagraph (6) next),
then the Escrow Agent shall distribute the Escrowed Shares it then holds, and
all distributions thereon and earnings, if any, with respect thereto, in the
following amounts and priorities:
(a) The Escrow Agent shall be paid $5,000 as a
termination fee (the "Escrow Agent Termination Fee"). The Escrow Agent
Termination Fee shall be paid one-half by the Escrow Participants and one-half
by UPC. The Escrow Agent shall pay to itself an amount equal to the Escrow
Participants' one-half share from the Money Market Account.
(b) Second, the Escrow Agent shall deliver to UPC's
designated transfer agent the certificate or certificates evidencing and
representing the Escrowed Shares it then holds, duly endorsed for transfer,
with directions for the transfer agent to register for transfer and transfer
and deliver, or cause to be delivered, to each Escrow Participant, that number
of shares of UPC Common Stock as shall equal such Escrow Participant's
Distributable Shares, which shall be determined as provided in subparagraph (6)
next. In addition, the Escrow Agent shall also pay to each Escrow Participant,
other than a Withdrawn Participant, all earnings and other distributions on or
with respect to the Distributable Shares to be delivered to that Escrow
Participant.
(6) The "Distributable Shares" to be delivered to an Escrow
Participant shall be determined as follows: First, there shall be deducted
from the amount of the final settlement or judgement in the FFGI Pending
Litigation actually received by FFGI and Savings Bank in cash or cash
equivalents (the "Aggregate Litigation Settlement Amount"), an amount equal to
the Net FFGI Pending Litigation Expenses. This would equal the "Net Litigation
Settlement Amount." If the Net Litigation Settlement Amount were to be zero
or a negative number (in which event the Aggregate Litigation Settlement Amount
would be exactly equal to or less than the Net FFGI Pending Litigation
Expenses), the number of Distributable Shares to be delivered to each Escrow
Participant would be zero. In such event, the Escrow Agent would be directed
to make distributions in accordance with section 5(h)(4) above.
If the Net Litigation Settlement Amount is a positive number (the
Aggregate Litigation Settlement Amount exceeds the Net FFGI Pending Litigation
Expenses), then the Net Litigation Settlement Amount shall be divided by the
closing price per share of the last real time trade of UPC Common Stock on the
NYSE on the Effective Date of the Merger, or if UPC Common Stock does not trade
on such date, on the next day when UPC Common Stock is traded on the NYSE (the
"Per Share Escrow Value"), to determine the total aggregate number of Escrowed
Shares (the "Total Distributable Shares") which could be delivered to all
Escrow Participants. Each Escrow Participant's "Distributable Shares" shall
then be determined by multiplying such Escrow Participant's Distribution
Interest (as defined below) by the Total Distributable Shares; provided,
however, that should the Total Distributable Shares
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exceed the number of Escrowed Shares then held by the Escrow Agent pursuant to
this Escrow Agreement, such Escrow Participant's Distributable Shares shall be
determined by multiplying such Escrow Participant's Distributable Interest by
the actual number of Escrowed Shares then held by the Escrow Agent pursuant to
this Escrow Agreement. An Escrow Participant's Distributable Interest shall
equal the percentage determined by dividing the Escrow Participant's
Proportionate Interest as of the Escrow Distribution Date by the total of all
Escrow Participants' Proportionate Interests as of the Escrow Distribution
Date.
For example, Escrow Participant A has a 10% Proportionate
Interest. Over the term of the Escrow Agreement, three Escrow
Participants holding in the aggregate a 25% Proportionate
Interest become Withdrawn Participants. At the Escrow
Distribution Date Escrow Participant A's Distributable
Interest is 10/75 or 13.33%.
(7) Should UPC undertake a corporate reorganization such as
a reverse stock split where every two shares of UPC Common Stock becomes one
share of UPC Common Stock, the number of Escrowed Shares shall be adjusted
accordingly and the Per Share Escrow Value shall likewise be adjusted
accordingly, if appropriate, to appropriately adjust for such corporate event.
Should UPC be merged with or acquired in such a manner that each then
outstanding share of UPC Common Stock would be exchanged for consideration,
then the term "Escrowed Shares" shall be deemed to mean the consideration which
was delivered in the transaction in exchange for the Escrowed Shares of UPC
Common Stock held by the transfer agent pursuant hereto at the effective time
of such transaction.
(8) In no event shall UPC or the Escrow Agent be obligated to
issue fractional shares of UPC Common Stock or other securities held by the
Escrow Agent pursuant to this Escrow Agreement. If after aggregating all of
the shares of UPC Common Stock or other securities to which an Escrow
Participant would be entitled in distribution hereunder based upon such Escrow
Participant's Distributable Shares, there shall be a fractional share of UPC
Common Stock or other security remaining, such fractional share shall be
settled with a cash payment by UPC therefor in the amount determined by
multiplying the applicable fraction by the closing price of a share of UPC
Common Stock and/or other security on the NYSE, or other exchange on which such
security is traded, on the Escrow Distribution Date. If there is no closing
price for a particular security on the Escrow Distribution Date, then the
average of the bid and asked price shall be deemed to be the closing price. If
the security is not traded on an established exchange or market in such a
manner that closing prices are quoted, the Escrow Agent shall then proceed to
sell the particular security at fair market value and the price it receives for
the particular security, net of any transactional costs associated therewith,
shall be deemed to be the closing price.
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(9) For purposes hereof, the Escrow Distribution Date shall
be the first Business Day after the date that FFGI and/or Savings Bank, or
their successors, actually receive in collected funds the full amount of the
settlement or judgement to be received on the FFGI Pending Litigation, or such
latter date as such settlement or judgement shall have become final and
non-appealable. UPC shall certify to the Escrow Agent the Escrow Distribution
Date.
(10) For purposes hereof, the President, Chairman of the
Board, Chief Executive Officer, any Executive Vice President, the Secretary and
any Assistant Secretary of UPC shall each be deemed to be an "Authorized
Officer" of UPC.
6. Responsibilities of Escrow Participants.
a. Payment of FFGI Pending Litigation Expenses. Each FFGI Class B
Stockholder and each Escrow Participant hereby agrees to pay to FFGI, Savings
Bank or UPC, such Escrow Participant's proportionate share of the Class B
Portion (as defined below) of the FFGI Pending Litigation Expenses incurred by
or on behalf of Savings Bank, FFGI or UPC, and their successors, if any, after
the date hereof and through the final settlement or resolution of the FFGI
Pending Litigation. For purposes of this section, the Class B Portion of the
FFGI Pending Litigation Expenses shall be determined by multiplying the total
FFGI Pending Litigation Expenses by .50 and then multiplying the product by a
fraction, the denominator of which shall be the number of Escrowed Shares
deposited in escrow pursuant to this Escrow Agreement, and the numerator of
which shall be the number of Escrowed Shares remaining subject to this Escrow
Agreement at the time of such determination (the intent being to adjust
one-half of the FFGI Pending Litigation Expenses in the event an Escrow
Participant withdraws from this Escrow Agreement).
(1) On or before each June 30 and December 31 after the
Effective Date of the Merger, UPC shall mail to each Escrow Participant an
invoice itemizing all bills and invoices it has received prior to the
immediately preceding June 1 and December 1 for FFGI Litigation Expenses and
for which it has not previously billed the FFGI Class B Stockholders. FFGI
Litigation Expenses incurred prior to the date hereof shall not be billed to an
Escrow Participant pursuant to this Section. For purposes hereof a FFGI
Pending Litigation Expense shall be deemed to have been incurred on the date
the service which gave rise to the bill or invoice was first performed. For
example, legal fees would be deemed to have been incurred on the date the legal
service was performed, regardless of the date the invoice for such legal
services was first received. Should a bill or invoice for FFGI Pending
Litigation Expenses be omitted from a particular billing to the Escrow
Participants, then such FFGI Pending Litigation Expenses may subsequently be
billed to Escrow Participants at the next regular billing date. UPC agrees to
send each Escrow Participant a monthly notice informing the Escrow Participants
of the total amount of FFGI Pending Litigation Expenses for which it, FFGI and
Savings Bank had received invoices since
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the last monthly notice. These monthly notices shall be informational notices
and neither, UPC, FFGI or Savings Bank, or any of their successors, shall be
estopped or otherwise prohibited or prevented from billing FFGI Pending
Litigation Expenses which were not included in the monthly notices.
(2) Within twenty (20) Business Days after the date the
semi-annual invoice to Escrow Participants is first sent to the Escrow
Participants, each Escrow Participant shall pay to UPC such Escrow
Participant's proportionate share of the billed FFGI Pending Litigation
Expenses. If UPC shall not have received full payment for an Escrow
Participant's proportionate share of the FFGI Pending Litigation Expenses by
the end of such twenty (20) Business Day time period, (such non-paying Escrow
participant being a "Delinquent Payor"), then UPC shall mail a reminder notice,
by registered mail, return receipt requested, to the Delinquent Payor(s), each
other Escrow Participant, and the law firm of McCampbell and Young, P.C., FFGI
Counsel, informing the Delinquent Payor(s), each other Escrow Participant and
the law firm of McCampbell and Young, P.C., of the amount by which such
Delinquent Payor(s) is delinquent and demanding full and complete payment of
such delinquent amount, plus a late payment fee equal to five percent (5%) of
the delinquent payment, to be received by UPC within twenty (20) Business Days
after the date the reminder notice was first placed in the mail to the
Delinquent Payor(s). Should UPC fail to receive the full amount set forth in
the reminder notice by the end of such twenty (20) Business Day period running
with respect thereto, the Delinquent Payor(s) shall be deemed to be a Withdrawn
Participant pursuant to this Escrow Agreement, he or she shall have no further
interest of any nature whatsoever in this Escrow Agreement, and such Withdrawn
Participant's entire Proportionate Interest, and any and all rights the
Withdrawn Participant may have had under or with respect to this Escrow
Agreement, shall be automatically forfeited to UPC.
(3) The obligation of the Escrow Participants to pay their
respective proportionate share of FFGI Pending litigation Expenses reflected in
the invoices, and any late payment fees applicable thereto, shall be fixed and
no Escrow Participant shall have the right to withhold any such payment because
of any disagreement he or she may have with the amount of his or her
proportionate share or the FFGI Pending Litigation Expenses incurred, or for
any other reason.
(4) UPC shall make available for inspection all bills and
invoices for FFGI Pending Litigation Expenses it has received and for which it
has billed to Escrow Participants pursuant to this Section. However, in UPC's
sole discretion, such bills or invoices may be redacted or blacked out to the
extent UPC or its legal counsel deems necessary or appropriate to protect UPC,
FFGI or Savings Bank, or any of their successors, from a waiver or potential
waiver of the attorney-client privilege or any other privilege relating to the
FFGI Pending Litigation. However, upon request of FFGI Counsel, a copy of the
clean bill will be sent to FFGI Counsel.
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<PAGE> 245
(5) In the preparation of the semi-annual invoices to be sent
to Escrow Participants, UPC may aggregate all like kind expenses (for example,
all telephone charges, all mailing charges, all travel costs) in a single
category, and all expenses under $100 may be aggregated in a "Miscellaneous"
line item. The monthly informational invoices will reflect only a total
amount.
(6) Notwithstanding the fact that an Escrow Participant shall
be deemed to be a Withdrawn Participant for failure to pay his or her
proportionate share of the FFGI Pending Litigation Expenses, plus interest and
late payment fee, within the time period set forth above, or the fact that such
Withdrawn Participant's Proportionate Interest shall have been automatically
forfeited, UPC shall have all rights and remedies under law to collect from the
Delinquent Payor all amounts due hereunder by such Withdrawn Participant up to
the effective date of the withdrawal of such Delinquent Payor, plus interest
thereon at the maximum rate allowed by law on the date hereof and on any
subsequent date prior to the full collection of such amounts, and UPC shall be
entitled to reimbursement for all costs and expenses, including, but not
limited to, reasonable attorneys fees, incurred in connection with the
collection of such amounts from the Delinquent Payor. Should UPC be
successful in the collection of any past due amounts from a Delinquent Payor,
that Delinquent Payor shall still be a Withdrawn Participant and shall have no
rights whatsoever under or pursuant to this Escrow Agreement.
(7) Each FFGI Class B Stockholder and Escrow Participant does
hereby grant to UPC a security interest in all of such Escrow Participant's
rights under this Escrow Agreement, including, but not limited to, the Escrowed
Shares and all distributions thereon and earnings with respect thereto, as
security for such Escrow Participant's obligations to make payments to UPC as
set forth in this Escrow Agreement, including, but not limited to, payments of
such Escrow Participant's proportionate share of FFGI Pending Litigation
Expenses, late payment fees, interest thereon and costs and expenses incurred
in connection with the collection of past due amounts. UPC shall have the
right to file such financing statements as it deems necessary to perfect its
security interest granted herein, and the cost of filing such financing
statements shall be deemed to be a FFGI Pending Litigation Expense for which
UPC shall have the right reimbursement. The security interest granted herein
shall terminate only upon the full and complete distribution of all assets
pursuant to this Escrow Agreement. In no event shall Escrow Agent have any
right or responsibility to make any payments from any assets it holds pursuant
to this Escrow Agreement to pay or bring current, in whole or in part, any
amounts owed by an Escrow Participant hereunder. The security interest granted
hereby shall be a grant of a security interest only in each individual Escrow
Participant's Proportionate Interest and only as security for each individual
Escrow Participant's individual obligations with respect hereto, and shall not
secure any of the obligations of any other Escrow Participant.
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<PAGE> 246
7. Withdrawn Participants.
a. Withdrawal of Delinquent Payor. Any Escrow Participant who fails
to pay his or her proportionate share of the FFGI Pending Litigation Expenses
within the time set forth in Section 6(a)(2) above, shall be deemed to be a
Withdrawn Participant as of the then immediately preceding June 1 or December 1
(the effective date of the withdrawal).
b. Voluntary Withdrawal. Any Escrow Participant may voluntarily
withdraw from this Escrow Agreement, thereby becoming a Withdrawn Participant,
by causing McCampbell & Young, P.C., to provide notice to the Escrow Agent of
such Escrow Participant's intent to withdraw. In no event shall the effective
date of a withdrawal be a date prior to the date the notice of withdrawal is
received by the Escrow Agent. The notice from McCampbell & Young, P.C., shall
identify the withdrawing Escrow Participant, his or her Proportionate
Interest, and the proposed effective date of withdrawal. UPC and the Escrow
Agent may rely upon any such notice from McCampbell & Young, P.C., and no
notice of withdrawal shall be effective unless delivered to the Escrow Agent
and UPC by McCampbell & Young, P.C., or such other person or entity as is
appointed by the holders of two-thirds of the then outstanding Proportionate
Interests. Each Escrow Participant, individually and on behalf of his or her
heirs, representatives and permitted transferees, hereby releases UPC and
Escrow Agent from any and all liability with respect to any losses or damages
of any nature which such Escrow Participant, his heirs, representatives or
permitted transferees may incur as a result of or arising out of any action or
inaction on the part of McCampbell & Young, P.C., or such other elected person
or entity, with respect to this section. Further, notwithstanding the date of
the notice of withdrawal, and the effect thereof of relinquishing any and all
rights of such Escrow Participant pursuant to this Escrow Agreement, such
withdrawing Escrow Participant shall continue to be liable for his or her
proportionate share of FFGI Pending Litigation Expenses incurred within the
six-month billing period in which the notice of withdrawal is sent as set
forth herein, and any previously unbilled FFGI Pending Litigation Expenses,
pro-rated through the effective date of such withdrawal based on the actual
number of days elapsed in the billing period. Upon UPC's receipt of payment
for the withdrawing Escrow Participant's pro-rata share of his or her
proportionate share of FFGI Pending Litigation Expenses, plus any past-due
amounts, if any, the withdrawing Escrow Participant shall have no further
obligation of any nature whatsoever for the payment of FFGI Pending Litigation
Expenses; however, such withdrawing Escrow Participant shall be a Withdrawn
Participant as of the effective date of withdrawal set forth in his or her
notice as called for herein. A withdrawal notice received by UPC shall be
final and binding and the withdrawing Escrow Participant shall have no right
whatsoever to revoke or amend in any manner the notice of withdrawal.
c. Effect of Withdrawal. Upon the withdrawal of an Escrow Participant
pursuant to sections 7(a) or 7(b) above, that Withdrawn Participant shall have
no
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<PAGE> 247
rights whatsoever pursuant to this Escrow Agreement to any Escrowed Shares,
distributions thereon or earnings with respect thereto, and such Withdrawn
Participant's Proportionate Interest shall be forfeited to UPC effective as of
the effective date of such withdrawal, regardless of when the Escrow Agent
shall actually deliver to UPC the assets held pursuant to this Escrow Agreement
with respect to the forfeited Proportionate Interest. UPC shall have the right
to request the Escrow Agent to distribute the Withdrawn Participant's
Proportionate Interest in the Escrowed Shares, distributions thereon and
earnings with respect thereto after the effective date of that stockholder's
withdrawal, and no other Escrow Participant shall have any right whatsoever to
the Withdrawn Participant's Proportionate Interest in the Escrowed Shares,
distributions thereon or earnings with respect thereto, regardless of when such
are actually distributed to UPC.
8. Termination. This Escrow Agreement shall terminate upon the full
distribution of all assets held by the Escrow Agent pursuant to this Escrow
Agreement.
9. Escrow Agent Entitled To Rely. It is agreed that the Escrow Agent
shall have no obligation or liability hereunder except to perform its duties
set forth herein. The Escrow Agent shall be entitled to rely and act upon any
written instrument received by it from any of the parties hereto, as well as
from McCampbell & Young, P.C., or such other person or entity selected to
replace McCampbell & Young, P.C., if any, and if a corporation, purporting to
be executed by an officer thereof, and if a partnership, purporting to be
executed by a general partner thereof, and the Escrow Agent shall not be
required to inquire into the authority of such officer or partner or the
correctness of the facts stated in said instrument. Upon disposition by the
Escrow Agent, in accordance with the terms hereof, of the Escrowed Shares,
distributions thereon and earnings with respect thereto, which have been
deposited with the Escrow Agent hereunder, the Escrow Agent shall be fully and
finally released and discharged from any and all duties, obligations, and
liabilities hereunder.
10. Annual Escrow Fee. The Escrow Agent shall receive an escrow fee in
the amount of $8,000 per annum, which annual fee shall be deemed for purposes
hereof the be a FFGI Pending Litigation Expense.
11. Dispute Resolution. In the event of a dispute between any of the
parties hereto as to their respective rights and interests hereunder, the
Escrow Agent shall be entitled to interplead in court or hold any and all
Escrowed Shares, cash and other assets then in its possession hereunder until
such dispute shall have been resolved by the parties in dispute and the Escrow
Agent shall have been notified by instrument jointly signed by all of the
parties in dispute, or until such dispute shall have been finally adjudicated
by a court of competent jurisdiction.
12. Notices. Any notice which any party may be required or may desire to
give hereunder shall be deemed to have been duly given when personally
delivered,
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against receipt therefor signed by the party to whom the notice is given, or
with respect to any party other than the Escrow Agent, on the next Business Day
if sent by overnight courier, or on the same day if sent by facsimile before
the close of business, or the next day if sent by facsimile after the close of
business, or on the second Business Day after mailing by certified or
registered mail, postage prepaid, addressed as set forth below, or to such
other address as a party hereto may designate by a notice to the other parties.
Any notice mailed or given to the Escrow Agent shall be deemed given only when
received.
13. Release. Each FFGI Class B Stockholder and Escrow Participant does
hereby release and forever discharge the Escrow Agent, FFGI, Savings Bank, UPC,
Acquisition Company, and their respective directors, officers, employees,
agents and representatives, from any and all liability or responsibility should
the execution and delivery of this Escrow Agreement or the Merger Agreement, or
the consummation of the transactions contemplated thereby or herein, adversely
affect any claims they may have in the FFGI Pending Litigation.
14. Statements of Assumptions and Covenants. This Escrow Agreement is
being entered into based upon the following assumptions and covenants of the
parties:
a. There is a valid business reason for establishing this escrow
arrangement pursuant to this Escrow Agreement in that UPC must determine the
result of the Lawsuit and whether the Escrow Participant's shall be entitled to
any or all of the assets held in escrow or whether any or all of such assets
shall be returned to UPC.
b. The Escrowed Shares placed in escrow will appear as issued and
outstanding shares on the balance sheet of UPC and such stock shall be legally
outstanding under applicable state law.
c. All ordinary income dividends paid on the Escrowed Shares and
Dividend Shares, if any, will be distributed to the Escrow Agent for the Escrow
Participants.
d. All voting rights of shares of UPC Common Stock held as
Escrowed Shares or Dividend Shares will be exercisable by or on behalf of the
Escrow Participants or their authorized agent(s).
e. No shares of UPC Common Stock held as Escrowed Shares or
Dividend Shares will be subject to restrictions requiring their return to UPC
because of the death or failure to continue employment of an Escrow
Participant, or similar restrictions.
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f. It is expected that all Escrowed Shares, and any earnings
thereon and distributions made with respect thereto held by the Escrow Agent
pursuant to this Escrow Agreement will be released from escrow within five (5)
years from the date the transaction is consummated, except where there is a
bona fide dispute as to whom such stock and assets should be released and the
parties hereby acknowledge that there would be such a bona fide dispute if the
Lawsuit has not then been either settled or a final determination has not been
rendered by a court of applicable jurisdiction.
g. At least fifty percent (50%) of the total number of shares of
UPC Common Stock to be actually issued by UPC to FFGI Record Holders as
Consideration for their FFGI Common Stock will not be subject to this Escrow
Agreement.
h. The return of Escrowed Shares, or any other assets held by the
Escrow Agent pursuant to this Escrow Agreement, to UPC in satisfaction of a
liability subject to indemnification pursuant to the Merger Agreement is not
provided for in the Escrow Agreement and thus, will not be triggered by an
event the occurrence or non-occurrence of which is within the control of the
Escrow Participants.
i. The mechanism for the calculation of the number of Escrowed
Shares, and earnings and distributions thereon, to be distributed to Escrow
Participants or UPC, respectively, is objective and readily ascertainable.
j. This Escrow Agreement prohibits the assignment by any Escrow
Participant to any other person of the right of such Escrow Participant to
receive any distribution of Escrowed Shares, or any other assets held by the
Escrow Agent pursuant hereto, other than Permitted Transfers; and any Escrow
Participant's Proportionate Interest in the Escrowed Shares and other assets
held by the Escrow Agent pursuant hereto, are not, and shall not be, evidenced
by negotiable certificates of any kind, and are not deemed to be readily
marketable.
k. The right of each Class B Stockholder to receive additional
shares of UPC Common Stock as Consideration in accordance with Section
3.1(e)(2) of the Merger Agreement arises only pursuant to this Escrow Agreement
and can give rise only to the receipt by such Class B Stockholder of the
Escrowed Shares, accumulated dividends and distributions thereon, and earnings
with respect thereto on the conditions set forth herein.
l. The number of Escrowed Shares, and the distributions and
earnings with respect thereto, which are to be returned to UPC in the event of
resolution of the Lawsuit is based on their initial negotiated value and the
sole remedy of UPC under this Escrow Agreement for its reacquisition of the
Escrowed Shares, dividends and distributions thereon and earnings with respect
thereto, is limited to recovery of the Escrow shares and any accumulated
dividends or distributions and income or interest
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thereon and with respect thereto; neither UPC nor any Escrow Participant has
the right to demand or substitute other property.
15. Litigation Management. UPC shall manage the litigation, which
litigation management shall include, but not be limited to, complying with the
Engagement Letter, hiring and retention of counsel, approval of expenses,
consultants and experts, and prosecution of the litigation with the intention
of achieving the best feasible result therein. UPC shall not have any
liability to any party for any error or omission in connection with its
management of the litigation, and shall be, and is hereby, released and
exculpated from any such liability, including without limitation liability for
UPC's own sole negligence in managing the litigation, except and to the extent
that UPC commits intentional conscious fraud in connection therewith. Any
proposal for the termination or settlement of the litigation shall be presented
by UPC to the Escrow Participants (other than any Withdrawn Participants) by
written notice mailed by first class delivery or overnight courier to the
address of the Escrow Participant's as recorded on the books and records of the
Escrow Agent. UPC and each of Escrow Participant agree to be bound, with
respect to any such proposal, by an affirmative vote of 51% or more of the
UPC's and the Escrow Participants' settlement voting rights as prescribed
hereinbelow. For purposes of any vote on any termination or settlement
proposal, UPC's vote shall represent 40% of the aggregate vote and the Escrow
Participants shall collectively represent 60% of such vote, with the individual
vote of any Escrow Participant determined by multiplying 60% times the Escrow
Participant's Proportionate Interest; provided, however, that in the event of
the forfeiture to UPC of an Escrow Participants' Proportionate Interest, one
third (1/3d) of the voting rights with respect to such forfeited Proportionate
Interest shall accrue to UPC. Each Escrow Participant shall have ten (10)
Business Days from the date of the notice of proposed settlement to notify UPC
of such Escrow Participant's vote on the proposed settlement. Notice shall be
as provided in Section 14 herein, to vote on any settlement proposal and,
failing such timely vote, shall be deemed to have voted consistent with the
vote of UPC. Moreover, notwithstanding any other provision in this paragraph,
if UPC receives any settlement offer which is in an amount equal to or greater
than the amount necessary to pay all outstanding FFGI Pending Litigation
Expenses, to reimburse the Escrow Participants (other than a Withdrawn
Participant) for all FFGI Pending Litigation Expenses they have paid to UPC
pursuant to this Escrow Agreement, and to allow the Escrow Participants to
receive all the Distributable Shares, then UPC shall have the option, in its
sole discretion, without any vote, to either accept such offer or to reject
such offer; provided that if UPC rejects such offer and elects to continue the
litigation, (i) UPC shall instruct the Escrow Agent to deliver the
Distributable Shares, shall reimburse all litigation expense required
hereunder; and shall pay each Escrow Participant any unpaid dividend
attributable to his or her Distributable Shares; and (ii) each Escrow
Participant shall assign to UPC all of his or her rights in connection with the
litigation. Winston and Strawn and any other attorneys employed by UPC, shall
represent all plaintiffs in the litigation. UPC
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and each of the Escrow Participants shall have the right to engage separate
counsel for advice in connection with the litigation, but such separate counsel
shall not appear of record in the litigation and all expenses of any such
separate counsel shall be paid by the engaging party and shall not be included
in the above-stated minimum settlement amount which UPC may accept or reject
without any vote.
16. Notices. Any notice, request, demand, and other communication, which
any party hereto may desire, or may be required hereunder to give, shall be in
writing and shall be deemed to be fully given if delivered personally or mailed
by certified or registered mail (postage prepaid, return receipt requested),
air courier or facsimile transmission, addressed or transmitted to such other
parties as follows:
If to FFGI or Savings Bank:
Franklin Financial Group, Inc.
622 West First North Street
Morristown, Tennessee 37814
Attn: Charles G. Robinette, President
Phone: (423) 586-3820
Fax: (423) 587-5481
With a copy to: McCampbell & Young, P.C.
2021 Plaza Tower
800 S. Gay Street
Knoxville, Tennessee 37929
(deliveries)
OR
P.O. Box 550
Knoxville, Tennessee 37901 (mail)
Attn: Robert S. Marquis, Esq.
Phone: (423) 637-1440
Fax: (423) 546-9731
If to the Class B Their addresses set forth to their respective
names on the signature page of this Escrow
Agreement
If to UPC or Franklin Acquisition:
Union Planters Corporation
P.O. Box 387 (mailing address)
Memphis, Tennessee 38147
OR
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7130 Goodlett Farms Parkway (deliveries)
Memphis, Tennessee 38018
Attn: Jackson W. Moore, President and
E. James House, Jr., Manager,
Legal Division
Fax: (901) 383-2939
With a copy to: Wyatt, Tarrant & Combs
6075 Poplar Avenue
Suite 650
Memphis, TN 38119
Attention: R. Nash Neyland, Esq.
Phone: (901) 527-1023 (direct)
Fax: (901) 537-1010
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the
date reflected in the proof or evidence of delivery, or if none, on the date
actually received.
17. Miscellaneous.
a. Entire Agreement. This Escrow Agreement sets forth exclusively the
duties of the Escrow Agent with respect to any and all matters pertinent hereto
and no implied duties or obligations shall be read into this agreement against
the Escrow Agent, and this Escrow Agreement contains all of the understandings
among the parties concerning the subject matter hereof,except as specifically
set forth in the Merger Agreement.
b. Modifications. Any and all of the provisions hereof may be
modified or deleted by a writing signed by both FFGI and all of the Escrow
Participants (other than any Withdrawn Participant) and delivered to the Escrow
Agent; provided however that no such modification shall increase the
obligations of the Escrow Agent, unless it consents thereto in writing.
c. Governing Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
d. Binding Effect. The rights created by this Escrow Agreement shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the heirs, representatives, successors and permitted assigns of all
parties to this Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the day and year first above written.
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FRANKLIN FINANCIAL GROUP, INC.
By: /s/ Charles G. Robinette
-----------------------
UPC
By: /s/ Jackson W. Moore
---------------------------
Jackson W. Moore, President
UNION PLANTERS NATIONAL BANK
ESCROW AGENT
BY: /s/ Bonnie Spracher
---------------------------
CLASS B STOCKHOLDERS:
/s/ George O. Haggard, Jr. /s/ A. E. Jolley
- --------------------------------- ---------------------------------
George O. Haggard, Jr. A.E. Jolley
724 Barton Drive c/o Lakeway Container
Morristown, TN 37814 5715 Superior Drive
No. of Class B Shares - 72,500 Morristown, TN 37814
No. of Class B Shares - 100,000
/s/ Ben B. Jarnagin /s/ Jean S. Keener
- ---------------------------------- ----------------------------------
Ben B. Jarnagin Jean S. Keener
2616 Lake Front Drive 325 E 2nd Street
Morristown, TN 37814 Morristown, TN 37814
No. of Class B Shares - 36,250 No. of Class B Shares - 50,000
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/s/ Marjorie C. Jarnagin /s/ George B. McGuffin
- --------------------------------- ------------------------------
Marjorie C. Jarnagin George B. McGuffin
2280 Cambridge Drive c/o Sunbelt Developers, Inc.
Morristown, TN 37814 1843 W. Morris Blvd.
No. of Class B Shares - 36,250 Morristown, TN 37814
No. of Class B Shares - 145,000
/s/ Richard C. Jessee /s/ Charles G. Robinette
- ---------------------------------- ------------------------
Richard C. Jessee Charles G. Robinette
1135 W. 3rd N. Street 2778 Lake Forest Circle
Morristown, TN 37814 Morristown, TN 37877
No. of Class B Shares - 50,000 No. of Class B Shares - 10,000
24
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APPENDIX C
CHAPTER 23
BUSINESS CORPORATIONS--DISSENTERS' RIGHTS
SECTION. SECTION.
<TABLE>
<S> <C>
PART 1--RIGHT TO DISSENT AND OBTAIN 48-23-203. Dissenters' notice.
PAYMENT FOR SHARES 48-23-204. Duty to demand payment.
48-23-101. Definitions. 48-23-205. Share restrictions.
48-23-102. Right to dissent. 48-23-206. Payment.
48-23-103. Dissent by nominees and 48-23-207. Failure to take action.
beneficial owners. 48-23-208. After-acquired shares.
48-23-209. Procedure if shareholder
dissatisfied with payment
or offer.
PART 2--PROCEDURE FOR EXERCISE OF
DISSENTERS' RIGHTS PART 3--JUDICIAL APPRAISAL OF SHARES
48-23-201. Notice of dissenters' 48-23-301. Court action.
rights. 48-23-302. Court costs and counsel fees.
48-23-202. Notice of intent to demand
payment.
</TABLE>
PART 1--RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. DEFINITIONS--(1) "Beneficial shareholder" means the person who is a
beneficial owner of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 48-23-102 and who exercises that right when and in the
manner required by Part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action;
(5) "Interest" means interest from the effective date of the corporate action
that give rise to the shareholder's right to dissent until the date of payment,
at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation; and
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
[Acts 1986, ch. 887, Section 13.01]
48-23-102. RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by Section
48-21-104 or the charter and the shareholder is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its parent
under Section 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely effects rights
in respect of a dissenter's shares because it:
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(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash under
Section 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent
the charter, bylaws, or a resolution of the board of directors provides that
voting or nonvoting shareholders are entitled to dissent and obtain payment for
their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this chapter may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the
effectuation of the transaction which would otherwise give rise to dissenters'
rights, is listed on an exchange registered under Section 6 of the Securities
Exchange Act of 1934, as amended, or is a "national market system security," as
defined in rules promulgated pursuant to the Securities Exchange Act of 1934,
as amended [Acts 1986, ch. 887, Section 13.02]
48-23-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one (1) person and notifies the corporation in writing of the name and address
of each person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of any
one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(2) He does so with respect to all shares of the same class of which he is the
beneficial shareholder or over which he has power to direct the vote. [Acts
1986, ch. 887, Section 13.03]
PART 2--PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. NOTICE OF DISSENTER'S RIGHTS.--(a) If proposed corporate action
creating dissenters' rights under Section 48-23-102 is submitted to a vote at
a shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in Section 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will not
invalidate the corporate action. [Acts 1986, ch. 887, Section 13.20.]
48-23-202. NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate
action creating dissenters' rights under Section 48-23-102 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights:
(1) Must deliver to the corporation, before the vote is taken, written notice
of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Must not vote his shares in favor of the proposed action. No such written
notice of intent to demand payment is required of any shareholder to whom the
corporation failed to provide the notice required by Section 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this chapter. [Acts 1986, ch. 887,
Section 13.21.]
48-23-203. DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under Section 48-23-102 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 48-23-202.
2
<PAGE> 257
(b) The dissenters' notice must be sent no later than ten (10) days after the
corporate action was authorized by the shareholders or effectuated, whichever
is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the payment demand, which
date may not be fewer than one (1) nor more than two (2) months after the date
the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to Section
48-23-201 [Acts 1986, ch. 887 Section 13.22.]
48-23-204. DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters'
notice described in Section 48-23-203 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to Section 48-23-203 (b)(3), and
deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto. [Acts 1986, ch. 887 Section 13.23.]
48-23-205. SHARE RESTRICTIONS.--(a) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is effectuated or the restrictions released
under Section 48-23-207.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the effectuation of the proposed corporate action.
[Acts 1986, ch. 887 , Section 13.24.]
48-23-206. PAYMENT.--(a) Except as provided in Section 48-23-208, as soon as
the proposed corporate action is effectuated, or upon receipt of a payment
demand, whichever is later, the corporation shall pay each dissenter who
complied with Section 48-23-204 the amount the corporation estimates to be the
fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen (16) months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Section
48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a copy
of this chapter to the shareholder pursuant to Section 48-23-201 or Section
48-23-203. [Acts 1986, ch. 887, Section 13.25.]
48-23-207. FAILURE TO TAKE ACTION.--(a) If the corporation does not effectuate
the proposed action that gave rise to the dissenters' rights within two (2)
months after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under Section 48-23-203 and repeat the payment demand
procedure. [Acts 1986, ch. 887, Section 13.26.]
48-23-208. AFTER-ACQUIRED SHARES.--(a) A corporation may elect to withhold
payment required by Section 48-23-206 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after effectuating the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept
3
<PAGE> 258
it in full satisfaction of his demand. The corporation shall send with its
offer a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenter's right to demand payment under Section 48-23-209. [Acts 1986, ch.
887, Section 13.27.]
48-23-209. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--(a) A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under Section 48-23-206), or reject the
corporation's offer under Section 48-23-208 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section 48-23-206 or
offered under Section 48-23-208 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 48-23-206 within two
(2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within two (2) months after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a)
within one (1) month after the corporation made or offered payment for his
shares. [Acts 1986, ch. 887, Section 13.28.]
PART 3--JUDICIAL APPRAISAL OF SHARES
48-23-301. COURT ACTION.--(a) If a demand for payment under Section 48-23-209
remains unsettled, the corporation shall commence a proceeding within two (2)
months after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the two-month period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record having
equity jurisdiction in the county where the corporation's principal office (or,
if none in this state, its registered office) is located. If the corporation is
a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one (1) or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of his
shares, plus accrued interest, exceeds the amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 48-23-208.
[Acts 1986, ch. 887, Section 13.03.]
48-23-302. COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under Section 48-23-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the courts find equitable:
(1) Against the corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of
Part 2 of this chapter; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those service should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited. [Acts 1986, ch. 887, 13.31.]
4
<PAGE> 259
APPENDIX D
June 23, 1996
Board of Directors
Franklin Financial Group, Inc.
622 West First North Street
Morristown, Tennessee 37814
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of Franklin Financial Group,
Inc., Morristown, Tennessee (the "Company") of the proposed merger of the
Company with Union Planters Corporation, Memphis, Tennessee ("Union Planters").
In the proposed merger, Company shareholders will receive Union Planters common
shares equal to $17.00 per share. The exchange ratio of Union Planters shares
for each Company share would be fixed based upon the closing price of Union
Planters common stock on the day of execution of the Definitive Purchase
Agreement between Union Planters and the Company (the "Agreement").
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS reviewed and analyzed the historical
performance of the Company and its wholly owned subsidiary Franklin Federal
Savings Bank, Morristown, Tennessee (the "Bank") contained in: (i) Audited
Financial Statements as of September 30, 1992, 1993, 1994 and 1995; (ii)
December 31, 1995 Financial Statements for the Company (iii) September 30, 1995
and December 31, 1995 Thrift Financial Reports filed with the Office of Thrift
Supervision; (iv) historical common stock trading activity of the Company and
(v) the premises and other fixed assets. We have reviewed and tabulated
statistical data regarding the loan portfolio, securities portfolio and other
performance ratios and statistics. Financial projections were prepared and
analyzed as well as other financial studies, analyses and investigations as
deemed relevant for the purposes of this opinion. In review of the
aforementioned information, we have taken into account our assessment of
general market and financial conditions, our experience in other transactions,
and our knowledge of the banking industry generally.
In conjunction with our opinion, we have evaluated the historical performance
and current financial condition of Union Planters contained in: (i) Union
Planters Corporation's 1994 Annual Report; (ii) financial statements for the
years ending December 31, 1991, 1992, 1993 and 1994; (iii) financial statements
as of September 30, 1995; (iv) historical common stock trading and dividend
activity to date; and (v) the financial terms of certain other comparable
transactions. We have prepared and analyzed the pro forma consolidated
financial condition of the Company, and Union Planters. We
<PAGE> 260
have reviewed and tabulated consolidated statistical data regarding growth,
growth prospects for service markets, liquidity, asset composition and quality,
profitability, leverage and capital adequacy.
We have not compiled, reviewed or audited the financial statements of the
Company, the Bank or Union Planters, nor have we independently verified any of
the information reviewed; we have relied upon such information as being
complete and accurate in all material respects. We have not made independent
evaluation of the assets of the Company, the Bank or Union Planters.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by the shareholders of the Company under the Agreement is fair
and equitable from a financial perspective.
Very truly yours,
PROFESSIONAL BANK SERVICES, INC.
/s/ Christopher L. Hargrove
-----------------------------------
Christopher L. Hargrove
Vice President
<PAGE> 261
APPENDIX E
Financial Statements of
Franklin Financial Group, Inc. and Subsidiaries
<PAGE> 262
Franklin Financial Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-2
Consolidated Statements of Financial Condition F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 263
LOGO OF HIRAM H. JONES ASSOCIATES, P.C.
Board of Directors
Franklin Financial Group, Inc.
Morristown, Tennessee
We have audited the accompanying consolidated statements of financial condition
of Franklin Financial Group, Inc. and Subsidiaries (Company) as of September
30, 1994 and 1995 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Franklin Financial
Group, Inc. and Subsidiaries as of September 30, 1994 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
securities and mortgage-backed securities and income taxes in 1994.
/s/ Hiram H. Jones Associates, P.C.
December 20, 1995
F-2
<PAGE> 264
Franklin Financial Group, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
- ----------------------------------------------
September 30, 1994 and 1995 and June 30, 1996 (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
------------------------- ----------
1994 1995 1996
------------------------- ----------
<S> <C> <C> <C>
Assets (Unaudited)
Cash and due from banks (including time
deposits of $70 in 1994) $ 1,826 $ 5,959 $ 4,799
Securities available for sale, at market value 14,196 13,633 19,733
Securities held to maturity (market value
$16,769, $16,415 and $9,076) 17,655 16,554 9,281
Loans receivable, net 82,265 93,817 99,656
Accrued interest receivable 668 887 1,129
Premises and equipment, net 1,803 1,700 2,074
Property acquired in settlement of loans, net 122 163 192
Deferred tax asset 166 75 79
Goodwill, net 3,302 2,604 -
Other assets 484 430 764
-------- -------- --------
Total assets $122,487 $135,822 $137,707
======== ======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $105,635 $111,084 $112,635
Borrowed funds 2,275 9,463 10,808
Advances from borrowers for taxes and
insurance 828 759 709
Obligation under capital lease 25 18 16
Federal income tax 350 129 -
Accrued interest payable 119 259 217
Accrued expenses and other liabilities 465 598 1,329
-------- -------- --------
Total liabilities 109,697 122,310 125,714
-------- -------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred stock - $1 par, 5,000,000 shares
authorized, no shares issued or outstanding - - -
Common stock:
Class A: $1 par, 2,000,000 shares authorized,
710,556, 712,320 & 718,320 shares issued &
outstanding for 1994, 1995, & 1996,
respectively 711 712 718
Class B: $1 par, 1,000,000 shares authorized,
500,000 shares issued & outstanding 500 500 500
Capital in excess of par value 9,477 9,511 9,556
Retained earnings substantially restricted 2,349 2,823 1,271
Net unrealized (depreciation)/ appreciation on
securities available for sale, net of tax of
$151, $21, & $32 for 1994, 1995 & 1996,
respectively (247) (34) (52)
-------- -------- --------
Total stockholders' equity 12,790 13,512 11,993
-------- -------- --------
Total liabilities and stockholders' equity $122,487 $135,822 $137,707
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 265
Franklin Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
- -------------------------------------
For the Years Ended September 30, 1993, 1994 and 1995 and
Nine Months Ended June 30, 1995 and 1996 (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
---------------------------------- ---------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 6,995 $ 7,194 $ 8,332 $ 6,093 $ 7,359
Investment securities 1,027 899 801 553 592
Mortgage-backed securities 820 988 979 736 666
Other interest earning assets 54 77 77 77 104
-------- -------- -------- -------- --------
Total interest income 8,896 9,158 10,189 7,459 8,721
-------- -------- -------- -------- --------
Interest expense:
Deposits 4,063 3,949 4,378 3,132 3,877
Borrowed funds 125 79 486 340 380
Other 4 1 2 2 3
-------- -------- -------- -------- --------
Total interest expense 4,192 4,029 4,866 3,474 4,260
-------- -------- -------- -------- --------
Net interest income 4,704 5,129 5,323 3,985 4,461
Provision for loan losses 145 299 306 207 302
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 4,559 4,830 5,017 3,778 4,159
-------- -------- -------- -------- --------
Non-interest income:
Gain (loss) on sale of securities
available for sale - 90 (9) (9) (28)
Gain (loss) on sale of securities
held for investment 126 - - - -
Gain on sale of premises & equipment 6 2 - - -
Loan servicing fees 77 70 62 53 35
NOW account service charges 225 277 308 229 242
Late charges on loans 147 148 177 121 126
Insurance commissions 360 391 352 254 307
Other income 111 114 123 81 102
-------- -------- -------- -------- --------
Total non-interest income 1,052 1,092 1,013 729 784
-------- -------- -------- -------- --------
Non-interest expense:
General & administrative:
Compensation & benefits 1,143 1,421 1,525 1,202 1,198
Occupancy & equipment 360 398 414 319 293
Data processing 309 348 354 194 191
SAIF deposit insurance premium 256 269 244 184 191
Loss on sale of assets acquired
in settlement of loans 7 - 17 1 -
Other 771 807 831 634 613
Amortization of intangibles:
Goodwill 829 762 698 524 2,604
Other 48 89 21 16 16
-------- -------- -------- -------- --------
Total non-interest expense 3,723 4,094 4,104 3,074 5,106
-------- -------- -------- -------- --------
Income (loss) before income tax expense
and cumulative effect of
change in accounting principle 1,888 1,828 1,926 1,433 (163)
Income tax expense 46 1,085 1,040 783 976
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of change
in accounting principle 1,842 743 886 650 (1,139)
Cumulative effect at October 1, 1993, of
change in accounting for income taxes - 644 - - -
-------- -------- -------- -------- --------
Net income (loss) $ 1,842 $ 1,387 $ 886 $ 650 $ (1,139)
======== ======== ======== ======== ========
Earnings per common share - primary and
fully diluted:
Income before cumulative effect of
change in accounting principle $ 2.34 $ .62 $ .73 $ .54 $ (.94)
Cumulative effect of change in
accounting principle - .53 - - -
-------- -------- -------- -------- --------
Net Income (loss) $ 2.34 $ 1.15 $ .73 $ .54 $ (.94)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 266
FRANKLIN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
NINE MONTHS ENDED JUNE 30, 1996 (Unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
DEPRECIATION
CAPITAL IN ON SECURITIES TOTAL
COMMON EXCESS OF RETAINED AVAILABLE STOCKHOLDERS
STOCK PAR VALUE EARNINGS FOR SALE EQUITY
----- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1992 $ 500 $ 4,503 $ (469) $ - $ 4,534
Conversion of debt to equity 118 882 - - 1,000
Sale of stock 590 4,071 - - 4,661
Net income - - 1,842 - 1,842
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1993 1,208 9,456 1,373 - 12,037
Cash dividend paid of $.34 per share - - (411) - (411)
Issuance of 2,745 shares of stock as part of
employee compensation 3 21 - - 24
Change in net unrealized depreciation on
securities available for sale, net of
taxes of $151 - - - (247) (247)
Net income - - 1,387 - 1,387
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1994 1,211 9,477 2,349 (247) 12,790
Cash dividend paid of $.34 per share - - (412) - (412)
Issuance of 1,764 shares of stock as part of
employee compensation 1 17 - - 18
Reclassification of debt to equity - 17 - - 17
Change in net unrealized depreciation on
securities available for sale, net of
taxes of $130 - - - 213 213
Net income - - 886 - 886
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1995 1,212 9,511 2,823 (34) 13,512
Cash dividend paid of $.17 per share - - (413) - (413)
Issuance of 6,000 shares of stock upon
exercise of stock option 6 45 - - 51
Change in net unrealized depreciation on
securities available for sale, net of
taxes of $37 - - - (18) (18)
Net (loss) (unaudited) - - (1,139) - (1,139)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 (unaudited) $ 1,218 $ 9,556 $ 1,271 $ (52) $ 11,993
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 267
Franklin Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended Ended
September 30, June 30,
------------------------------ ---------------------
1993 1994 1995 1995 1996
------------------------------ ---------------------
(In Thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,842 $ 1,387 $ 886 $ 650 $ (1,139)
Adjustments to reconcile net income to net cash provided by -------- -------- -------- -------- --------
Operating activities:
Depreciation & amortization 629 968 893 699 2,753
Provision for loan losses 145 299 306 207 302
Net (gain) or loss on sales of:
Available-for-sale securities - (90) 9 9 28
Held for investment securities (126) - - - -
Property acquired in settlement of loans, net 7 - 17 1 -
Premises & equipment, net (6) (2) - - -
Employee stock bonus - 23 18 18 -
Federal Home Loan Bank stock dividends (26) (30) (43) (31) (37)
Net change due to:
Accrued interest receivable 81 1 (219) (144) (242)
Deferred tax asset - (166) 91 169 (4)
Other assets (11) 7 33 (110) (334)
Accrued expenses & other liabilities 8 72 133 403 731
Accrued interest payable (20) 8 141 144 (42)
Federal income tax - 340 (221) (135) (129)
-------- -------- ------- -------- --------
Total adjustments 681 1,430 1,158 1,230 3,026
-------- -------- ------- -------- --------
Net cash provided by or (used) in operating activities 2,523 2,817 2,044 1,880 1,887
-------- -------- ------- -------- --------
Cash flows from investing activities:
Net change in loans receivable (10,548) (10,575) (12,082) (9,500) (6,213)
Purchase of available-for sale securities - (4,157) (421) (421) (2,997)
Proceeds from sale of available-for-sale securities - 7,389 1,633 1,633 1,178
Proceeds from sale of securities held for investment 6,531 - - - -
Proceeds from maturity of available-for-sale securities - 935 739 424 1,471
Purchase of held-to-maturity securities (10,256) (9,816) (1,458) (1,458) (1,703)
Proceeds from maturity of held-to-maturity securities 2,792 5,304 1,631 1,109 3,243
Proceeds from maturity of time deposits 100 - 70 - -
Purchase of FHLB stock - (40) - - -
Net expenditures on foreclosed real estate - - (10) - -
Proceeds from sales of property acquired in settlement of loans 518 - 2 2 -
Proceeds from sales of premises & equipment 5 2 - - -
Purchase of premises & equipment (93) (169) (94) (83) (508)
-------- -------- -------- -------- --------
Net cash provided or (used) in investing activities (10,951) (11,127) (9,990) (8,294) (5,529)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net increase or (decrease) in demand deposits, now accounts,
& certificates of deposits 8,567 4,298 5,450 2,698 1,551
Proceeds from borrowing 1,464 1,395 7,990 8,240 6,490
Repayment of borrowing (3,526) (139) (802) (732) (5,145)
Net increase or (decrease) in escrow funds 100 89 (69) (88) (50)
Principal payments on lease obligation (6) (8) (8) (4) (2)
Dividends paid - (411) (412) (412) (413)
Proceeds from sale of stock 4,661 - - - 51
-------- -------- -------- -------- --------
Net cash provided or (used) in financing activities 11,260 5,224 12,149 9,702 2,482
-------- -------- -------- -------- --------
Increase or (decrease) in cash & cash equivalents 2,832 (3,086) 4,203 3,288 (1,160)
Cash & cash equivalents, beginning of period 2,010 4,842 1,756 1,756 5,959
-------- -------- -------- -------- --------
Cash & cash equivalents, end of period $ 4,842 $ 1,756 $ 5,959 $ 5,044 $ 4,799
======== ======== ======== ======== ========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
interest $ 4,192 $ 4,021 $ 4,726 $ 3,330 $ 4,302
======== ======== ======== ======== ========
Income taxes $ 19 $ 116 $ 1,182 $ 784 $ 882
======== ======== ======== ======== ========
Supplementary disclosure of noncash investing activities:
Transfers from loans to real estate acquired through
foreclosure $ 10 $ - $ - $ - $ -
======== ======== ======== ======== ========
Transfer from held to maturity to available for sale
securities $ - $ - $ - $ - $ 6,354
======== ======== ======== ======== ========
Conversion of debt to equity $ 1,000 $ - $ - $ - $ -
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 268
Franklin Financial Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1993, 1994 and 1995, and June 30, 1995 and 1996
(Information as of June 30, 1996 and for the Nine Months Ended
June 30, 1995 and 1996, is Unaudited)
(Dollars in Thousands)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Purchase Accounting Principles - The carrying values of all long-term assets
and liabilities were adjusted to their fair values as of December 31, 1988, as
a result of the voluntary supervisory conversion and simultaneous acquisition
of the Bank and its subsidiaries by Franklin Financial Group, Inc., (Company).
Adjustments to fair values and the resulting goodwill from the acquisition,
utilizing push-down purchase accounting, have been determined in accordance
with generally accepted accounting principles. The discounts associated with
investment securities, mortgage-backed securities, and the mortgage and
consumer loan portfolios are being or have been accreted to income using the
interest method over the remaining life of each individual asset. The premium
associated with the long-term certificates of deposit was amortized to expense
using the straight-line method over their estimated term to maturity of
twenty-five months.
Principles of Consolidation - The consolidated financial statements of
Franklin Financial Group, Inc. (Company), a nondiversified unitary savings and
loan holding company, includes the accounts of Franklin Federal Savings Bank
(Bank) formerly Morristown Federal Savings and Loan Association (Association),
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Cash and Cash Equivalents - For purposes of the statements of cash flows,
cash and cash equivalents include "cash and due from banks" less "time
deposits" which are parenthetically disclosed on the consolidated statements of
financial condition. Interest-bearing deposits in other depository
institutions were $1,762, $1,423 and $382 at September 30, 1994 and 1995 and
June 30, 1996, respectively.
Investment Securities and Mortgaged-Backed Securities - Effective October 1,
1993, investments in securities on hand are classified as "held-to-maturity" or
"available-for-sale" according to the initial implementation of the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 115. Investments classified as "held-to-maturity" are carried at
amortized cost while those identified as "available-for-sale" are carried at
fair value. All securities are adjusted for amortization of premiums and
accretion of discounts over the life of the security using the interest method
or a method that does not materially differ from the interest method.
Management has the positive intent and ability to carry those securities
classified as "held-to-maturity" to maturity for long-term investment purposes
and, accordingly, such securities are not adjusted for temporary declines in
market value. "Available-for-sale" securities are adjusted for changes in fair
value through a direct entry to a separate component of stockholders' equity,
net of tax, until realized. The Company does not purchase securities for
trading purposes. Investments in equity securities that are nonmarketable are
carried at cost. The investment in Federal Home Loan Bank (FHLB) Stock is
carried at cost which represents redemption value. The cost of securities sold
is determined by specific identification. Prior to October 1, 1993, debt
securities were considered held for investment and were carried at cost,
adjusted for amortization of premiums and discounts over the life of the
security using the interest method.
F-7
<PAGE> 269
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans Receivable - Loans receivable, net are carried at unpaid principal
balances less loans in process, net deferred loan fees, unearned discount on
loans and allowance for losses. Loan origination and commitment fees, certain
direct loan origination costs and any discounts or premiums in conjunction with
the purchase of mortgage loans are deferred and amortized to interest income
over the contractual life of the loan using the interest method. Effective
October 1, 1995, the Bank adopted the provisions of SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures."
Specific valuation allowances are established for impaired loans for the
difference between the loan amount and the fair value of collateral less
estimated selling costs. The Bank considers a loan to be impaired when, based
on current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement on a timely basis. The type of loans for which impairment is
measured under SFAS No. 114 and 118 include nonaccrual income property loans
(excluding those loans included in the homogenous portfolio which are
collectively reviewed for impairment), large nonaccrual single family loans and
troubled debt restructurings. Such loans are placed on nonaccrual status at
the point deemed uncollectible. Impairment losses are recognized through an
increase in the allowance for loan losses. There were no impaired loans under
SFAS No. 114 and 118 at June 30, 1996.
Allowances for Losses - Allowances for losses are available to absorb losses
incurred on loans receivable and foreclosed real estate and represents
additions charged to expense, less net charge-offs. The allowances are based
on management's assessment of current economic conditions, past loss and
collection experience and risk characteristics of the loan portfolio and
foreclosed real estate. Management believes that allowances for losses on
loans and foreclosed real estate are adequate. The Bank is subject to periodic
examination by regulatory agencies which may require the Bank to record
increases in the allowances based on their evaluation of available information.
There can be no assurance that the Bank's regulators will not require further
increases to the allowances.
Allowance for Uncollected Interest - Accrued interest receivable and interest
income on loans have been reduced for estimated uncollectible interest based on
management's assessment of collectibility in accordance with generally accepted
accounting principles.
Premises and Equipment - Premises and equipment are stated at cost, net of
accumulated depreciation, which is computed by a combination of accelerated and
straight-line methods for both financial accounting and income tax purposes and
is based on the following estimated useful lives:
Office buildings and improvements 15 to 25 years
Furniture, fixtures and equipment 3 to 7 years
Property Acquired in Settlement of Loans - These assets consist primarily of
real estate and vehicles which are stated at the lower of cost or fair value
less estimated selling costs.
F-8
<PAGE> 270
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loan Servicing Rights - Loan servicing rights consist of the estimated
present value of the Bank's projected future net income from servicing loans
for others and are being amortized using a method which approximates the
interest method over the remaining estimated lives of serviced loans, as
determined annually by management.
Income Taxes - In February 1992, SFAS No. 109, "Accounting for Income Taxes,"
was issued by the FASB. The effective date is for fiscal years beginning after
December 15, 1992. This statement superseded SFAS No. 96, "Accounting for
Income Taxes" while retaining the basic asset and liability approach in
accounting for income taxes. Effective October 1, 1993, the Company adopted
SFAS No. 109. The cumulative effect of the change in accounting principle on
years prior to October 1, 1993, of $644,000 is included in determining net
income for the year ended September 30, 1994. Financial statements for prior
years have not been restated. Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Investment tax credits are accounted for as a reduction of income tax expense
in the year taxes payable are reduced.
Earnings Per share - Earnings per share have been computed on the basis of the
weighted average number of shares of common stock outstanding. The weighted
average number of shares outstanding for the years ended September 30, 1993,
1994, and 1995, were 786,084, 1,206,839 and 1,211,713, respectively and
1,211,502 and 1,214,313 for the nine months ended June 30, 1995 and 1996,
respectively.
NOTE 2 - GOODWILL
Upon the acquisition by FFGI of the Bank and its Subsidiaries in December 1988,
the carrying values of all assets and liabilities were adjusted to their market
values. Due to this adjustment, $9.4 million of goodwill was recorded. Given
the nature of the adjustments, FFGI decided to amortize the goodwill over the
life of the Bank's primary asset, the mortgage loan portfolio, using the
interest method of accounting.
In addition to considering prepayments in the mortgage loan portfolio, the
recorded value of goodwill has subsequently been evaluated based upon the
ability of the underlying related assets to generate cash flows to support its
recoverability.
During the quarter ending June 30, 1996, management concluded that nearly all
of the 1988 mortgage loan portfolio had been repaid and, when viewed with their
assessment of their inability to recover goodwill from existing cash flows,
that the remaining $2,179,899 of goodwill was no longer realizable and should
be written off.
NOTE 3 - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Disclosures About Fair Value of Financial Instruments - In December 1991, the
FASB issued SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." SFAS No. 107 requires all entities to disclose the fair value of
financial instruments (both assets and liabilities recognized and not
recognized in the statement of financial condition) for which it is practicable
to estimate fair value, except those financial instruments specifically
excluded. The disclosure shall be either in the body of the financial
statements or in the accompanying notes and shall also include the methods and
significant assumptions used to estimate the fair value of financial
instruments. Additional information is required to be disclosed if it is not
practicable for an entity to estimate the fair value of a financial instrument
as well as the reasons why it is not practicable to estimate fair value. SFAS
No. 107 is effective for entities with less than $150 million in total assets
in the current statement of financial position for financial statements issued
for fiscal years ended after December 15, 1995. SFAS No. 107 will not change
any requirements for recognition, measurement or classification of financial
instruments in the Company's financial statements.
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments In October 1994, FASB issued SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments" that
adds disclosure requirements for derivative financial instruments not covered
by SFAS No. 107 because they do not have off-balance sheet risk. SFAS No. 119
is effective for fiscal years ending After December 15, 1995, for entities with
less than $150 million in total assets. SFAS No. 119 will not change any
requirements for recognition, measurement or classification of financial
instruments in the Company's financial statements.
F-9
<PAGE> 271
NOTE 3 - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Accounting for Mortgage Servicing Rights - In May 1995, the FASB issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights" that amends SFAS No. 65 to
require a mortgage banking enterprise to recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are acquired.
SFAS No. 122 applies prospectively in fiscal years beginning after December 15,
1995. The Company is not involved in any mortgage banking activities at this
time.
Accounting for Stock-Based Compensation - In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires that
compensation cost for stock-based employee compensation plans be measured at
the grant date based on the fair value of the award and recognized over the
service period, which is usually the vesting period. Stock-based employee
compensation plans include stock purchase plans, stock options, restricted
stock and stock appreciation rights. Employee stock ownership plans are not
covered by this Statement. SFAS No. 123 is effective for transactions entered
into in fiscal years that begin after December 15, 1995, with earlier
application permitted. Management has not yet determined the effect on the
Company's financial position or results of operations.
NOTE 4 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The carrying amounts and fair values of the Company's investments in securities
are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available for sale:
September 30, 1994:
Debt securities:
U.S. government and
federal agencies $ 10,830 $ 5 $ 381 $ 10,454
State and municipal 100 - 1 99
Mortgage-backed securities 3,664 21 42 3,643
---------- ---------- ---------- -----------
$ 14,594 $ 26 $ 424 $ 14,196
========== ========== ========== ===========
Securities to be held to
maturity:
September 30, 1994:
Debt securities:
U.S. government and
federal agencies $ 2,576 $ - $ 161 $ 2,416
State and municipal 518 - 21 497
Equity securities:
Federal Home Loan Bank 611 - - 611
Other 52 - - 52
Mortgage-backed securities 13,898 6 710 13,193
---------- ---------- ---------- -----------
$ 17,655 $ 6 $ 892 $ 16,769
========== ========== ========== ===========
</TABLE>
F-10
<PAGE> 272
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
September 30, 1995:
Debt securities:
U.S. government and
federal agencies $ 10,610 $ 20 $ 108 $ 10,522
State and municipal - - - -
Mortgage-backed securities 3,077 43 9 3,111
---------- ---------- ---------- ----------
$ 13,687 $ 63 $ 117 $ 13,633
========== ========== ========== ==========
Securities to be held to
maturity:
September 30, 1995:
Debt securities:
U.S. government and
federal agencies $ 2,501 $ 15 $ 14 $ 2,502
State and municipal 1,039 14 5 1,048
Equity securities:
Federal Home Loan Bank 691 - - 691
Other 52 - - 52
Mortgage-backed securities 12,271 56 205 12,122
---------- ---------- ---------- ----------
$ 16,554 $ 85 $ 224 $ 16,415
========== ========== ========== ==========
Securities available for sale:
June 30, 1996:
Debt securities:
U.S. government and
federal agencies $ 14,743 $ 13 $ 168 $ 14,588
State and municipal - - - -
Mortgage-backed securities 5,073 78 6 5,145
---------- ---------- ---------- ----------
$ 19,816 $ 91 $ 174 $ 19,733
========== ========== ========== ==========
Securities to be held to
maturity:
June 30, 1996:
Debt securities:
U.S. government and
federal agencies $ - $ - $ - $ -
State and municipal 2,125 14 37 2,102
Equity securities:
Federal Home Loan Bank 728 - - 728
Other 52 - - 52
Mortgage-backed securities 6,376 13 195 6,194
---------- ---------- ---------- ----------
$ 9,281 $ 27 $ 232 $ 9,076
========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 273
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and gross realized losses and proceeds from sale of
securities were:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
------------------------------ -------------------
<S> <C> <C> <C> <C> <C>
Gross realized gains:
Available-for-sale securities $ - $ 111 $ - $ - $ -
======== ======== ======== ======== ========
Held for investment securities $ 127 $ - $ - $ - $ -
======== ======== ======== ======== ========
Gross realized losses:
Available-for-sale securities $ - $ 21 $ 9 $ 9 $ 28
======== ======== ======== ======== ========
Held for investment securities $ 1 $ - $ - $ - $ -
======== ======== ======== ======== ========
Proceeds from sale of held for
investment securities $ 6,531 $ - $ - $ - $ -
======== ======== ======== ======== ========
Proceeds from sale of available
for sale securities $ - $ 7,389 $ 1,633 $ 1,633 $ 1,181
======== ======== ======== ======== ========
</TABLE>
During December 1995, the Company redesignated held-to-maturity securities with
an aggregate amortized cost of $6,354 and net unrealized gains of $75 to the
available-for-sale portfolio. The redesignation was prompted by the recent
announcement by the Financial Accounting Standards Board to allow a one-time
redesignation and reflects management's revised expectations of liquidity
needs.
The scheduled maturities of debt securities were as follows:
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------
Securities to be Held Securities Available
to Maturity for Sale
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,000 $ 992 $ 2,514 $ 2,492
Due from one year to five years 1,843 1,855 7,593 7,526
Due from five to ten years 697 703 503 504
Mortgage-backed securities 12,271 12,122 3,077 3,111
-------- -------- -------- --------
$ 15,811 $ 15,672 $ 13,687 $ 13,633
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------
Securities to be Held Securities Available
to Maturity for Sale
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 3,507 $ 3,513
Due from one year to five years 222 226 9,176 9,049
Due from five to ten years 1,903 1,877 2,060 2,026
Mortgage-backed securities 6,376 6,194 5,073 5,145
-------- -------- -------- --------
$ 8,501 $ 8,297 $ 19,816 $ 19,733
======== ======== ======== ========
</TABLE>
F-12
<PAGE> 274
NOTE 5 - LOANS RECEIVABLE, NET
- ------------------------------
Loans receivable, net are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
------------------- ---------
1994 1995 1996
------------------- ---------
<S> <C> <C> <C>
Mortgage loans:
One-to-four family $ 44,934 $ 48,505 $ 47,453
Commercial 9,721 11,504 12,477
Multi-family 1,747 1,945 2,665
Construction 5,754 7,038 7,596
Land 551 1,135 1,269
-------- -------- --------
Total mortgage loans 62,707 70,127 71,460
-------- -------- --------
Commercial business loans 4,516 5,337 7,136
Consumer loans:
Automobile loans 19,247 21,032 22,954
Loans secured by deposits 644 730 1,081
Other 1,885 3,916 3,787
-------- -------- --------
Total commercial business,
consumer & other loans 26,292 31,015 34,958
-------- -------- --------
Total gross loans 88,999 101,142 106,418
Less:
Unearned discount on loans 2,209 2,487 2,460
Loans in process 3,374 3,507 3,088
Deferred loan fees, net 273 312 307
Dealer reserves 226 275 194
Allowance for loan losses 551 643 713
Net discounts resulting from purchase
accounting principles 101 101 -
-------- -------- --------
Total loans receivable, net $ 82,265 $ 93,817 $ 99,656
======== ======== ========
</TABLE>
As of September 30, 1994 and 1995 and June 30, 1996, the Bank had loan
commitments outstanding of approximately $1,319, $843, and $-0-, respectively.
Nonaccrual loans as of September 30, 1994 and 1995, and June 30, 1996, were
approximately $345, $648, and $408, respectively. For the year ended September
30, 1995 and nine months ended June 30, 1996, gross income which would have
been recorded had nonaccrual loans been current in accordance with their
original terms amounted to approximately $71 and $26, respectively. The amount
of interest income included in the Bank's net income for the year ended
September 30, 1995 and nine months ended June 30, 1996, was approximately $28
and $8, respectively.
Activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 365 $ 428 $ 551 $ 551 $ 643
Provision for loan losses 145 299 306 207 303
Charge offs, net of recoveries (82) (176) (214) (157) (233)
-------- -------- -------- -------- --------
Allowance at end of period $ 428 $ 551 $ 643 $ 601 $ 713
======== ======== ======== ======== ========
</TABLE>
F-13
<PAGE> 275
NOTE 6 - ACCRUED INTEREST RECEIVABLE
<TABLE>
<CAPTION>
September 30, June 30,
--------------------- ----------
1994 1995 1996
--------------------- ----------
<S> <C> <C> <C>
Investment securities $ 195 $ 314 $ 385
Mortgage-backed securities 90 91 125
Loans receivable 383 482 619
-------- -------- ---------
Total $ 668 $ 887 $ 1,129
======== ======== =========
</TABLE>
NOTE 7 - PREMISES AND EQUIPMENT, NET
Premises and equipment, net of accumulated depreciation, are summarized as
follows:
<TABLE>
<CAPTION>
September 30, June 30,
--------------------- ----------
1994 1995 1996
--------------------- ----------
<S> <C> <C> <C>
Land $ 190 $ 190 $ 594
Office buildings and improvements 1,781 1,789 1,792
Furniture, fixtures, and equipment 770 852 954
Asset under capital lease (Note 8) 26 18 16
-------- -------- --------
2,767 2,849 3,356
Less - accumulated depreciation 964 1,149 1,282
-------- -------- --------
Total $ 1,803 $ 1,700 $ 2,074
======== ======== ========
</TABLE>
NOTE 8 - LEASE ARRANGEMENTS
On April 28, 1992, Colonial Loan Association entered into a lease agreement for
computer equipment and software. According to the lease agreement, the term of
the lease (60 months) approximates the life of the leased property. Therefore,
the lease is classified as a "capital lease."
The following is a schedule by periods of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
------------ --------
<S> <C> <C>
Period ending September 30,
1996 $ 10 $ 8
1997 9 9
-------- --------
Total minimum lease payments 19 17
Less: amount representing interest 1 1
-------- --------
Present value of net minimum lease payments $ 18 $ 16
======== ========
</TABLE>
F-14
<PAGE> 276
NOTE 9 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of mortgage loans serviced for others was $24,034, $23,710, $22,240 and $21,598
and $20,042 at September 30, 1993, 1994 and 1995 and June 30, 1995 and 1996,
respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $336, $390, $332 and $206 and $291 for September
30, 1993, 1994 and 1995 and June 30, 1995 and 1996, respectively.
Amortization of mortgage servicing rights was $36, $68 and $-0- for the years
ended September 30, 1993, 1994 and 1995, respectively, and $-0- and $-0- for
the nine months ended June 30, 1995 and 1996. No loan servicing rights were
capitalized during any of the periods covered by the consolidated financial
statements.
NOTE 10 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1994 1995 1996
---------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing $ 3,610 3.42% $ 4,195 3.78% $ 5,145 4.57%
NOW accounts, 2.00% 7,483 7.08% 9,100 8.19% 8,343 7.40%
Passbook savings, 2.75% 10,469 9.91% 8,600 7.74% 8,413 7.47%
MMDA accounts, 3.00% 20,754 19.65% 14,324 12.89% 12,646 11.23%
-------- ------ -------- ------ -------- ------
42,316 40.06% 36,219 32.60% 34,547 30.67%
-------- ------ -------- ------ -------- ------
Certificates of deposit:
3.25% to 5.00% 52,369 49.58% 14,492 13.05% 19,794 17.57%
5.01% to 7.00% 10,913 10.33% 59,241 53.33% 57,027 50.63%
7.01% to 9.00% 37 .03% 1,132 1.02% 1,267 1.13%
-------- ------ -------- ------ -------- ------
63,319 59.94% 74,865 67.40% 78,088 69.33%
-------- ------ -------- ------ -------- ------
$105,635 100.00% $111,084 100.00% $112,635 100.00%
======== ====== ======== ====== ======== ======
Weighted-average rate:
Certificates 4.32% 5.66% 5.63%
===== ===== =====
Deposits 3.69% 4.57% 4.54%
===== ===== =====
</TABLE>
Certificate maturities are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
------------- ---------
<S> <C> <C>
First year $ 52,418 $ 54,348
Second year 13,269 12,201
Third year 4,647 7,727
Fourth year 3,927 3,094
Fifth year 494 609
After fifth year 110 109
--------- --------
$ 74,865 $ 78,088
========= ========
</TABLE>
F-15
<PAGE> 277
NOTE 10 - DEPOSITS (CONTINUED)
Jumbo certificates of deposit at June 30, 1996, are summarized by maturity as
follows:
<TABLE>
<S> <C>
Three months or less $ 4,808
Three through six months 4,552
Six through twelve months 4,197
Over twelve months 4,821
--------
Total $ 18,378
========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
September 30, June 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
---------------------------- ------------------
<S> <C> <C> <C> <C> <C>
NOW $ 186 $ 176 $ 162 $ 118 $ 121
Passbook Savings 332 310 270 215 175
Money Market 650 719 538 417 311
Certificates of Deposit 2,907 2,755 3,431 2,400 3,281
-------- -------- -------- -------- --------
4,075 3,960 4,401 3,150 3,888
Less - early withdrawal penalties 12 11 23 18 11
-------- -------- -------- -------- --------
$ 4,063 $ 3,949 $ 4,378 $ 3,132 $ 3,877
======== ======== ======== ======== ========
</TABLE>
NOTE 11 - BORROWED FUNDS
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- ---------
1994 1995 1996
-------------------- ---------
<S> <C> <C> <C>
Federal Home Loan Bank debt with a fixed rate
of interest of 5.35%. Monthly payments,including
interest, of $6 began August 1, 1994 and will
continue through July 1, 2001 $ 794 $ 758 $ 730
Borrowing under reverse repurchase agreements 600 1,000 1,000
Federal Home Loan Bank debt with a fixed rate
of interest of 4.80%. Quarterly payments,
including interest, of $25 began September 1,
1993, & will continue through June 1, 1998 375 275 200
Federal Home Loan Bank debt with a fixed rate of
interest of 5.45%. Monthly payments, including
interest, of $5 began October 1, 1993, and will
continue through August 1, 2003 461 420 388
Federal Home Loan Bank debt with a fixed rate of
interest of 5.60%. Matures in full on
October 2, 1996 - 1,000 1,500
Federal Home Loan Bank debt with a fixed rate of
interest of 6.10%. Matures in full on
July 24, 1996 - 1,500 1,000
</TABLE>
F-16
<PAGE> 278
NOTE 11 - BORROWED FUNDS (CONTINUED)
Borrowed funds consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
----------------------- ----------
1994 1995 1996
----------------------- ----------
<S> <C> <C> <C>
Federal Home Loan Bank debt with a fixed rate
of interest of 5.55%. Matures in
full on October 8, 1996 $ - $ 990 $ 990
Federal Home Loan Bank debt with a fixed rate of
interest of 5.50%. Matures in full on
October 15, 1996 - 1,000 1,000
Federal Home Loan Bank debt with a fixed rate of
interest of 5.50%. Matures in full on
October 18, 1996 - 1,000 500
Federal Home Loan Bank debt with a fixed
rate of interest of 6.05%. Matures in
full on November 8, 1996 - 1,000 1,000
Federal Home Loan Bank debt with a fixed
rate of interest of 5.15%. Matures
in full on January 7, 1997 - 500 500
Federal Home Loan Bank debt with a variable
rate of interest currently at 5.80%. Matures in
full September 2, 1996 - 2,000
Stockholder advances, non-interest bearing
paid December, 1995 45 20 -
-------- -------- --------
Total $ 2,275 $ 9,463 $ 10,808
======== ======== ========
</TABLE>
Borrowed funds maturities are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
------------- ---------
<S> <C> <C>
First year $ 6,690 $ 9,675
Second year 1,686 189
Third year 165 94
Fourth year 96 99
Fifth year 101 105
After fifth year 725 646
-------- --------
Total $ 9,463 $ 10,808
======== ========
</TABLE>
F-17
<PAGE> 279
NOTE 11 - BORROWED FUNDS (CONTINUED)
Information concerning borrowings under reverse repurchase agreements is
summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1994 1995 1996
------ --------- ---------
<S> <C> <C> <C>
Average balance during the period $ 122 $ 756 $ 1,000
Average interest rate during the period 4.925% 6.162% 5.87%
Maximum month-end balance during the period 600 1,000 1,000
Securities underlying the agreements:
Carrying value 1,503 1,502 1,463
Estimated market value 1,500 1,467 1,463
</TABLE>
According to the reverse repurchase agreement, the Bank will repurchase the
exact two U.S. Treasury securities it sold that are presently being held by an
independent third party.
Interest expense on borrowed funds is summarized as follows:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
September 30, June 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
--------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Advances from the Federal Home
Loan Bank $ 125 $ 73 $ 438 $ 306 $ 336
Reverse repurchase agreements - 6 48 33 44
-------- -------- -------- -------- --------
$ 125 $ 79 $ 486 $ 339 $ 380
======== ======== ======== ======== ========
</TABLE>
Pursuant to collateral agreements with the Federal Home Loan Bank, advances of
$9,808 as of June 30, 1996, are secured by all stock in FHLB and
mortgage-backed securities totalling approximately $11,118.
NOTE 12 - PENSION PLAN
The Bank has a 401(K) profit sharing plan available to all employees having
completed one year of service. Normal retirement date is the participant's
sixty-fifth birthday.
The plan is funded entirely by participant (employee) contributions; therefore,
the Bank does not incur any pension expense.
F-18
<PAGE> 280
NOTE 13 - INCOME TAXES
The Company's and its subsidiaries' taxable year end is December 31, and they
file a consolidated tax return. If certain conditions are met in determining
taxable income, the Bank is allowed a special bad debt deduction based on a
percentage of taxable income (presently 8 percent) or on the experience method.
The Bank used the experience method for all periods covered by the consolidated
financial statements.
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
--------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Current taxes:
Federal income $ 46 $ 456 $ 944 $ 698 $ 815
State excise - - 121 79 154
------- -------- -------- -------- --------
46 456 1,065 777 969
------- -------- -------- -------- --------
Deferred taxes:
Federal income - 459 (50) (22) 6
State excise - 170 25 28 1
------- -------- -------- -------- --------
- 629 (25) 6 7
------- -------- -------- -------- --------
$ 46 $ 1,085 $ 1,040 $ 783 $ 976
======= ======== ======== ======== ========
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to income before income taxes and
cumulative effect of change in accounting for income taxes as a result of the
following:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
----------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Tax at statutory rate of 34% $ 642 $ 622 $ 654 $ 487 $ (55)
Increase (decrease) in taxes:
Bad debt deduction (34 ) (34) - - - -
State income taxes, net of
federal tax - 170 119 89 102
Other 26 31 27 27 41
Effects of purchase accounting:
Amortization of goodwill 282 259 237 178 885
Accretion of mortgage loan
discount (120) (14) - - -
Other (17) 17 3 2 3
Applied net operating loss
carryforward (719) - - - -
AMT exemption (14) - - - -
-------- -------- -------- -------- --------
Total income tax expense $ 46 $ 1,085 $ 1,040 $ 783 $ 976
======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 281
NOTE 13 - INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
------------------------- ---------
1994 1995 1996
------------------------- ---------
<S> <C> <C> <C>
Deferred loan fees, net $ 96 $ 118 $ 118
Allowance for losses on loans 50 99 125
Deferred directors compensation 47 49 30
Net unrealized depreciation on securities
available for sale 151 21 32
Federal Home Loan Bank stock dividends (196) (212) (226)
Tennessee net operating loss carryforward 16 - -
Other, net 2 - -
-------- --------- -------
$ 166 $ 75 $ 79
======== ========= =======
</TABLE>
Retained earnings at September 30, 1994 and 1995 and June 30, 1996, include
approximately $2,763 for which no deferred federal income tax liability has
been recognized. This amount represents an allocation of income to bad-debt
deductions for tax purposes only. Because of a deficit in tax adjusted
retained earnings, any dividends paid from other than the current years
earnings and profits would create income for tax purposes only, which would be
subject to the then-current corporate income tax rate. The unrecorded deferred
income tax liability on the above amount was approximately $939 at September
30, 1994 and 1995 and June 30, 1996.
NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) requires that savings institutions maintain "core capital" of at least
3% of adjusted total assets. Under proposals currently being evaluated by the
Office of Thrift Supervision (OTS), a savings institution's core capital could
be increased to between 4% and 5% of adjusted total assets. Core capital is
defined to include retained earnings among other components. Savings
institutions also must maintain "tangible capital" of not less than 1.5% of the
Bank's adjusted total assets. "Tangible capital" is defined generally, as core
capital minus any intangible assets.
In addition to requiring compliance with the core and tangible capital
standards, FIRREA and the OTS regulations also require that savings
institutions satisfy a risk-based capital standard. The minimum level of such
capital is based on a credit risk component and is calculated by multiplying
the value of each asset (including off-balance sheet commitments) by one of
four risk factors. The four risk categories range from zero for cash to 100%
for certain delinquent loans and repossessed property. Savings institutions
must maintain an 8.0 risk-based capital level.
F-20
<PAGE> 282
NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (CONTINUED)
FDICIA - In December, 1991, Congress passed The Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) to become effective December 19,
1992. FDICIA establishes five capital categories for FDIC insured
institutions: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The Bank was classified as well capitalized at March 31,
1996.
The following table presents the Bank's capital position relative to its
regulatory capital requirements at June 30, 1996:
<TABLE>
<CAPTION>
Tangible Core Total
Capital Capital Capital
-------- ------- -------
<S> <C> <C> <C>
Stockholders' equity per consolidated financial
statements $ 11,993 $ 11,993 $ 11,993
Stockholders' equity of the Company not
available for regulatory capital purposes (105) (105) (105)
-------- -------- --------
GAAP capital, as adjusted 11,888 11,888 11,888
Unrealized gain on available for sale
securities 52 52 52
Nonallowable assets:
Deferred tax asset (79) (79) (79)
Other (40) (40) (40)
Additional capital items:
General valuation allowances - - 547
-------- -------- --------
Regulatory capital - computed 11,821 11,821 12,368
Minimum-capital requirement 2,055 4,111 6,921
-------- -------- --------
Regulatory capital - excess $ 9,766 $ 7,710 $ 5,447
======== ======== ========
Regulatory capital ratio 8.63% 8.63% 14.30%
Regulatory capital requirement 1.50 3.00 8.00
-------- -------- --------
Regulatory capital ratio - excess 7.13% 5.63% 6.30%
======== ======== ========
</TABLE>
As of June 30, 1996, the Company had 15,000 common shares under option at an
exercise price of $8.50 per share. At June 30, 1996, there were 15,000 shares
exercisable.
NOTE 15 - RELATED PARTIES
The Bank originates loans to its directors, significant shareholders, and their
affiliates (related parties) in the ordinary course of business. These loans
were made on substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated persons. The aggregate amount of
loans to such related parties at September 30, 1995, was $705. During the year
ended September 30, 1995, new loans to such parties amounted to $373 and
repayments amounted to $54. The aggregate amount of such loans to such related
parties at June 30, 1996, was $636. During the nine months ended June 30,
1996, new loans to such parties amounted to $261 and repayments amounted to
$330.
F-21
<PAGE> 283
NOTE 16 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank and its subsidiaries have various
outstanding commitments and contingent liabilities that are not reflected in
the accompanying consolidated financial statements. In addition, the Bank and
its subsidiaries are defendants in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position of the Bank and its subsidiaries. The principal commitments of the
Bank and its subsidiaries are as follows:
At June 30, 1996, the Bank had the following lines and letters of credit:
Unused lines of credit:
Open-end consumer lines
$ 803
========
Commercial lines $ 2,669
========
Letters of credit:
Commercial $ 397
========
Commitments to originate mortgage loans are legally binding agreements to lend
to the Bank's customers. Commitments at June 30, 1996, to originate mortgage
loans were $-0- for fixed-rate loans and $-0- for adjustable-rate
loans.
Certain present and past directors of the Bank have contracts entitling them to
monthly compensation upon attaining age 65 in lieu of receiving director fees
for a specified period of seven years. The Bank has purchased life insurance
on all but one director as a precaution and means of funding the eventual
compensation expense. The present value of this liability was $115, $118 and
$80 while the asset cash value of life insurance was $42, $52 and $52 as of
September 30, 1994 and 1995 and June 30, 1996, respectively.
The FDIC has proposed a one-time assessment on all SAIF-insured deposits, in
the range of 85 cents to 90 cents per $100 of domestic deposits. This one-time
assessment is intended to recapitalize the SAIF to the required level of 1.25%
of insured deposits and could be payable in the fourth quarter of 1996 or early
1997. If made at the foregoing rate and level of deposits outstanding at March
31, 1996, the assessment would result in a pretax charge of approximately $1
million or $629 thousand after tax.
NOTE 17 - RISKS AND UNCERTAINTIES
The Bank is a community oriented financial institution which provides
traditional financial services within the areas it serves. The Bank is engaged
primarily in the business of attracting deposits from the general public and
using these funds to originate one-to-four family residential mortgage loans
located primarily in Hamblen and Jefferson County, Tennessee.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities as of the balance
sheet dates and income and expenses for the periods covered. Actual results
could differ significantly from these estimates and assumptions.
F-22
<PAGE> 284
NOTE 17 - RISKS AND UNCERTAINTIES (CONTINUED)
The Bank's operations are affected by interest rate risk, credit risk, market
risk and regulations by the Office of Thrift Supervision (OTS). The Bank is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice more rapidly, or on a different basis, than its
interest-earning assets. The Bank uses a net market value methodology provided
by the OTS and separately purchased software to measure its interest rate risk
exposure. Management alters loan and deposit pricing as well as the maturity
of the Bank's securities portfolio to achieve the proper mix between
interest-earning assets and interest-bearing liabilities. Credit risk is the
risk of default on the Bank's loan portfolio that results from the borrowers'
inability or unwillingness to make contractually required payments. Market
risk reflects changes in the value of collateral underlying loans receivable
and the valuation of real estate held by the Bank. The Bank is subject to
periodic examination by regulatory agencies which may require the Bank to
record increases in the allowances based on their evaluation of available
information. There can be no assurance that the Bank's regulators will not
require further increases to the allowances.
NOTE 18 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition and condensed
statements of operations and cash flows for Franklin Financial Group, Inc.
should be read in conjunction with the consolidated financial statements and
the notes thereto.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, June 30,
1994 1995 1996
------------------------ --------
Assets (in thousands)
<S> <C> <C> <C>
Cash and due from banks $ 113 $ 111 $ 103
Investment in subsidiary 12,722 13,427 11,888
-------- -------- --------
Total assets $ 12,835 $ 13,538 $ 11,991
======== ======== ========
Liabilities and Stockholders' Equity
Other liabilities $ 28 $ 26 $ (2)
Borrowed funds 17 - -
-------- -------- --------
Total liabilities 45 26 (2)
Stockholders' equity 12,790 13,512 11,993
-------- -------- --------
Total liabilities and stockholders' equity $ 12,835 $ 13,538 $ 11,991
======== ======== ========
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
Equity in income of the Bank $ 1,853 $ 1,084 $ 474 $ 238 $ (1,520)
Dividends from Bank - 312 412 412 488
Interest income 1 - 2 - 1
Other expense (12) (9) (2) - (108)
-------- -------- -------- -------- --------
Net income (loss) $ 1,842 $ 1,387 $ 886 $ 650 $ (1,139)
========= ======== ======== ======== ========
</TABLE>
F-23
<PAGE> 285
NOTE 18 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
September 30, June 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 1,842 $ 1,387 $ 886 $ 650 $ (1,139)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in income of Bank (1,853) (1,084) (474) (238) 1,520
Increase (decrease) in
other liabilities (3) 4 (2) (4) (27)
-------- -------- -------- -------- --------
Net cash provided by or (used
in) operating activities (14) 307 410 408 354
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchase of common stock of
Bank (4,919) - - - -
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Dividends paid - (411) (412) (412) (413)
Proceeds from borrowing 489 - - - -
Proceeds from sale of common
stock 4,661 - - - 51
-------- -------- -------- -------- --------
Net cash provided by or (used
in) financing activities 5,150 (411) (412) (412) (362)
-------- -------- -------- --------- --------
Net increase (decrease) in cash
& cash equivalents 217 (104) (2) (4) (8)
Cash & cash equivalents at
beginning of period - 217 113 113 111
-------- -------- -------- --------- --------
Cash & cash equivalents at end
of period $ 217 $ 113 $ 111 $ 109 $ 103
======== ======== ======== ========= ========
</TABLE>
F-24
<PAGE> 286
NOTE 19 - EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT
On March 4, 1996, the Company entered into an Agreement and Plan of Merger
which provides for the acquisition of Franklin Financial Group, Inc. (FFGI) by
Union Planters Corporation (UPC) in a merger. In the Merger, those persons who
are record holders of Class A Common Stock and Class B Common Stock outstanding
immediately prior to the effective time of the Merger (the "FFGI Record
Stockholders"), would receive 0.5440 shares of UPC Common Stock in exchange for
each of their shares of Class A Common Stock and Class B Common Stock (the
"Exchange Ratio"). In addition to the shares of UPC Common Stock to be
exchanged in the Merger for each share of Class A Common Stock and Class B
Common Stock, UPC will place in escrow a certain number of shares of UPC Common
Stock ("Escrowed Shares") to be held for the benefit of UPC and the Class B
Stockholders. Specifically, the number of Escrowed Shares will equal ten
percent (10%) of the aggregate number of whole shares of UPC Common Stock that
UPC will be obligated to issue to FFGI Record Stockholders based on the
Exchange Ratio. The transaction is subject to the approval of the stockholders
of FFGI and federal banking regulatory agencies. In the event that the
acquisition is completed as presently structured, the Bank will be required to
recapture its tax bad debt reserve, which will result in an additional tax
liability of approximately $939.
F-25
<PAGE> 287
APPENDIX A
PROXY REVOCABLE PROXY
FRANKLIN FINANCIAL GROUP, INC.
---------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 1, 1996
---------------------------------------------
The undersigned hereby appoints Charles G. Robinette and Richard C. Jessee
with full powers of substitution, to act as proxies for the undersigned, to vote
all shares of Common Stock of Franklin Financial Group, Inc. ("FFGI" ) which the
undersigned is entitled to vote at a Special Meeting of Stockholders
("Meeting"), to be held in the Jean Keener Room of the Rose Center, 442 W.
Second North Street, Morristown, Tennessee, on Tuesday, October 1, 1996 at 10:00
a.m., Eastern Standard Time and at any and all adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---- ------- -------
<C> <S> <C> <C> <C>
1. The approval of the Agreement and Plan of Merger (the "Merger Agreement") dated March 4,
1996, as amended, between Union Planters Corp. ("UPC"), Franklin Acquisition Corp. ("Franklin
Acquisition"), Franklin Financial Group, Inc. ("FFGI"), Franklin Federal Savings Bank
("Franklin Federal") and the Class B Stockholders of FFGI (the "Class B Stockholders"),
pursuant to which Franklin Acquisition would be merged with and into FFGI (the "Merger"),
with FFGI surviving the Merger and becoming a wholly-owned subsidiary of UPC................. [ ] [ ] [ ]
</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED
OR ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED FOR
EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT THE
SPECIAL MEETING, THIS PROXY WILL BE VOTED AS DETERMINED BY A MAJORITY OF THE
BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and after notification to the Secretary of FFGI at
the Meeting of the shareholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt from FFGI prior to the execution of
this proxy, a Notice of the Meeting, and a Prospectus/Proxy Statement dated
August 29, 1996.
<TABLE>
<S> <C>
Dated:
---------------------------------------------------------
PRINT NAME OF SHAREHOLDER
---------------------------------------------------------
SIGNATURE OF SHAREHOLDER
---------------------------------------------------------
PRINT NAME OF SHAREHOLDER
---------------------------------------------------------
SIGNATURE OF SHAREHOLDER
</TABLE>
Please sign exactly as your name appears on the envelope in which this card
was mailed. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If shares are held jointly, each holder
should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
