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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Murfreesboro Bancorp, Inc.
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(Name of Small Business Issuer in its charter)
Tennessee 62-1694317
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
615 Memorial Boulevard, Murfreesboro, Tennessee 37129
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (615) 890-1111
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
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Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS AND DEVELOPMENT OF THE COMPANY
Murfreesboro Bancorp, Inc. (the "Company") is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, and became so upon its
formation of the Bank of Murfreesboro (the "Bank"). An application was approved
by the Federal Reserve Bank of Atlanta ("FRB"). See SUPERVISION & REGULATION.
The Company was incorporated under the laws of the State of Tennessee as a
Tennessee corporation on October 21, 1996. The Company's activities will be
conducted primarily through its subsidiary, the Bank. The Bank began its
operations on October 6, 1997. Except for the issuance of one share of common
stock to the organizer for $25, the Company was inactive prior to January 1,
1997. The offices of the Company are located at 607 and 615 Memorial Boulevard,
Murfreesboro, Tennessee 37129, and its telephone number is (615) 890-1111. Its
permanent offices will be the same as the offices of the Bank. See BUSINESS OF
THE BANK - General.
The Directors have determined that there are a number of advantages in forming
the Company to own the Bank. The first to be considered is the general planning
flexibility that a bank holding company offers. State and federal banking laws
restrict not only the activities in which banks are allowed to engage, but also
the general operations and procedures a bank may follow. The bank holding
company offers increased flexibility in such areas as estate planning,
acquisitions, expanded range of permissible activities to meet bank and non-bank
competition, capital formation options, and facilitation of a more rapid capital
generation through retained earnings. Basically, this corporate structure will
allow more options.
The formation of a bank holding company can also be an advantage to the whole
banking entity. A more efficient bank can offer services to its customers at a
lower price or can offer additional or better services at the same price.
Nonbanking subsidiaries of a bank holding company can also offer services to the
community which the bank is unable to provide.
Other advantages include added tax strategies, the ability to acquire bank
assets in other states, and the opportunities to acquire thrift institutions
that might not be available without a holding company structure. While the
Company has no present plans to form any other subsidiaries or make other
acquisitions other than the Bank at this time, the Directors determined that
this would be the easiest, most efficient, and cheapest time to form a bank
holding company so the Company and Bank can take advantage of opportunities
immediately when they arise.
BUSINESS OF THE BANK
GENERAL
The Bank is an independent and locally oriented bank headquartered in
Murfreesboro, Rutherford County, Tennessee. The Company believes that the
existing and future banking market in Murfreesboro presents an excellent
opportunity for a new locally oriented bank for several reasons: (i) the recent
sale of another community bank to an out-of-county bank holding company, (ii) a
locally oriented and managed institution can better assess the commercial
banking needs of local businesses and more timely respond to the needs of
customers, and (iii) the strength of the Murfreesboro economy can provide a
solid foundation for growth of local financial institutions. It is expected that
the Bank will provide a full range of banking and related financial services
with a focus on service to customers and small business.
The Bank applies the same standards and requirements in the conduct of all
facets of its business to all of its customers. The general banking business
conducted includes the receipt of deposits, making of loans,
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issuance of checks, acceptance of drafts, consumer credit operations, and all
aspects of a full service bank, including the authority to operate a trust
department, as approved by the Tennessee Department of Financial Institutions
("TDFI") and the Federal Deposit Insurance Corporation ("FDIC.")
DESCRIPTION OF BUSINESS
The mission of the Company is to enhance shareholder value while serving the
financial needs of the Rutherford County community, its businesses (including
minority-owned), and its citizens,(including low-income families). The Bank is
in the financial services business and charged with the responsibility of
serving the financial needs of businesses and families in the market area.
The primary mission of the Bank is to maximize its sustainable earnings.
Management wants to maximize the total earnings of the Bank over the long term.
When appropriate, the Bank will sacrifice short-term earnings for higher profits
in the future.
The Bank will be a responsible citizen and business leader of Rutherford County.
The Bank will take its citizenship duties seriously and will strive to take
actions that are in the best interest of the community.
Providing financial services to the customers is the business of the Bank. The
products are designed to meet the financial needs of the customers, the hours
are to be set to meet the needs of customers, and the employees are hired to
meet the needs of the customers. High quality customer service is also a mission
of the Bank. It is only through the accomplishment of this mission that the
Bank's growth and profitability goals can be achieved.
The major asset with which to accomplish the Bank's mission is the employees.
Without dedicated and responsible employees, it would be impossible for the Bank
to be a responsible citizen of the community or to render high quality customer
service. A mission of the Bank, therefore, is to be a responsible employer. All
Bank employees will be treated with dignity and respect. All will be given equal
opportunity regardless of race, sex, age, or physical disability.
The directors believe that with Mr. William E. Rowland as President and Chief
Executive Officer, they can attract experienced local bankers with experience in
the Rutherford County market and having a customer base that will allow the Bank
to grow its deposits and loans in a manner to become cumulatively profitable. It
is the intent of management to concentrate on controlled growth in a manner to
build a network servicing a quality customer base in Rutherford County. The
focus will be to serve Rutherford County from a centralized location in
Murfreesboro. The target customer will be individuals having strong ties to the
local market. The Bank's marketing will be directed toward individuals who feel
that the Murfreesboro and the Rutherford County market is their home and the
center of their world and to be differentiated from the individual that views
Murfreesboro as a bedroom community of Nashville which is the focus of their
employment, business, shopping and/or social activities.
It is the intent of the Bank to concentrate on the Murfreesboro/Rutherford
County market and to search for avenues to provide banking services at the least
possible cost. Full service brick and mortar branches carry the cost burden of
the opportunity cost on the investment, depreciation on the building and
equipment, and personnel cost. Instead of adding numerous branch locations, the
Bank wi11 operate from one or two locations (preferably one) and search for ways
to provide a network to deliver service throughout the community by the use of
Automated Teller Machines ("ATM's"), credit cards, debit cards, home banking and
the use of other future electronic vehicles. It will be the objective to provide
personal hometown banking by having bankers that know the market and are
sensitive to the financial needs of the customer. Management selected computer
services that allow the Bank to provide the state of the art electronic
products. It will be the Bank's objective to maintain a competitive advantage
through cost control and by avoiding the costs associated with a brick and
mortar branch system.
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Commercial Banking The range of services provided by the Bank in the commercial
banking area include business loans, both short and long term, secured and
unsecured, money management services and transaction services. Most of the
services to be offered in this market are anticipated to be proprietary, with
some reliance upon services developed by other financial service institutions.
The Bank's targeted market in the commercial banking area is small to
medium-sized businesses. Typically, these commercial customers have annual
revenues of $100 million or less and probably encompass most of the local
businesses in the Bank's market area. Certain not-for-profit and governmental
entities may also find the Bank's services attractive.
The Bank's focus in the commercial banking market is to provide intensive,
high-quality service for its customers. Particularly in the credit service area,
the Bank endeavors to give its commercial customers access to a highly-trained
servicing team of credit and deposit service specialists who remain with the
customer relationship for long periods of time. Credit decision-making is
customized to meet the borrower's financial needs and designed for rapid
response. Credit judgments involve the Bank's senior management and, where
legally required, involve the Directors of the Bank.
Consumer Banking The Bank offers a broad range of financial services designed to
meet the credit, thrift, transaction and trust needs of the general consumer
market place. These services include traditional demand and time deposit
accounts, safe deposit facilities, automated teller facilities, credit card
services, traveler's checks, and consumer loans including mortgage loans.
Trust Services The Bank intends to offer limited trust services, such as
pre-paid funeral contracts and simple personal trusts. The Bank has trust powers
but has not exercised the powers at this time.
COMPETITION
The Bank is subject to intense competition from various financial institutions
and other companies or firms that offer financial services. The Bank competes
for deposits with other commercial banks, savings and loan associations, credit
unions, and issuers of commercial paper and other securities, such as
money-market and mutual funds. In making loans, the Bank competes with other
commercial banks, savings and loan associations, consumer finance companies,
credit unions, leasing companies, and other lenders.
In Rutherford County, there are 10 commercial banks, with at least 36 offices
actively engaged in banking activities, including 8 major state-wide financial
institutions. In addition, there is one savings and loan association with 6
locations and numerous credit unions, finance companies, and other financial
service providers. Total deposits held by banks and savings and loan
associations in Rutherford County as of June 30, 1997 were over $1.3 billion. Of
those deposits, banks held approximately 84% and savings and loans held
approximately 16%. Of the bank deposits, the offices of major bank holding
companies held 95.86%.
REGULATORY APPROVALS
The Bank received a bank certificate of authority from the Tennessee department
of Financial Institutions ("TDFI") on September 30, 1997 and approval from the
Federal Deposit Insurance Corporation ("FDIC") on September 5, 1997. The Bank
has insurance on deposits up to $100,000 by the Bank Insurance Fund. The Bank is
subject to regulation by the TDFI and the FDIC. The Company is subject to
regulation by the FRB and the laws of the state of Tennessee relating to
corporations. See SUPERVISION AND REGULATION.
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EMPLOYEES
The Bank had a staff of approximately 14 full-time employees at December 31,
1997 and 18 full-time employees and 1 part-time employee at March 31, 1998.
William E. Rowland serves as the Bank's President and Chief Executive Officer,
and Joyce Ewell serves as the Bank's senior vice president. The Bank offers a
typical health and disability insurance plan to its employees. Beginning in 1998
the Bank instituted a 401(k) employee benefit plan.
POLICIES AND PROCEDURES
The Board of Directors of the Bank established a statement of lending policies
and procedures, or loan policy, to be used by loan officers of the Bank when
making loans. The loan policy incorporates general lending principles and then
more specific principles/policies relating to specific departments within the
Bank's lending framework. The loan policy defines the trade area as the
Rutherford County market and surrounding counties, and any loan made outside
such area will require approval of the Bank's loan committee. The Bank's goal is
to achieve a loan to deposit ratio of 80% and a specific breakdown of the
targeted types of loans are included in the loan policy. Lending limits of
specific officers and the loan committee are included.
The Board of Directors of the Bank also established an investment policy which
guides Bank officers in determining the investment portfolio of the Bank. The
Bank's investment policy sets forth the general objectives and criteria for the
Bank in making investments in securities. The investment policy establishes and
sets forth the duties of an investment committee which shall control the
policies concerning the investment portfolio. A portfolio investment manager
shall be appointed to be responsible for the day to day operations and
implementation of the policies and strategies set forth by the investment
committee.
As banking has become more volatile, it has become increasingly more difficult
to produce adequate earnings on a consistent basis. In addition, federal
regulators have become quite interested in the asset/liability management of
banks; and examiners are strongly suggesting that written policies and
procedures are necessary. Therefore, the Board of Directors of the Bank has
developed a written statement detailing the Bank's asset/liability policy and
procedures to minimize the Bank's interest rate risk. The goal of the policy is
to maintain adequate earnings in all future interest rate environments. The
asset/liability management policy establishes an asset/liability management
committee which is assigned the responsibility to establish procedures to
achieve the Bank's goals while adhering to prudent banking policies. The
analysis to be conducted by the committee is set forth in the policy as well as
other duties and responsibilities. One such duty is to address the liquidity
needs of the Bank to assure that sufficient funds are available to meet credit
demands and deposit withdrawals.
Other policies include an Interbank Liabilities policy, Code of Ethics, and
Audit policy.
THE MARKET
The Bank will focus its efforts and attention on serving consumers and
businesses in the Murfreesboro (the "City") and Rutherford County (the "County")
area. According to the Murfreesboro Chamber of Commerce, Rutherford County has
experienced a strong and steady growth pattern in the past several years. There
has been an excellent increase in new industry, new business, and population.
This is a result of the many advantages the community has to offer. There is a
desire on the part of the City and County officials to have the community grow
and prosper. An avid interest in the potential of the county by the business and
civic leaders as well as its residents makes this a progressive community.
Rutherford County has grown to become the fifth most populous of Tennessee's
ninety-five counties. Population at June 30, 1997 was estimated to be 154,333.
This reflects an increase of 35,583, or 37.5%, from the 1990 United States
Census report of 118,750. This makes Rutherford County the fastest growing
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county in Tennessee during the 1990's based on actual population increase and
second fastest growing county in Tennessee based upon percentage increase
(second only to Williamson County which has grown 38.1% over the same period.)
It is also part of the eight county Nashville Standard Metropolitan Statistical
Area which is the largest SMSA in Tennessee.
The city of Murfreesboro (which serves as the county seat of Rutherford County)
has a population of 59,506 according to a special 1998 census. This is a 32.3%
increase from the 1990 United States Census population of 44,922. In addition,
this reflects a 13.7% in the past two years from the 1996 special census of
52,341. Murfreesboro is the sixth largest city in the state (behind Memphis,
Nashville, Knoxville, Chattanooga and Clarksville.)
The population of Smyrna (which is located in the northwest section of
Rutherford County) totaled 24,077 in a special 1998 census. This represents an
increase of 10,430, or 76.4%, from the 1990 U.S. census population of 13,647.
LaVergne (also located in the northwest area of Rutherford County) reflected an
increase of 8,502, or 141.7%, in its special 1998. The population according to
this census was 16,007 compared to a 1990 U.S. Census of 7,499. Of the ten
fastest growing cities in Tennessee with populations of 5,000 or more, three are
located in Rutherford. No other county had more than two of the ten fastest
growing cities.
The U.S. Bureau of the Census estimated Tennessee's population in 1995 to be 3.5
million people making it the seventeenth most populous state. By the year 2025
the population is expected to be increase by 1.4 million people to 6.7 million
people making it the fifteenth most populous state. The state's net gain during
this time will be the thirteenth largest of the fifty states and District of
Columbia. By the year 2000 Tennessee is projected to have a population of 5.7
million people making it the sixteenth most populous state. Its rate of increase
during that five year span is projected to be ninth largest net gain of the
fifty states and District of Columbia.
Rutherford County had an unemployment rate of 3.2% for March 1998 compared to
4.7% for Tennessee and a national average of 5.0%.
Rutherford County is the geographic center of Tennessee, located Southeast of
Nashville on the major interstate (1-24) corridor between Nashville and
Chattanooga. Chief topographic features are the Stones River and J. Percy Priest
Lake. Rutherford County encompasses 612 square miles and the average elevation
is 619 feet above sea level. Rutherford County is easily associated as a
"bedroom" community for Nashville because of its natural proximity, but this
term is less and less accurate as more and more people, companies, and
diversified employment/career opportunities take root in our area for local
employment, educational and shopping interests, resulting in less medium-haul
commuting.
The county seat, Murfreesboro, sits in the center of Rutherford County along the
river named after early settler and explorer Uriah Stone, who in 1775 navigated
up the river from its mouth near Fort Donelson (now Nashville). The community
and local area grew along with the new state of Tennessee. The first county seat
was established in the community of Jefferson, near Smyrna, and in 1811 the town
of Cannonsburgh was incorporated as the County seat. After only 33 days the name
of the town was changed to Murfreesboro in honor of Revolutionary War Colonel
Hardy Murfree, one of several early settlers.
Rutherford County, with beginnings all the way back to the first years of the
new state of Tennessee, was actually began as part of a much larger geographic
area that spanned east towards the Cumberland Plateau, and south towards the
southern edge of the Highland Rim. Originally part of Davidson County and the
government of what was Fort Donelson and Nashborough, in 1803 the area was
granted county status independent of what we now know as Nashville. In just a
few more years, as the American westward movement became more pronounced, the
legislature was petitioned to carve new counties out of the area that was
Rutherford County, but still left one of the larger-sized area counties in the
Middle Tennessee area (620+ square miles).
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Murfreesboro was the state capital of Tennessee from 1819 to 1825, during which
time the center of the downtown area was the economic hub of the state. However,
political and economic influences from the city (and larger river port) of, just
32 miles to the northwest, drew away the center of state government to its
present home. Murfreesboro nevertheless remained a significant economic center
based largely on its agriculture and location between Nashville and Chattanooga.
There are four incorporated municipalities in the County which are Murfreesboro,
Smyrna, LaVergne, and Eagleville. Many other smaller communities such as
Lascassas, Milton, Walter Hill, Almaville, Christiana, Fosterville, Kittrell,
Leanna, Crescent, Barfield, Compton, Rockvale, Windrow and others, are
unincorporated but still rural centers for residential and agricultural life.
Rutherford County had a population estimated at 148,000 in 1995 by the State of
Tennessee and 154,333 in 1997. The rate of growth indicates the area is one of
the fastest growing centers in Tennessee and the Southeastern United States.
Official population figures for the area are as follows:
Population Figures (1990 US Census)
Murfreesboro 44,922
Smyrna 13,647
LaVergne 7,499
Eagleville 462
RUTHERFORD COUNTY 140,700
Murfreesboro and Smyrna both have a substantial downtown area and several
shopping centers which provide a variety of commercial establishments for
shopping convenience. Specialty shops offer unique buying opportunities.
LaVergne has the county's largest industrial park, which functions in part as
one of the largest distribution centers in the Southeastern United States.
Murfreesboro is home to many antique and collectible item dealers. It holds the
reputation of being the "Antique Center of the South," in tandem with much of
its antebellum heritage.
According to the Tennessee Department of Economic and Community Development the
major employers in Rutherford County include:
<TABLE>
<CAPTION>
FIRM PRODUCT/SERVICE TOTAL EMPLOYMENT
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<S> <C> <C>
Nissan Motor Manufacturing Corp., USA Car Manufacturing 6,070
Rutherford County Government Government 2,657
Ingram Distribution Publications 2,000
Whirlpool Corporation Refrigerators, Air Conditioners 2,000
Bridgestone/Firestone Tires 1,900
Middle Tennessee State University University 1,650
Alvin C. York V.A. Medical Center Hospital 1,448
City of Murfreesboro Municipality 1,232
Middle Tennessee Medical Center Hospital 1,030
Perrigo of Tennessee Plastic Bottles and Personal Care Products 1,000
Caradon Better-Bilt Aluminum Storm Doors, Windows 850
State Farm Insurance Co. Insurance 809
National HealthCare, L.P. Health Care 800
Waldenbooks Publications 774
</TABLE>
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Per capita personal income in Rutherford County has grown 23.6% between 1990
through 1994 from $15,948 to $19,716. During the same period, total employment
has grown 24.8% from 62,723 to 78,306 according to the United States Department
of Commerce. Total employment has continued to grow to over 80,000 at the end of
June 1996.
Middle Tennessee State University ("MTSU"), established in 1911, has a
significant impact on the community in the Rutherford County area. With an
enrollment of more than 17,000, MTSU offers 143 degree programs in five
under-graduate colleges and a graduate college, and is the fastest growing and
third largest university in Tennessee. MTSU is the site for many academic,
cultural, sporting, and entertainment events, including MTSU's Murphy Center,
which is a popular venue for super star entertainment.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting banks and bank
holding companies do not purport to be complete; however, these summaries
include all the material aspects of the statutes and regulations. Such summaries
are qualified in their entirety by reference to the statutes and regulations
described.
BANK HOLDING COMPANY ACT OF 1956
The Company is a bank holding company registered under the provisions of the
federal Bank Holding Company Act of 1956, as amended (the "Act"), and
consequently will be subject to examination by the Board of Governors of the
Federal Reserve System.
A bank holding company is required to file with the Federal Reserve annual
reports and other information regarding its business operations and those of its
subsidiaries. It is also subject to examination by the Federal Reserve and is
required to obtain Federal Reserve approval prior to acquiring, directly or
indirectly, ownership or control of any voting shares of any bank, if, after
such acquisition, it would own or control, directly or indirectly, more than 5%
of the voting stock of such bank unless it already owns a majority of the voting
stock of such bank. Furthermore, a bank holding company is, with limited
exceptions, prohibited from acquiring direct or indirect ownership or control of
any voting stock of any company which is not a bank or a bank holding company,
and must engage only in the business of banking or managing or controlling banks
or furnishing services to or performing services for its subsidiary banks. One
of the exceptions to this prohibition is the ownership of shares of a company
the activities of which the Federal Reserve Board has determined to be so
closely related to banking or management or controlling banks as to be proper
incident thereto.
A bank holding company and its subsidiaries are also prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provision of any property or service. Thus, an affiliate of a bank holding
company may not extend credit, lease, sell property, or furnish any services or
fix or vary the consideration for these on the condition that (i) the customer
must obtain or provide some additional credit, property, or services from or to
its bank holding company or subsidiaries thereof or (ii) the customer may not
obtain some other credit, property, or services from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of the credit
extended. Proposals to allow some exceptions to these rules recently have been
enacted, and additional regulatory relief on this issue is pending.
In approving acquisitions by bank holding companies of banks and companies
engaged in the banking-related activities described above, the Federal Reserve
considers a number of factors, including the expected benefits to the public
such as greater convenience, increased competition, or gains in efficiency,
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as weighed against the risks of possible adverse effects such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve is also empowered to
differentiate between new activities and activities commenced through the
acquisition of a going concern.
The Attorney General of the United States may, within 15 days after approval by
the Federal Reserve Board of an acquisition, bring an action challenging such
acquisition under the federal antitrust laws, in which case the effectiveness of
such approval is stayed pending a final ruling by the courts. Failure of the
Attorney General to challenge an acquisition does not, however, exempt the
holding company from complying with both state and federal antitrust laws after
the acquisition is consummated or immunize the acquisition from future challenge
under the anti-monopolization provisions of the Sherman Act.
TENNESSEE BANKING ACT; FEDERAL DEPOSIT INSURANCE ACT
The Bank was incorporated under the banking laws of the State of Tennessee and,
as such, is subject to the applicable provisions of those laws. The Bank is
subject to the supervision of the TDFI and to regular examination by that
department. The Bank's deposits are insured by the FDIC through the Bank
Insurance Fund ("BIF"), and it is, therefore, subject to the provisions of the
Federal Deposit Insurance Act and to examination by the FDIC.
Tennessee statutes and the Federal Deposit Insurance Act ("FDIA") regulate a
variety of the banking activities of the Bank, including required reserves,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, and establishment of branches. There are certain limitations under
federal and Tennessee law on the payment of dividends by banks. Under Tennessee
law, the directors of a state bank, after making proper deduction for all
expenditures, expenses, taxes, losses, bad debts, and any write-offs or other
deductions required by the TDFI, may credit net profits to the bank's undivided
profits account, and may quarterly, semi-annually, or annually declare a
dividend in such amount as they shall judge expedient after deducting any net
loss from the undivided profits account and transferring to the bank's surplus
account (1) the amount (if any) required to raise the surplus ("Additional
Paid-in-Capital Account") to 50% of the capital stock and (2) the amount
required (if any), but not more than 10% of net profits, until the
paid-in-surplus account equals the capital stock account, provided that the bank
is adequately reserved against deposits and such reserves will not be impaired
by the declaration of the dividend.
A state bank, with the approval of the TDFI, may transfer funds from its surplus
account to the undivided profits (retained earnings) account or any part of its
paid-in-capital account. The payment of dividends by any bank is dependent upon
its earnings and financial condition and, in addition to the limitations
referred to above, is subject to the statutory power of certain federal and
state regulatory agencies to act to prevent what they deem unsafe or unsound
banking practices. The payment of dividends could, depending upon the financial
condition of the Bank, be deemed to constitute such an unsafe or unsound
practice. Tennessee law prohibits state banks from paying dividends other than
from undivided profits, and when the surplus account is less than the capital
stock account, imposes certain other restrictions on dividends. The FDIA
prohibits a state bank, the deposits of which are insured by the FDIC, from
paying dividends if it is in default in the payment of any assessments due the
FDIC.
State banks also are subject to regulation respecting the maintenance of certain
minimum capital levels (see below), and the Bank will be required to file annual
reports and such additional information as the Tennessee Banking Act and FDIC
regulations require. The Bank also is subject to certain restrictions on loan
amounts, interest rates, "insider" loans to officers, directors and principal
shareholders, tie-in arrangements, and transactions with affiliates, as well as
many other matters. Strict compliance at all times with state and federal
banking laws will be required.
Tennessee law contains limitations on the interest rates that may be charged on
various types of loans, and restrictions on the nature and amount of loans that
may be granted and on the types of investments which
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may be made. The operations of banks are also affected by various consumer laws
and regulations, including those relating to equal credit opportunity and
regulation of consumer lending practices. All Tennessee banks, must become and
remain insured banks under the FDIA. (See 12 U.S.C. ss. 1811, et seq.).
Under Tennessee law, state banks are prohibited from lending to any one person,
firm or corporation amounts more than fifteen percent of its equity capital
accounts, except (i) in the case of certain loans secured by negotiable title
documents covering readily marketable nonperishable staples or (ii) with the
prior approval of the Bank's Board of Directors or finance committee (however
titled), the Bank may make a loan to one person, firm or corporation of up to
25% of its equity capital accounts.
Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") on August 9, 1989. FIRREA provides that 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 a commonly controlled
FDIC insured depository institution in danger of default. FIRREA provides that
certain types of persons affiliated with financial institutions can be fined by
the federal regulatory agency having jurisdiction over a depository institution
with federal deposit insurance (such as the Bank) could be fined up to $1
million per day for each violation of certain regulations related (primarily) to
lending to and transactions with executive officers, directors, and principal
shareholders, including the interests of these individuals. Other violations may
result in civil money penalties of $5,000 to $25,000 per day or in criminal
fines and penalties. In addition, the FDIC has been granted enhanced authority
to withdraw or to suspend deposit insurance in certain cases.
The Federal Deposit Insurance Bank Improvement Act of 1991 ("FDICIA") which was
enacted on December 19, 1991, substantially revised the depository institution
regulatory and funding provisions of the FDIA and made revisions to several
other federal banking statutes. Among other things, FDICIA requires the federal
banking regulators to take "prompt corrective action" in respect of FDIC-insured
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, a FDIC-insured depository
institution is defined to be well capitalized if it maintains a Leverage Ratio
of at least 5%, a risk adjusted Tier I Capital Ratio of at least 6% and a Total
Capital Ratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An insured
depository institution is defined to be adequately capitalized if it meets all
of its minimum capitals requirements. (See CAPITAL REQUIREMENTS for specifics).
In addition, an insured depository institution will be considered
undercapitalized if it fails to meet any minimum required measure, significantly
undercapitalized if it is significantly below such measure and critically
undercapitalized if it fails to maintain a level of tangible equity equal to not
less than 2% of total assets. An insured depository institution may be deemed to
be in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
<PAGE> 11
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
FDICIA contain numerous other provisions, including new accounting, audit and
reporting requirements, beginning in 1995 termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of deposits
at foreign branches, new regulatory standards in such areas as asset quality,
earnings and compensation and revised regulatory standards for, among other
things, powers of state banks, real estate lending and capital adequacy. FDICIA
also requires that a depository institution provide 90 days prior notice of the
closing of any branches.
Various other legislation, including proposals to revise the bank regulatory
system and to limit or expand the investments that a depository institution may
make with insured funds, is from time to time introduced in Congress. The TDFI
and the FDIC examine the Bank periodically for compliance with various
regulatory requirements. Such examinations, however, are for the protection of
the BIF and for depositors and not for the protection of investors and
shareholders.
INTERSTATE ACT
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Act"), which was enacted on September 29, 1994, among other things
and subject to certain conditions and exceptions, (i) permits bank holding
company acquisitions commencing one year after enactment of banks of a minimum
age of up to five years as established by state law in any state, (ii) mergers
of national and state banks after May 31, 1997 across state lines unless the
home state of either bank has opted out of the interstate bank merger provision,
(iii) branching de novo by national and state banks into other states if the
state has opted-in to this provision of the Interstate Act, and (iv) certain
interstate bank agency activities after one year after enactment. Regulations
have not yet been issued under the Interstate Act. A bill has been enacted by
the Tennessee legislature which repeals the Tennessee Reciprocal Banking Act,
amends the Tennessee Bank Structure Act of 1974, and amends Tennessee's bank
branching laws by opting in to the Interstate Act. Management cannot predict the
extent to which the business of the Bank may be affected.
BROKERED DEPOSITS
The FDIC has adopted regulations under FDICIA governing the receipt of brokered
deposits. Under the regulations, a bank cannot accept a rollover or renew
brokered deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDICIA. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain employee
benefit accounts. Whether or not it has obtained such a waiver, an adequately
capitalized bank may not pay an interest rate on any deposits in excess of .75%
over certain prevailing market rates specified by regulation. There are no such
restrictions on a bank that is well capitalized. These brokered deposit
regulations may have an affect on the funding or liquidity of the Bank.
FDIC INSURANCE PREMIUMS
The Bank is required to pay semiannual FDIC deposit insurance assessments to the
BIF. As required by FDICIA, the FDIC adopted a risk-based premium schedule which
increased the assessment rates for most FDIC-insured depository institutions.
Under the schedule, the premiums initially ranged from $.23 to $.31 for every
$100 of deposits. Based upon certain requirements of FDICIA, effective January
1, 1994, an institution's premium assessment is based on the probability that
the deposit insurance fund will incur a loss with respect to the institution,
the likely amount of any such loss, and the revenue needs of the deposit
insurance fund. Currently the assessment rate schedule for BIF members currently
range from no
<PAGE> 12
assessment to $.27 for every $100 of deposits. Any change in these rates and the
category of risk into which the Bank will fall could have an adverse effect on
the Bank's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Congress recently passed the Deposit Insurance Funds Act of 1996 to recapitalize
the Savings Association Insurance Fund ("SAIF"). The thrift industry is paying a
one-time assessment of $4.5 billion to capitalize the SAIF, and banks will bear
part of the cost of the Financing Corporation ("FICO") bonds sold from 1987-89
in an effort to shore up the former Federal Savings and Loan Insurance
Corporation. BIF-member institutions, such as the Bank, will pay one-fifth the
rate paid by SAIF members for the first three years. After January 1, 2000, BIF
and SAIF members will share the FICO payments on a pro-rata basis.
CAPITAL REQUIREMENTS
The federal regulatory agencies use capital adequacy guidelines in their
examination and regulation of banks. If the capital falls below the minimum
levels established by these guidelines, the Bank may be denied approval to
acquire or establish additional banks or non-bank businesses, or to open
facilities, or the Bank may be subject to other regulatory restrictions or
actions.
Banking organizations historically were required to maintain a minimum ratio of
primary capital to total assets of 5.5%, and a minimum ratio of total capital to
total assets of 6.0%. The primary and total capital ratio requirements have been
replaced by the adoption of risk-based and leverage capital requirements.
Risk-Based Capital Requirements The FDIC adopted risk-based capital guidelines
for banks effective after December 31, 1990. The risk-based capital guidelines
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks 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 weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The ratios
are minimums. The guidelines require all federally regulated banks to maintain a
minimum risk-based total capital ratio of 8%, of which at least 4% must be Tier
I capital (see the description of Tier I capital and Tier 2 capital below).
A banking organization's qualifying total capital consists of two components:
Tier I capital (core capital) and Tier II capital (supplementary capital). Tier
I capital is an amount equal to the sum of (i) common shareholders' equity
(including adjustments for any surplus or deficit); (ii) non-cumulative
perpetual preferred stock; and (iii) minority interests in the equity accounts
of consolidated subsidiaries. Intangible assets generally must be deducted from
Tier I capital, subject to limited exceptions for goodwill arising from certain
supervisory acquisitions. Other intangible assets may be included in an amount
up to 25% of Tier I capital, provided that the asset meets each of the following
criteria: (i) the asset must be able to be separated and sold apart from the
banking organization or the bulk of its assets; (ii) the market value of the
asset must be established on an annual basis through an identifiable stream of
cash flows and there must be a high degree of certainty that the asset will hold
this market value notwithstanding the future prospects of the banking
organization; and (iii) the banking organization must demonstrate that a liquid
market exists for the asset. Intangible assets in excess of 25% of Tier I
capital generally are deducted from a banking organization's regulatory capital.
At least 50% of the banking organization's total regulatory capital must consist
of Tier I capital.
Tier II capital is an amount equal to the sum of (i) the allowance for possible
loan losses in an amount up to 1.25% of risk-weighted assets; (ii) cumulative
perpetual preferred stock with an original maturity of 20 years or more and
related surplus; (iii) hybrid capital instruments (instruments with
characteristics of both
<PAGE> 13
debt and equity), perpetual debt and mandatory convertible debt securities; and
(iv) in an amount up to 50% of Tier I capital, eligible term subordinated debt
and intermediate-term preferred stock with an original maturity of five years or
more, including related surplus. The inclusion of the foregoing elements of Tier
II capital are subject to certain requirements and limitations of the FDIC.
Investments in unconsolidated banking and finance subsidiaries, investments in
securities subsidiaries and reciprocal holdings of capital instruments must be
deducted from capital. The federal banking regulators may require other
deductions on a case-by-case basis.
Under the risk-weighted capital guidelines, balance sheet assets and certain
off-balance sheet items, such as standby letters of credit, are assigned to one
of four risk weight categories (0%, 20%, 50%, or 100%) according to the nature
of the asset and its collateral or the identity of any obligor or guarantor. For
example, cash is assigned to the 0% risk category, while loans secured by
one-to-four family residences are assigned to the 50% risk category. The
aggregate amount of such asset and off-balance sheet items in each risk category
is adjusted by the risk weight assigned to that category to determine weighted
values, which are added together to determine the total risk-weighted assets for
the banking organization. Accordingly, an asset, such as a commercial loan,
which is assigned to a 100% risk category is included in risk-weighted assets at
its nominal face value, whereas a loan secured by a single-family home mortgage
is included at only 50% of its nominal face value. The application ratios are
equal to capital, as determined, divided by risk-weighted assets, as determined.
Leverage Capital Requirements The FDIC has issued a final regulation requiring
certain banking organizations to maintain additional capital of 1% to 2% above a
3% minimum Tier I Leverage Capital Ratio (Tier I capital, less intangible
assets, to total assets). In order for an institution to operate at or near the
minimum Tier I leverage capital requirement of 3%, the FDIC expects that such
institution would have well-diversified risk, no undue rate risk exposure,
excellent asset quality, high liquidity and good earnings. In general, the Bank
would have to be considered a strong banking organization, rated in the highest
category under the bank rating system and have no significant plans for
expansion. Higher Tier I leverage capital ratios of up to 5% will generally be
required if all of the above characteristics are not exhibited, or if the
institution is undertaking expansion, seeking to engage in new activities, or
otherwise faces unusual or abnormal risks.
The FDIC rule provides that institutions not in compliance with the regulation
are expected to be operating in compliance with a capital plan or agreement with
the regulator. If they do not do so, they are deemed to be engaging in an unsafe
and unsound practice and may be subject to enforcement action. Failure to
maintain capital of at least 2% of assets constitutes an unsafe and unsound
practice and may be subject to enforcement action. Failure to maintain capital
of at least 2% of assets constitutes an unsafe and unsound condition justifying
termination of FDIC insurance.
EFFECTS OF GOVERNMENTAL POLICIES
The Bank's earnings are affected by the difference between the interest earned
by the Bank on its loans and investments and the interest paid by the Bank on
its deposits or other borrowings. The yields on its assets and the rates paid on
its liabilities are sensitive to changes in prevailing market rates of interest.
Thus, the earnings and growth of the Bank are influenced by general economic
conditions, fiscal policies of the federal government, and the policies of
regulatory agencies, particularly the Federal Reserve, which establishes
national monetary policy. The nature and impact of any future changes in fiscal
or monetary policies cannot be predicted.
Commercial banks are affected by the credit policy of various regulatory
authorities, including the Federal Reserve. An important function of the Federal
Reserve is to regulate the national supply of bank credit. Among the instruments
of monetary policy used by the Federal Reserve to implement these objections are
open market operations in U.S. Government securities, changes in reserve
requirements on bank deposits, changes in the discount rate on bank borrowings,
and limitations on interest rates that banks may pay on
<PAGE> 14
time and savings deposits. The Federal Reserve uses these means in varying
combinations to influence overall growth of bank loans, investments and
deposits, and also to affect interest rates charged on loans, received on
investments or paid for deposits.
The monetary and fiscal policies of regulatory authorities, including the
Federal Reserve, also affect the banking industry. Through changes in the
reserve requirements against bank deposits, open market operations in U.S.
Government securities and changes in the discount rate on bank borrowings, the
Federal Reserve influences the cost and availability of funds obtained for
lending and investing. No prediction can be made with respect to possible future
changes in interest rates, deposit levels or loan demand or with respect to the
impact of such changes on the business and earnings of the proposed Bank.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities, or
affecting the competitive balance between banks and other financial
institutions. For example, the Depository Institutions Deregulation and Monetary
Control Act of 1980 (the "Deregulation Act") provided for the phasing out of
restrictions on deposit interest rate ceilings, the authorization of new
accounts and related services, and the expansion of the lending authority of
savings and loan associations. The Deregulation Act has altered, to a certain
extent, the competitive relationship that previously existed among financial
institutions, and it may result in a substantial reduction in the historical
distinction between the services offered by banks, savings and loan
associations, and other financial institutions.
<PAGE> 15
PART I
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
AND PLAN OF OPERATIONS
GENERAL
The Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations and Plan of Operations should be read in conjunction with
the information and tables which follow. When describing the period from January
1, 1997 until December 31, 1997, this period will be referred to as 1997. The
Company was inactive and dormant from its formation on October 21, 1996 until
December 31, 1996.
SUMMARY
Net loss for 1997 was $369,000 and the net loss for the quarter ended March 31,
1998 was $175,000.
Effective October 6, 1997, the Company and Bank began operating activities.
Prior to that time, the Company was in organization.
For the remainder of 1998, the Company will continue its objectives of
maintaining asset quality and providing superior customer service to its
markets.
FINANCIAL CONDITION
Earning Assets. Average earning assets for 1997 totaled $4,654.000, which
represented 82.6% of average total assets. Earning assets totaled $27,837,000 at
December 31, 1997. Average earning assets for the quarter ended March 31, 1998
totaled $32,587,000, which represented 91.8% of average total assets. Earning
assets totaled $39,403,000 at March 31, 1998.
Loan Portfolio. The Company's average loans for 1997 were $627,000 and for the
quarter ended March 31, 1998 were $9,876,000. The balance in total loans at
December 31, 1997 was $5,401,000 and $14,473,000 at March 31, 1998.
Investment Portfolio. The Company's investment securities portfolio averaged
$1,485,000 for 1997 and $17,619,000 for the quarter ended March 31, 1998. The
portfolio totaled $14,732,000 at December 31, 1997 and $22,364,000 at March 31,
1998.
The Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity. The Company maintains
two classifications of investment securities: "Held to Maturity" and "Available
for Sale." The "Available for Sale" securities are carried at fair market value,
whereas the "Held to Maturity" securities are carried at book value. At December
31, 1997, unrealized losses in the "Available for Sale" portfolio amounted to
$9,000 and $3,000 at March 31, 1998. The average balance of securities
"Available for Sale" during the quarter ended March 31, 1998 was $16,599,000 and
the balance at March 31, 1998 was $18,813,000. The average balance of securities
"Held to Maturity" during the quarter ended March 31, 1998 was $1,020,000 and
the balance at March 31, 1998 was $3,551,000. All securities held at December
31, 1997 and during 1997 were classified as "Available for Sale."
<PAGE> 16
Deposits. The Company's average deposits were $2,782,000 during 1997. This
included average noninterest-bearing deposits of $283,000, average certificates
of deposit of $1,446,000, average saving deposits of $8,000 and average interest
bearing transaction accounts of $1,045,000. The Company's average deposits for
the quarter ended March 31, 1998 were $26,873,000. This included average
non-interest bearing deposits of $1,268,000, average certificates of deposit of
$12,082,000, average savings deposits of $90,000 and average interest bearing
transaction accounts of $13,434,000. Deposits at March 31, 1998 were $33,603,000
and $21,760,000 at December 31, 1997.
Capital Resources. Shareholders' equity totaled $8,690,000 at of December 31,
1997. This included $9,068,000 of common stock and additional paid-in-capital
less a deficit of $369,000 and unrealized loss on securities available for sale
of $9,000. Shareholders' equity totaled $8,521,000 at March 31, 1998. This
included $9,068,000 of common stock and additional paid in capital less a
deficit of $544,000 and unrealized loss on securities available for sale of
$3,000.
BALANCE SHEET MANAGEMENT
Liquidity Management. Liquidity is the ability of a company to convert assets
into cash without significant loss and to raise funds by increasing liabilities.
Liquidity management involves having the ability to meet the day-to-day cash
flow requirements of its customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Company to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Company can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
investments in federal funds and maturities of investment securities. Additional
sources of liquidity are loan repayments and possible prepayments from the
mortgage-backed securities from the investment portfolio.
The liability portion of the balance sheet provides liquidity through various
interest bearing and noninterest bearing deposit accounts. At December 31, 1997
and March 31, 1998, the Company had $2,300,000 of federal funds purchase lines
available at three correspondent banks. None of these lines were drawn at March
31, 1998 or December 31, 1997.
Because of the level of capital obtained information, no additional capital
funds or notes payable are anticipated to be deemed necessary during the next
twelve months.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income is the principal component of a
financial institution's income stream and represents the spread between interest
and fee income generated from earning assets and the interest expense paid on
deposits. The following discussion is on a fully taxable equivalent basis.
Net interest income for 1997 totaled $145,000. This was the result of interest
income of $292,000 for 1997 and interest expense of $147,000. Interest income
produced by the loan portfolio totaled $63,000 and interest income on investment
securities totaled $90,000. Interest income on federal funds totaled $112,000
while interest income on escrow funds totaled $27,000. Interest expense included
$87,000 of interest expense on certificates of deposit, interest expense of
$40,000 on interest-bearing transaction accounts and interest expense of $15,000
on money market demand accounts, $4,000 on the note payable and savings accounts
of $1,000.
<PAGE> 17
Net interest income for the quarter ended March 31, 1998 totaled $193,000. This
was the result of interest income of $538,000 for the quarter ended March 31,
1998 and interest expense of $345,000. Interest income produced by the loan
portfolio totaled $206,000 and interest income on investment securities totaled
$260,000. Interest income on federal funds totaled $72,000. Interest expense
included $173,000 of interest expense on certificates of deposit, interest
expense of $137,000 on interest-bearing transaction accounts and interest
expense of $34,000 on money market demand accounts and savings accounts of
$1,000.
The trend in net interest income is commonly evaluated in terms of average rates
using the net interest margin and the interest rate spread. The net interest
margin, or the net yield on earning assets is computed by dividing fully taxable
equivalent net interest income by average earning assets. This ratio represents
the difference between the average yield on average earning assets and the
average rate paid for all funds used to support those earning assets.
The net interest margin for 1997 was 3.11%. The net cost of funds, defined as
interest expense divided by average-earning assets, was 3.16% for 1997. The
yield on earning assets was 6.27% for 1997. The net interest margin for the
quarter ended March 31, 1998 was 2.38%. The net cost of funds for the quarter
ended March 31, 1998 was 4.22% and the yield on earning assets was 6.60%.
The interest rate spread measures the difference between the average yield on
earning assets and the average rate paid on interest bearing sources of funds.
The interest rate spread eliminates the impact of non-interest bearing funds and
gives a direct perspective on the effect of market interest rate movements.
During recent years, the net interest margins and interests rate spreads have
been under intense pressure to maintain historical levels, due in part to tax
laws that discouraged investment in tax-exempt securities and intense
competition for funds with non-bank institutions. The interest rate spread for
1997 was 0.51% and for the quarter ended March 31, 1998 was 1.23%.
Allowance for Possible Loan Losses. Lending officers are responsible for the
ongoing review and administration of each loan. They make the initial
identification of loans which present some difficulty in collection or where
there is an indication that the probability of loss exists. Lending officers are
responsible for the collection effort on a delinquent loan. Senior management is
informed of the status of delinquent and problem loans on a monthly basis.
Senior management makes recommendations monthly to the board of directors as to
charge-offs. Senior management reviews the allowance for possible loan losses on
a quarterly basis. The Company's policy is to discontinue interest accrual when
payment of principal and interest is 90 days or more in arrears.
The allowance for possible loan losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for possible loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the size,
quality and risk of loans in the portfolio. Management also considers such
factors as loan loss experience, the amount of past due and non-performing
loans, specific known risk, the status and amount of non-performing assets,
underlying collateral values securing loans, current and anticipated economic
conditions and other factors which affect the allowance for potential credit
losses.
While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
Management believes that the $68,000 for December 31, 1997 and $181,000 for
March 31, 1998 in the allowance for possible loan losses are adequate to absorb
known risks in the portfolio. No assurance can
<PAGE> 18
be given, however, that adverse economic circumstances will not result in
increased losses in the loan portfolio, and require greater provisions for
possible loan losses in the future.
Non-performing Assets. Non-performing assets include non-performing loans and
foreclosed real estate held for sale. Non-performing loans include loans
classified as non-accrual or renegotiated. The Company's policy is to place a
loan on non-accrual status when it is contractually past due 90 days or more as
to payment of principal or interest. At the time a loan is placed on non-accrual
status, interest previously accrued but not collected is reversed and charged
against current earnings. Recognition of any interest after a loan has been
placed on non-accrual is accounted for on a cash basis.
The Company had no non-performing assets or impaired loans as of March 31, 1998
or December 31, 1997.
Non-interest Income. Non-interest income consists of revenues generated from a
broad range of financial services and activities including fee-based services
and profits as well as interest earned on escrow funds held by the Company
before the Bank began operations. In addition, any gains or losses realized from
the sale of investment portfolio securities available for sale are included in
non-interest income. Total non-interest income totaled $6,000 for 1997. This
included $4,000 from service charges on deposit accounts. There were no gain or
losses on securities during 1997.
Non-interest income totaled $15,000 for the quarter ended March 31, 1998. This
included $12,000 on service charge on deposits, other fees of $1,000 and $2,000
of other non-interest income.
Non-interest Expenses. Non-interest expense for 1997 totaled $452,000. Salaries
and employee benefits for 1997 totaled $202,000. Occupancy expense for 1997
totaled $12,000 while furniture and equipment expense totaled $24,000. All other
non-interest expenses totaled $214,000 for 1997. Other non-interest expense
include supplies and printing, telephone, postage and legal and audit fees and
start-up costs related to the commencement of operations of the Company.
Non-interest expense for the quarter ended March 31, 1998 totaled $270,000.
Salaries and employee benefits totaled $139,000 for the quarter ended March 31,
1998. Occupancy expenses for the quarter ended March 31, 1998 totaled $9,000
while furniture and equipment expenses totaled $19,000. Other non-interest
expenses totaled $103,000.
Non-recurring items. During 1997 the Company earned $27,000 in interest income
from escrow funds related to stock subscriptions and incurred start-up costs of
$149,000 excluding $40,000 of capitalized organizational costs. Such income and
start-up costs will not recur in future periods.
Income Taxes. At December 31, 1997, the Company has net operating losses for
federal and state income taxes of approximately $310,000 which expire in tax
year 2012 for federal and state purposes. The Company recorded no tax benefit
for 1997 as a valuation allowance of $138,000 was recorded related to the
deferred tax asset for these net operating losses and other temporary
differences.
At March 31, 1998 the Company has net operating losses for federal and state
income taxes of approximately $170,000 which expire in tax year 2018 for federal
and state purposes. The Company recorded no tax benefit for the quarter ended
March 31, 1998 as a valuation allowance of $65,000 was recorded related to the
deferred tax asset for these net operating losses and other temporary
differences.
<PAGE> 19
RETURN ON EQUITY AND ASSETS
Return on assets (net income divided by average total assets) for 1997 was
(6.55%.) Return on equity (net income divided by average equity) for 1997 was
(17.66%.) Equity to assets (average equity divided by average total assets) for
1997 was 37.1%. There were no dividends paid during 1997, so no dividend payout
ratio is presented.
Return on assets for the quarter ended March 31, 1998 was (2.00%). Return on
equity for the quarter ended March 31, 1998 was (8.23%). Equity to assets for
the quarter ended March 31, 1998 was 24.25%. There were no dividends paid during
the quarter ended March 31, 1998.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead, and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
<PAGE> 20
AVERAGE BALANCE SHEET AND NET INTEREST INCOME
The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the quarter ended March 31, 1998 indicated and
certain other information:
<TABLE>
<CAPTION>
Interest
Average Average
Yields/ Income/
Balance Expense Rates
-------- -------- -----
(Fully taxable equivalent - dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans $ 9,876 $ 206 8.34%
U.S. Treasury and other U.S. government agencies 17,619 260 5.90%
States and municipalities -- -- N/A
Federal funds sold 5,092 72 5.66%
Interest bearing deposits with other financial institutions -- -- N/A
-------- -------- ----
Total interest-earning assets/interest income 32,587 538 6.60%
-------- -------- ----
Cash and due from banks 934
Other assets 2,084
Allowance for possible loan losses (111)
--------
Total assets $ 35,494
========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Demand deposits and savings accounts $ 13,523 172 5.09%
Certificates of deposit 12,082 172 5.69%
Note payable -- -- N/A
-------- -------- ----
Total interest-bearing liabilities/interest expense 25,605 344 5.37%
-------- -------- ----
Non-interest-bearing demand deposits 1,154
Other liabilities 126
Shareholders' equity 8,609
--------
Total liabilities and shareholders' equity $ 35,494
========
Net interest earnings $ 194
========
Net interest income on interest-earning assets 2.38%
====
Taxable equivalent adjustment: N/A
</TABLE>
<PAGE> 21
The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the year ended December 31, 1997 indicated and
certain other information:
<TABLE>
<CAPTION>
Interest
Average Average
Yields/ Income/
Balance Expense Rates
-------- -------- -----
(Fully taxable equivalent - dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans $ 627 $ 63 10.05%
U.S. Treasury and other U.S. government agencies 1,485 90 6.06%
States and municipalities -- -- N/A
Federal funds sold 2,100 112 5.33%
Interest bearing deposits with other financial institutions 442 27 6.11%
------- ------- -----
Total interest-earning assets/interest income 4,654 292 6.27%
------- ------- -----
Cash and due from banks 251
Other assets 739
Allowance for possible loan losses (8)
-------
Total assets $ 5,636
=======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Demand deposits and savings accounts $ 1,053 56 5.32%
Certificates of deposit 1,446 87 6.02%
Note payable 54 4 7.41%
------- ------- -----
Total interest-bearing liabilities/interest expense 2,553 147 5.76%
------- ------- -----
Non-interest-bearing demand deposits 283
Other liabilities 710
Shareholders' equity 2,090
-------
Total liabilities and shareholders' equity $ 5,636
=======
Net interest earnings $ 145
=======
Net interest income on interest-earning assets 3.11%
=====
Taxable equivalent adjustment: N/A
</TABLE>
Since there is no period for which to compare 1997 and the quarter ended March
31, 1998, no table reflecting the changes in interest income and expense as a
result of the changes of average volume and average rate is presented.
<PAGE> 22
DEPOSITS
The Company's primary sources of funds are interest-bearing deposits. The
following table sets forth the Company's deposit structure at December 31, 1997:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(In thousands) (In thousands)
<S> <C> <C>
Non interest-bearing deposits:
Individuals, partnerships and corporations $ 2,368 $ 808
U. S. Government and states and political subdivisions -- --
Certified and official checks 107 156
------- -------
Total non-interest-bearing deposits 2,475 964
------- -------
Interest-bearing deposits:
Interest-bearing demand accounts 15,804 10,545
Saving accounts 106 59
Certificates of deposit, less than $100,000 10,720 6,312
Certificates of deposit, more than $100,000 4,498 3,885
------- -------
Total interest-bearing deposits 31,128 20,801
------- -------
Total deposits $33,603 $21,765
======= =======
</TABLE>
The following table presents a breakdown by category of the average amount of
deposits and the average rate paid on deposits for 1997 and the quarter ended
March 31, 1998:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, 1998 December 31, 1997
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Non interest-bearing deposits $ 1,154 N/A $ 283 N/A
Interest-bearing demand deposits 13,434 5.40% 1,045 5.32%
Savings accounts 89 2.54% 8 2.52%
Certificates of deposit 12,082 6.07% 1,446 6.02%
------- ---- ------- ----
Total deposits $26,759 5.45% $ 2,782 5.72%
======= ==== ======= ====
</TABLE>
At March 31, 1998, certificates of deposits greater than $100,000 aggregated
approximately $4,498,000. The following table indicates, as of March 31, 1998,
the dollar amount of $100,000 or more by the time remaining until maturity (in
thousands):
<TABLE>
<CAPTION>
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Certificates of deposit $1,668 $2,430 $ 400 --
====== ====== ====== ======
</TABLE>
At December 31, 1997, certificates of deposits greater than $100,000 aggregated
approximately $3,885,000. The following table indicates, as of December 31,
1997, the dollar amount of $100,000 or more by the time remaining until maturity
(in thousands):
<TABLE>
<CAPTION>
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Certificates of deposit $3,135 $ 750 -- --
====== ====== ====== ======
</TABLE>
<PAGE> 23
ASSETS
The management of the Company considers many criteria in managing assets,
including creditworthiness, diversification and structural characteristics,
maturity and interest rate sensitivity. The following table sets forth the
Company's interest-earning assets by category at March 31, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(In thousands) (In thousands)
<S> <C> <C>
Interest-bearing deposits with banks $ -- $ --
Investment securities 22,364 14,732
Federal funds sold 2,566 7,704
Loans:
Real estate 7,179 3,600
Commercial and other 7,294 1,801
------- -------
Total loans 14,473 5,401
------- -------
Interest-earning assets $39,403 $27,837
======= =======
</TABLE>
INVESTMENT PORTFOLIO
The Company has classified all investment securities as either available for
sale or held to maturity depending upon whether the Company has the intent and
ability to hold the investment securities to maturity. The classification of
certain investment securities as available for sale is consistent with the
Company's investment philosophy of maintaining flexibility to manage the
portfolio. At March 31, 1998, approximately $18,816,000 of investment securities
were classified as available for sale and at December 31, 1997, approximately
$14,741,000 of investment securities were classified as available for sale.
Approximately $3,000 and $9,000 of unrealized loss was included in shareholders'
equity related to the available for sale investment securities as of March 31,
1998 and December 31, 1997, respectively. There were $3,551,000 of securities at
March 31, 1998 classified as held to maturity. There were no securities at
December 31, 1997 classified as held to maturity.
At year end 1997 as well as March 31, 1998, obligations of the United States
Government or its agencies represented approximately 100% of the total
investment portfolio. The following table presents the carrying amounts of the
Company's investment portfolio at March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------- -------
<S> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury $ -- $ --
U.S. Government agencies 18,816 18,813
States and political subdivisions -- --
Other securities -- --
------- -------
Total available for sale $18,816 $18,813
======= =======
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C>
HELD TO MATURITY:
U.S. Treasury $ -- $ --
U.S. Government agencies 3,551 3,561
States and political subdivisions -- --
Other securities -- --
------- -------
Total held to maturity $ 3,551 $ 3,561
======= =======
Total investment portfolio $22,367 $22,374
======= =======
</TABLE>
At year end 1997, obligations of the United States Government or its agencies
represented approximately 100% of the total investment portfolio. The following
table presents the carrying amounts of the Company's investment portfolio at
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------- -------
<S> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury $ -- $ --
U.S. Government agencies 14,741 14,732
States and political subdivisions -- --
Other securities -- --
------- -------
Total available for sale $14,741 $14,732
======= =======
HELD TO MATURITY:
U.S. Treasury $ -- $ --
U.S. Government agencies -- --
States and political subdivisions -- --
Other securities -- --
------- -------
Total held to maturity $ -- $ --
======= =======
Total investment portfolio $14,741 $14,732
======= =======
</TABLE>
The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment portfolio at March 31, 1998.
The weighted average yields on these instruments are presented based on final
maturity.
<TABLE>
<CAPTION>
Amortized Estimated Weighted
Cost Fair Value Average Yield
------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasuries: -- -- N/A
U.S. Government agencies:
Due within 1 year $ 2,744 $ 2,745 5.78%
Due after 1 year but within 5 years 16,030 16,026 6.08%
Due after 5 years but within 10 years -- -- N/A
Due after 10 years -- -- N/A
------- ------- -------
Total 18,774 18,771 6.03%
------- ------- -------
States and political subdivisions: -- -- N/A
Other: -- -- N/A
------- ------- -------
Total investments available for sale $18,774 $18,771 6.03%
======= ======= =======
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasuries: $ -- $ -- N/A
U.S. Government agencies:
Due within 1 year -- -- N/A
Due after 1 year but within 5 years 1,005 1,007 6.15%
Due after 5 years but within 10 years 2,546 2,554 5.94%
Due after 10 years -- -- N/A
------- ------- -------
Total $ 3,551 $ 3,561 6.00%
------- ------- -------
States and political subdivisions:
-- -- N/A
Other: -- -- N/A
------- ------- -------
Total held to maturity $ 3,551 $ 3,561 6.00%
======= ======= =======
Total investment portfolio $22,322 $22,332 6.02%
======= ======= =======
</TABLE>
The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment portfolio at December 31, 1997.
The weighted average yields on these instruments are presented based on final
maturity.
<TABLE>
<CAPTION>
Amortized Estimated Weighted
Cost Fair Value Average Yield
------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasuries: $ -- $ -- N/A
U.S. Government agencies:
Due within 1 year 2,741 2,739 5.79%
Due after 1 year but within 5 years 12,000 11,993 6.07%
Due after 5 years but within 10 years -- -- N/A
Due after 10 years -- -- N/A
------- ------- -------
Total $14,741 $14,732 6.02%
------- ------- -------
States and political subdivisions:
-- -- N/A
Other: -- -- N/A
------- ------- -------
Total investments available for sale $14,741 $14,732 6.02%
======= ======= =======
</TABLE>
HELD TO MATURITY:
There were no securities classified as "held to maturity" at December 31, 1997.
INVESTMENT POLICY
The objective of the Company's investment policy is to invest funds not
otherwise needed to meet the loan demand of the Bank's market area to earn the
maximum return for the Bank, yet still maintain sufficient liquidity to meet
fluctuations in the Bank's loan demand and deposit structure. In doing so, the
Company balances the market and credit risk against the potential investment
return, makes investments compatible with the pledge requirements of the Bank's
deposits of public funds, maintains compliance with regulatory investment
requirements, and assists the various public entities with their financing
needs. The Investment Committee is comprised of the president and three other
directors. The president is authorized to execute security transactions for the
investment portfolio and to make decisions on purchases and sales of securities.
All the investment transactions occurring since the previous board of directors'
meeting are reviewed by the board at its next monthly meeting. Limitations on
the Committee's investment authority include: (a) investment in any one
municipal security may not exceed 20% of equity capital; (b) the entire
investment
<PAGE> 26
portfolio may not increase or decrease by more than 10% in any one month; (c)
investments in obligations of the State of Tennessee may not exceed 30% of
equity capital; and (d) investment in mortgage-backed securities may not exceed
more than 40% of equity capital. The investment policy allows portfolio holdings
to include short-term securities purchased to provide the Bank's needed
liquidity and longer term securities purchased to generate stable income for the
Bank during periods of interest rate fluctuations.
LOAN PORTFOLIO
The following table sets forth the composition of the Company's loan portfolio
at March 31, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
Percent of
Balance Total Loans
-------- -----------
<S> <C> <C>
Real estate loans:
Construction and land development $ 602 4.2%
Secured by residential properties 2,650 18.3%
Secured by commercial real estate 3,927 27.1%
-------- ------
Total real estate loans 7,179 49.6%
Commercial and industrial loans 4,998 34.5%
Other consumer loans 2,296 15.9%
All other loans -- 0.00%
-------- ------
Total loans 14,473 100.0%
Less:
Allowance for possible loan losses (181) N/A
-------- ------
Net loans $ 14,292 N/A
======== ======
</TABLE>
The following table sets forth the composition of the Company's loan portfolio
at December 31, 1997 (dollars in thousands).
<TABLE>
<CAPTION>
Percent of
Balance Total Loans
-------- -----------
<S> <C> <C>
Real estate loans:
Construction and land development $ 334 6.2%
Secured by residential properties 1,018 18.8%
Secured by commercial real estate 2,248 41.6%
-------- ------
Total real estate loans 3,600 66.7%
Commercial and industrial loans 1,134 21.0%
Other consumer loans 667 12.4%
All other loans -- 0.00%
-------- ------
Total loans 5,401 100.0%
Less:
Allowance for possible loan losses 68 N/A
-------- ------
Net loans $ 5,333 N/A
======== ======
</TABLE>
<PAGE> 27
The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
March 31, 1998 (in thousands).
<TABLE>
<CAPTION>
Maturity Range
----------------------------------------------------
One Year One Through Over
or Less Five Years Five Years Total
-------- ----------- ---------- -------
<S> <C> <C> <C> <C>
LOAN MATURITY:
Real estate construction loans $ 602 $ -- $ -- $ 602
Real estate mortgage loans 3,504 2,960 113 6,577
Commercial and industrial loans 4,611 387 -- 4,998
All other loans 1,799 497 -- 2,296
------- ------ ---- -------
Total loans $10,516 $3,844 $113 $14,473
======= ====== ==== =======
LOAN INTEREST RATE SENSITIVITY:
Selected loans with:
Predetermined interest rates $ 1,870 $2,228 $113 $ 4,211
Floating or adjustable interest rates 8,646 1,616 -- 10,262
------- ------ ---- -------
Total $10,516 $3,844 $113 $14,473
======= ====== ==== =======
</TABLE>
The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
December 31, 1997 (in thousands).
<TABLE>
<CAPTION>
Maturity Range
----------------------------------------------------
One Year One Through Over
or Less Five Years Five Years Total
-------- ----------- ---------- -------
<S> <C> <C> <C> <C>
LOAN MATURITY:
Real estate construction loans $ 334 $ -- $ -- $ 334
Real estate mortgage loans 91 3,147 28 3,266
Commercial and industrial loans 680 454 -- 1,134
All other loans 287 380 -- 667
------- ------ ---- -------
Total loans $ 1,392 $3,981 $ 28 $ 5,401
======= ====== ==== =======
LOAN INTEREST RATE SENSITIVITY:
Selected loans with:
Predetermined interest rates $ 1,221 $1,890 $ -- $ 3,111
Floating or adjustable interest rates 171 2,091 28 2,290
------- ------ ---- -------
Total $ 1,392 $3,981 $ 28 $ 5,401
======= ====== ==== =======
</TABLE>
LOAN POLICY
All lending activities of Bank are under the direct supervision and control of
the Bank's Board with secondary authority vested in the Executive Committee. The
Senior Loan Committee, which consists of the president, one other director and
two senior lending officers, enforces loan authorizations for each officer,
decides on loans exceeding such limits, services all requests for officer
credits to the extent allowable under current laws and regulations, administers
all problem credits, and determines the allocation of funds for each lending
division. The loan portfolio consists primarily of real estate, commercial,
small business, residential construction and consumer installment loans.
Maturity of term loans is normally limited to 15 years. Conventional real estate
loans may be made up to 80% of the appraised value or purchase cost of the real
<PAGE> 28
estate for no more than a 30-year term. Installment loans are based on the
earning capacity and vocational stability of the borrower.
The Bank board at its regularly scheduled meetings reviews all new loans made
the preceding month and discusses and approves any loans that exceed a loan
officer's authority. Loans which are 30 days or more past due are reviewed
monthly.
The Loan Committee of the Bank periodically reviews the loan portfolio,
particularly nonaccrual and renegotiated loans. Each loan officer is responsible
for monitoring and collecting his or her own loan portfolio. Loan Committee
review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition, subject to Bank Board approval. In
addition, to the extent that management identifies potential losses in the loan
portfolio and reduces the book value of such loans through charge-offs, to their
estimated collectible value, the Company's policy is to classify as nonaccrual
any loan on which payment of principal or interest is 90 days or more past due,
where there is adequate collateral to cover principal and accrued interest and
the loan is in the process of collection. No concessions are granted and late
fees are collected. In addition, a loan will be classified as nonaccrual if, in
the opinion of the Loan Committee, based upon a review of the borrower's or
guarantor's financial condition, collateral value or other factors, payment is
questionable, even though payments are not 90 days or more past due.
When a loan is classified as nonaccrual, any unpaid interest is reversed against
current income. Interest is included in income thereafter only to the extent
received in cash. The loan remains in a nonaccrual classification until such
time as the loan is brought current, when it may be returned to accrual
classification. When principal or interest on a nonaccrual loan is brought
current, if in management's opinion future payments are questionable, the loan
would remain classified as nonaccrual. After a nonaccrual or renegotiated loan
is charged off, any subsequent payments of either interest or principal are
applied first to any remaining balance outstanding, then to recoveries and
lastly to income.
The large number of consumer installment loans and the relatively small dollar
amount of each makes an individual review impracticable. It is the Company's
policy to charge off any consumer installment loan which is past due 90 days or
more and are not adequately collateralized.
In addition, mortgage loans secured by real estate are placed on nonaccrual
status when the mortgagor is in bankruptcy, or foreclosure proceedings are
instituted. Any accrued interest receivable remains in interest income as an
obligation of the borrower.
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Credit risk and exposure to loss are inherent parts of the banking business.
Management seeks to manage and minimize these risks through its loan and
investment policies and loan review procedures. Management establishes and
continually reviews lending and investment criteria and approval procedures that
it believes reflect the risk sensitive nature of the Company. The loan review
procedures are set to monitor adherence to the established criteria and to
ensure that on a continuing basis such standards are enforced and maintained.
Management's objective in establishing lending and investment standards is to
manage the risk of loss and to provide for income generation through pricing
policies. To effectuate this policy, the Company makes commercial real estate
loans with a three-year or less fixed maturity which may be amortized over a
maximum of 15 years.
The loan portfolio is regularly reviewed and management determines the amount of
loans to be charged-off. In addition, such factors as the Company's previous
loan loss experience, prevailing and anticipated economic conditions, industry
concentrations and the overall quality of the loan portfolio are considered.
While management uses available information to recognize losses on loans and
real estate owned, future
<PAGE> 29
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for possible losses
on loans and real estate owned. Such agencies may require the Company to
recognize additions to the allowances based on their judgments about information
available at the time of their examinations. In addition, any loan or portion
thereof which is classified as a "loss" by regulatory examiners is charged-off.
The allowance for possible loan losses is increased by provisions charged to
operating expense. The allowance for possible loan losses is reduced by charging
off loans or portions of loans at the time they are deemed by management to be
uncollectible and increased when loans previously charged off are recovered. The
resulting allowance for possible loan losses is viewed by management as a
single, unallocated reserve available for all loans and, in management's
opinion, is adequate to provide for reasonably foreseeable potential loan
losses. The risk associated with loans varies with the creditworthiness of the
borrower, the type of loan (consumer, commercial or real estate) and its
maturity. Cash flows adequate to support a repayment schedule is an element
considered for all types of loans. Real estate loans are impacted by market
conditions regarding the value of the underlying property used as collateral.
Commercial loans are also impacted by the management of the business as well as
economic conditions. Management believes the allowance for possible loan losses
is adequate to absorb such anticipated charge-offs.
Rules and formulas relative to the adequacy of the allowance for possible loan
losses, although useful as guidelines to management, are not rigidly applied.
The allowance for possible loan losses was $68,000 as of December 31, 1997 or
1.25% of loans outstanding. The allowance for possible loan losses was $181,000
as of March 31, 1998, or 1.25% of loans outstanding. No loans were charged-off
(nor any recoveries made) during 1997. The provision for possible loan losses
charged against earnings during 1997 was $68,000. No loans were charged-off (nor
any recoveries made) during the quarter ended March 31, 1998. The provision for
possible loan losses charged against earnings during the quarter ended March 31,
1998 was $113,000.
There were no non-performing loans of the Company on at December 31, 1997 or at
March 31, 1998. This includes non-accrual loans and restructured loans. Accrual
of interest is discontinued when there is reasonable doubt as to the full,
timely collections of interest or principal. When a loan becomes contractually
past due ninety (90) days with respect to interest or principal, it is reviewed
and a determination is made as to whether it should be placed on non-accrual
status. When a loan is placed on non-accrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
principal and interest and when, in the judgment of management, the loans are
estimated to be fully collectible as to principal and interest. Restructured
loans are those loans on which concessions in terms have been granted because of
a borrower's financial difficulty. Interest is generally accrued on such loans
in accordance with the new terms. There were also no loans past due ninety days
or more, any other real estate owned or foreclosed, any repossessed assets or
impaired loans at December 31, 1997 or at March 31, 1998.
CAPITAL RESOURCES/ LIQUIDITY
Liquidity. Of primary importance to depositors, creditors and regulators is the
ability to have readily available funds sufficient to repay fully maturing
liabilities. The Company's liquidity, represented by cash and cash due from
banks, is a result of its operating, investing and financing activities. In
order to insure funds are available at all times, the Company devotes resources
to projecting on a monthly basis the amount of funds which will be required and
maintains relationships with a diversified customer base so funds are
accessible. Liquidity requirements can also be met through short-term borrowings
or the disposition of short-term assets which are generally matched to
correspond to the maturity of liabilities.
<PAGE> 30
The Company has a formal liquidity policy, and in the opinion of management, its
liquidity levels are considered adequate. Neither the Company nor the Bank is
subject to any specific regulation liquidity requirements imposed by regulatory
authorities. The Bank is subject to general FDIC guidelines which do not require
a minimum level of liquidity. Management believes its liquidity ratios meet or
exceed these guidelines. Management does not know of any trends or demands which
are reasonably likely to result in liquidity increasing or decreasing in any
material manner. The ratio for average loans to average deposits for 1997 was
22.5% and for the quarter ended March 31, 1998 was 36.7%.
CAPITAL ADEQUACY
Capital adequacy refers to the level of capital required to sustain asset growth
over time and to absorb losses. The objective of the Company's management is to
maintain a level of capitalization that is sufficient to take advantage of
profitable growth opportunities while meeting regulatory requirements. This is
achieved by improving profitability through effectively allocating resources to
more profitable businesses, improving asset quality, strengthening service
quality, and streamlining costs. The primary measures used by management to
monitor the results of these efforts are the ratios of average equity to average
assets, average tangible equity to average tangible assets, and average equity
to net loans. The Federal Reserve Board and FDIC have adopted capital guidelines
governing the activities of bank holding companies and banks. These guidelines
require the maintenance of an amount of capital based on risk-adjusted assets so
that categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk. In addition, banks and bank holding
companies are required to maintain capital to support, on a risk-adjusted basis,
certain off-balance sheet activities such as loan commitments.
The capital guidelines classify capital into two tiers, referred to as Tier I
and Tier II. Under risk-based capital requirements, total capital consists of
Tier I capital which is generally common shareholders' equity less goodwill and
Tier II capital which is primarily a portion of the allowance for possible loan
losses and certain qualifying debt instruments. In determining risk-based
capital requirements, assets are assigned risk-weights of 0% to 100%, depending
primarily on the regulatory assigned levels of credit risk associated with such
assets. Off-balance sheet items are considered in the calculation of
risk-adjusted assets through conversion factors established by the regulators.
The framework for calculating risk-based capital requires banks and bank holding
companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based
capital. In 1990 regulators added a leverage computation to the capital
requirements, comparing Tier I capital to total average assets less goodwill.
<PAGE> 31
The following table gives the various capital ratios and balances at March 31,
1998 and December 31, 1997 (dollars in thousands) for the Company:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(In thousands) (In thousands)
<S> <C> <C>
CAPITAL:
Tier I capital:
Shareholders' equity $ 8,524 $ 8,699
Less disallowed intangibles -- --
------- -------
Total Tier I capital 8,524 $ 8,699
------- -------
Tier II capital:
Qualifying debt-
Qualifying allowance for loan losses 181 68
------- -------
Total Tier II capital 181 68
------- -------
Total capital $ 8,705 $ 8,767
======= =======
Risk-adjusted assets $24,694 $11,883
======= =======
Quarterly average assets (since
commencement of operations) $35,494 $20,770
======= =======
RATIOS:
Tier I capital to risk-adjusted assets 34.5% 73.2%
Tier II capital to risk-adjusted assets 0.7% 0.6%
Total capital to risk-adjusted assets 34.3% 73.8%
Leverage-- Tier I capital to quarterly
Average assets less disallowed intangibles 24.0% 41.9%
</TABLE>
<PAGE> 32
The following table gives the various capital ratios and balances at March 31,
1998 and December 31, 1997 (dollars in thousands) for the Bank:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(In thousands) (In thousands)
<S> <C> <C>
CAPITAL:
Tier I capital:
Shareholders' equity $ 8,382 $ 7,757
Less disallowed intangibles -- --
------- -------
Total Tier I capital 8,382 $ 7,757
------- -------
Tier II capital:
Qualifying debt -- --
Qualifying allowance for loan losses 181 68
------- -------
Total Tier II capital 181 68
------- -------
Total capital $ 8,563 $ 7,825
======= =======
Risk-adjusted assets $24,694 $11,845
======= =======
Quarterly average assets (since
commencement of operations) $35,494 $18,823
======= =======
RATIOS:
Tier I capital to risk-adjusted assets 34.0% 65.5%
Tier II capital to risk-adjusted assets 0.7% 0.6%
Total capital to risk-adjusted assets 34.7% 66.1%
Leverage-- Tier I capital to quarterly
Average assets less disallowed intangibles 23.6% 41.2%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital categories for banks and bank holding companies. The
bank regulators adopted regulations defining these five capital categories in
September 1992. Under these new regulations each bank is classified into one of
the five categories based on its level of risk-based capital as measured by Tier
I capital, total risk-based capital, and Tier I leverage ratios and its
supervisory ratings. The following table lists the five categories of capital
and each of the minimum requirements for the three risk-based capital ratios.
<TABLE>
<CAPTION>
Total Risk-Based Tier I Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Well-capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- 2% or less
</TABLE>
On December 31, 1997 and March 31, 1998, the Company exceeded the regulatory
minimums and qualified as a well-capitalized institution under the regulations.
SHORT-TERM BORROWINGS:
The average balance for short-term borrowings of the Company was less than 30%
of shareholders' equity at December 31, 1997 and March 31, 1998.
<PAGE> 33
PROPERTY ACQUISITIONS:
No significant property acquisitions are planned for the next year beyond normal
additions for operations and minor refurbishing of the building at 607 Memorial
Boulevard.
PERSONNEL:
The Company anticipates increasing the number of employees from the present
level of 14 to 23 employees to service the anticipated loan and deposit growth
and related support services during the next twelve months.
RESEARCH AND DEVELOPMENT:
The Company does not engage in product research and development and does not
anticipate any such activities during the next twelve months.
FOREIGN TRANSACTIONS:
The Company and the Bank have not had any investment securities, loans or
deposits of foreign governments, corporations or other entities.
<PAGE> 34
PART I
ITEM 3 - PROPERTIES
The Company owns two one-story commercial buildings in Murfreesboro, Tennessee
located at 615 Memorial Boulevard and 607 Memorial Boulevard. The buildings are
located on approximately 2.5 acres of land. The main building is located at 615
Memorial Boulevard and contains approximately 2,168 square feet of office space.
It was constructed in 1977 and houses the Bank's new accounts, teller area,
vault and safe deposit boxes and serves as the main retail service center for
the Bank. The building located at 607 Memorial Boulevard serves as the loan
origination and operations area as well as housing the executive offices of the
Bank. It contains approximately 3,944 square feet of office space and was
constructed in 1976. Both sites have been renovated to meet the needs of the
Company. A new automated teller machine is located in a small facility adjacent
to and detached from the main office. The property also contains approximately
1.5 acres of paved parking lot.
It is not the policy of the Company to acquire properties for possible capital
gains or income generation. Investments in real estate will be limited to
properties utilized for operational activities.
The Company offers loans secured by real estate mortgages as a component of its
lending function. The Company will originate and may service mortgage loans in
connection with the lending function.
The Company does not invest in securities of real estate entities or in
developed or undeveloped properties. In the future the Company may purchase
mortgage-backed securities as part of its investment portfolio; however, based
upon current market conditions, management does not presently intend to purchase
any mortgage-backed securities in the short-term or long-term.
<PAGE> 35
PART I
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following individual's hold 5% or more of the outstanding voting (common)
stock of the Company. No other individual's hold 5% or more of the outstanding
voting (common) stock of the Company.
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS AMOUNT AND NATURE PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
----- ------------------- -------------------- --------
<S> <C> <C> <C>
Common William E. Rowland 75,000 (1) 8.26%
1110 Virginia Avenue
Murfreesboro, Tennessee 37130
Common Joseph M. Swanson 64,500 (2) 7.11%
100 East Vine Street - Suite 1500
Murfreesboro, Tennessee 37130
</TABLE>
(1) - Includes 40,000 shares held as trustee for two sons' trusts.
(2) - Includes 500 shares held jointly with daughter.
The following include all executive officers who hold 5% or more of the
outstanding voting (common) stock of the Company and a total of the common stock
held by all directors and executive officers.
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS AMOUNT AND NATURE PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
----- ------------------- -------------------- --------
<S> <C> <C> <C>
Common William E. Rowland (2) 75,000 (1) 8.26%
1110 Virginia Avenue
Murfreesboro, Tennessee 37130
Common All directors and executive officers
as a group 210,500 23.19%
</TABLE>
(1) - Includes 40,000 shares held as trustee for two sons' trusts.
(2) - Chief Executive Officer.
There are currently no arrangements which may result in a change of ownership of
control of the Company.
<PAGE> 36
PART I
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table relates to directors, executive officers, promoters and
control persons of the Company at December 31, 1997:
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION(S)
WITH COMPANY AGE (1) BUSINESS AFFILIATIONS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William E. Rowland 50 Executive Vice President, Secretary and Director - First City
Chief Executive Officer, Bank (January 1986-March 1996); President, Chief Executive
President and Director Officer and Director - First City Bancorp, Inc. (May 1988-March
1996); President - Tennessee Credit Corporation (March
1996-June 1996); President, Chief Executive Officer and
Director - Bank of Murfreesboro (October 1997 - Present);
President, Chief Executive Officer and Director -
Murfreesboro Bancorp, Inc. (October 1997 - Present)
- ------------------------------------------------------------------------------------------------------------
Joyce Ewell 54 First Vice President and Director - First City Bank (January
Senior Vice President, 1986-March 1996); Vice President - First American National Bank
Secretary and Director (March 1996-January 1997); Senior Vice President and Director -
Bank of Murfreesboro (October 1997-Present)
- ------------------------------------------------------------------------------------------------------------
Olin O. Williams 67 Surgeon - Murfreesboro Medical Clinic (September 1967-January
Chairman of the Board of 1994); Director - National Health Care, L.P. (1971-Present);
Directors Director - First City Bank (January 1986-March 1996); Director
- First City Bancorp, Inc. (May 1988-March 1996)
- ------------------------------------------------------------------------------------------------------------
Melvin R. Adams 58 Agent - State Farm Insurance Company (1971-Present); Director -
Director First City Bank (January 1986-March 1996); Director - First
City Bancorp, Inc. (May 1988-March 1996)
- ------------------------------------------------------------------------------------------------------------
Thomas E. Batey 63 President/Owner - Batey's (office supply) (1957-Present);
Director Director - First City Bank (May 1988-March 1996); Director -
First City Bancorp, Inc. (May 1988-March 1996)
- ------------------------------------------------------------------------------------------------------------
John Stanley Hooper 65 President/Owner - Hooper Supply Co., Inc. (1957-95); Director -
Director First City Bank (May 1988-March 1996); Director - First City
Bancorp, Inc. (May 1988-March 1996)
- ------------------------------------------------------------------------------------------------------------
William H. Sloan 63 President/Owner - Sloan's Sales and Service, Inc. (motorcycle
Director sales, parts and service) (1960-Present); Director - First City
Bank (January 1994-March 1996)
- ------------------------------------------------------------------------------------------------------------
Joseph M. Swanson 59 President - Swanson, Inc. (1960-Present); Owner - Swanson
Director Developments (1983-Present); Director - First City Bank
(January 1986-March 1996); Director - First City Bancorp, Inc.
(May 1988-March 1996)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) - As of December 31, 1997
The above directors have served as directors since commencement of operations on
October 6, 1997 and were re-elected at the shareholder meeting on April 16,
1998. The term is for one year with annual reappointment.
<PAGE> 37
At December 31, 1997, there were no family relationships among directors and
executive officers. Further, no director or executive officer has been involved
in any legal proceedings including bankruptcy, criminal proceedings or
injunction from involvement with any business, banking or securities activities.
<PAGE> 38
PART I
ITEM 6 - EXECUTIVE COMPENSATION
The following table relates to executive compensation paid during 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
OTHER UNDER-
ALL ANNUAL RESTRICTED LYING OTHER
NAME AND COMPEN- STOCK OPTIONS/ COMPEN-
PRINCIPAL POSITION SALARY BONUS SATION AWARDS SAR'S PAYOUTS SATION
<S> <C> <C> <C> <C> <C> <C> <C>
William E. Rowland, $16,300 $- $- $- $- $- $750 (1)
Chief Executive Officer
</TABLE>
(1) - Director fees.
No executive officer had compensation in excess of $100,000.
The directors are paid $250 per month. There is no other compensation for the
directors.
Currently there are no employment contracts between the Company and any of its
employees or the Bank and any of its employees.
<PAGE> 39
PART I
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company purchased its primary retail banking location located at 615
Memorial Boulevard in Murfreesboro, Tennessee from Director Joseph M. Swanson
for approximately $411,000. This amount approximated its estimated fair value.
Federal banking regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and must not involve more
than the normal risk of repayment or present other unfavorable features. The
Bank's policy is not to make any new loans or extensions of credit to the Bank's
executive officers and directors at different rates or terms than those offered
to the general public. The aggregate amount of loans by the Bank to its
executive officers and directors was approximately $1,215,000 at December 31,
1997.
<PAGE> 40
PART I
ITEM 8 - DESCRIPTION OF SECURITIES
The Company is authorized by its charter to issue a maximum of 2,000,000 shares
of Common Stock, $5.00 par value per share, (the "Shares") and 1,000,000 shares
of Preferred Stock, no stated par value. There are 907,609 shares of Common
Stock, and no shares of Preferred Stock, issued and outstanding. The outstanding
Shares of Common Stock were fully paid and nonassessable.
COMMON STOCK
The following is a summary of certain rights and provisions of the Shares. This
summary includes all of the material rights and provisions of the shares,
however, this summary does not purport to be complete and is qualified in its
entirety by reference to the charter of the Company and the Tennessee
corporation laws.
Dividend Rights and Limitations on Payments of Dividends - The holders of Common
Stock are entitled to receive, pro rata, such dividends and other distributions
as and when declared by the Company's Board of Directors out of the assets and
funds legally available therefor. The availability of funds to the Company is
dependent upon dividends from the Bank which may declare dividends only once in
each calendar quarter and only from its undivided profits account so long as its
reserve against deposits is not or will not be impaired. However, no net
earnings, and therefore no moneys which may be distributed as dividends, are
projected for the first three years of operation. Also, despite the availability
of net or accumulated earnings in later years of operations, and the capacity to
maintain capital at levels required by governmental regulation, the Board of the
Bank may choose to retain all earnings for the operation of the business.
Voting Rights - The holders of Common Stock are entitled to one vote per share
on all matters presented for a shareholder vote. There is no provision for
cumulative voting. The business of the Company is controlled by a Board of
Directors. This Board is elected by a majority vote of the shareholders. A set
of bylaws has been adopted for the guidance and control of the Company.
Amendments to the bylaws will be effected by majority vote of the shareholders.
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required for mergers, consolidations or other similar
transactions and for amendments to the charter of the Company.
Liquidation Rights - Upon the voluntary or involuntary dissolution, liquidation,
or winding up of the affairs of the Company, after the payment in full of its
debts and other liabilities, the remainder of its assets, if any, are to be
distributed pro rata among the holders of Shares. Subject to any required
regulatory approvals, the directors of the Company, at their discretion, may
authorize and issue debt obligations, whether or not subordinated, without prior
approval of the shareholders, thereby further depleting the liquidation value of
the Shares.
Preemptive Rights - Owners of Shares of the Company do not have the preemptive
right to purchase additional shares offered by the Company in the future. That
is, the Company may sell additional Shares to particular shareholders or to
non-shareholders without first offering each then current shareholder the right
to purchase the same percentage of such newly offered Shares as is the
shareholder's percentage of the then outstanding Shares of the Corporation.
Redemption - The Shares may not be redeemed in the sole discretion of the
Company.
Conversion Rights - The holders of Shares have no conversion rights.
<PAGE> 41
Payment of Dividends - The Company intends to pay dividends on the Common Stock
at some point in the future when permissible under applicable statutes. Payment
of these dividends will be dependent upon numerous factors including earnings,
capital ratios, asset quality and growth of the Company.
Liability to Further Calls or to Assessments by the Company - The Shares are not
subject to liability for further calls or to assessments by the Company.
PREFERRED STOCK
As of December 31, 1997, there were no shares of Preferred Stock outstanding.
The Charter of the Company authorizes the issuance by the Company of up to
1,000,000 shares of its Preferred Stock. The Preferred Stock may be issued by
vote of the Board of Directors without shareholder approval. The Preferred Stock
may be issued in one or more classes and series, with such designations, full or
limited voting rights (or without voting rights), redemption, conversion, or
sinking fund provisions, dividend rates or provisions, liquidation rights, and
other preferences and limitations as the Board of Directors may determine in the
exercise of its business judgment. The Preferred Stock may be issued by the
Board of Directors for a variety of reasons. The Corporation has no present
plans to issue any of its Preferred Stock. The Preferred Stock could be issued
in public or private transactions in one or more (isolated or series of) issues.
The shares of any issue of Preferred Stock could be issued with rights,
including voting, dividend, and liquidation features, superior to those of any
issue or class of shares, including the Common Stock. The issuance of shares of
the Preferred Stock could serve to dilute the voting rights or ownership
percentages of holders of the Common Shares (or any other shares.) The issuance
of shares of the Preferred Stock might also serve to deter or block any attempt
to obtain control of the Company, or facilitate any such attempt.
<PAGE> 42
PART II
ITEM 1 - MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
The Company's common stock is not traded on any exchange. There were no trades
of the common stock during 1997 to establish high and low bid information. The
last known trade was on April 21, 1998 for $11.00 per share; however, there is
no guarantee that the Company has record of the actual price paid for all stock
transferred. There were approximately 2,375 shareholders of record as of
December 31, 1997. The Company's ability to pay dividends is dependent upon the
earnings of the Bank. Banking regulations limit the amount of dividends that may
be paid by the Bank without prior approval of the Bank's regulatory agency, the
TDFI. There were no retained earnings against which dividends may be charged
subsequent to December 31, 1997. Future dividends will be dependent upon the
earnings of the Bank. No dividends have been paid on the common stock of the
Company. At December 31, 1997, there are no outstanding warrants or options to
purchase the Company's common stock and there are no outstanding securities
convertible into the Company's common stock.
ITEM 2 - LEGAL PROCEEDINGS
At the present time the Company is not aware of any pending or threatened
litigation, legal proceedings or enforcement actions against it.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS
The Company has not had any changes in nor disagreements with its independent
accountants.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
All of the outstanding shares of the Company's common stock were issued during
1997 and sold by the Company as part of its initial offering and formation.
There were 877,609 shares that were sold for $10.00 per share and another 30,000
shares issued in exchange for land valued at $300,000. These shares were sold
pursuant to an exemption in Section 3(a)(12) of the Securities Act of 1933. As
indicated above in Item 1, there may have been some trading between shareholders
at various prices since the initial offering, but the Company does not have a
complete and exhaustive list of the transactions and actual price paid.
ITEM 5 - INDEMINIFICATION OF DIRECTORS AND OFFICERS
The Company has included in its charter:
"No person shall be liable for any loss or damage suffered on account of any
action taken or omitted to be taken by him as a director or officer of the
corporation in good faith and in accordance with the standard of conduct set
forth in Tennessee Code Annotated Section 48-18-502."
Pursuant to the Company's by laws and the Tennessee Business Corporation Act,
the Company shall indemnify to the fullest extent permitted by law any and all
persons who may serve or who have served at any time as directors or officers or
who at the request of the board of directors of the corporation may serve or at
any time have served as directors or officers of another corporation in which
the corporation at such time owned or may own shares of stock or of which it was
or may be a creditor, and their respective heirs, administrators, successors and
assigns, against any and all expenses, including amounts paid upon judgments,
counsel fees and amounts paid in settlement (before or after suit is commenced),
actually and necessarily incurred by such persons in connection with the defense
or settlement of any claim of action, suit, or proceeding in which they, or any
of them, are made parties, or a party, or which may be asserted against them or
any of them, by reason of being or having been directors or officers or a
director or officer
<PAGE> 43
of the corporation or such other corporation, except in relation to such matters
to which any such director or officer or former director or officer or person
shall be adjudged in any action, suit, or proceeding to be liable for his own
negligence or misconduct in the performance of his duty. Such indemnification
shall be in addition to any other rights to which those indemnified may be
entitled under any law, bylaw, agreement, vote of shareholders, or otherwise.
<PAGE> 44
PART F/S
Consolidated Financial Statements
MURFREESBORO BANCORP, INC.
December 31, 1997
<PAGE> 45
MURFREESBORO BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
C O N T E N T S
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report ........................................................................ 1
Consolidated Balance Sheet .......................................................................... 2
Consolidated Statement of Operations ................................................................ 3
Consolidated Statement of Changes in Shareholders' Equity ........................................... 4
Consolidated Statement of Cash Flows ................................................................ 5
Notes to Consolidated Financial Statements .......................................................... 6-25
</TABLE>
<PAGE> 46
Independent Auditors' Report
The Board of Directors
Murfreesboro Bancorp, Inc.
Murfreesboro, Tennessee
We have audited the consolidated balance sheet of Murfreesboro Bancorp, Inc. and
subsidiary as of December 31, 1997, and the related consolidated statement of
operations, changes in shareholders' equity and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Murfreesboro Bancorp, Inc. and subsidiary at December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Nashville, Tennessee RAYBURN, BETTS & BATES, P.C.
March 25, 1998
1
<PAGE> 47
MURFREESBORO BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(Tabular amounts are in thousands)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks (note 2) $ 1,006
Federal funds sold 7,704
--------
Total cash and cash equivalents 8,710
--------
Securities available for sale (note 3) 14,732
Loans, less allowance for possible loan losses
of $68,000 (note 4) 5,333
Premises and equipment, net (note 5) 1,558
Accrued interest receivable 149
Other assets 128
--------
Total assets $ 30,610
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (notes 3 and 6) $ 21,765
Accrued interest payable 74
Other liabilities 81
--------
Total liabilities 21,920
--------
Contingencies (note 8)
Shareholders' equity (note 9):
Preferred stock, no assigned value or rights, 1,000,000 shares authorized,
no shares issued or outstanding at December 31, 1997 --
Common stock, $5.00 par value, 2,000,000 shares authorized
and 907,609 shares issued and outstanding at December 31, 1997 4,538
Additional paid-in capital 4,530
Deficit (369)
Unrealized loss on securities available for sale (9)
--------
Total shareholders' equity 8,690
--------
Total liabilities and shareholders' equity $ 30,610
========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 48
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Tabular amounts are in thousands except per share amounts)
<TABLE>
<S> <C>
Interest income:
Interest on federal funds sold $ 112
Interest on taxable investment securities 90
Interest and fees on loans 63
Interest on escrow funds 27
------
Total interest income 292
------
Interest expense:
Interest on negotiable order of withdrawal accounts 40
Interest on money market demand accounts 15
Interest on savings deposits 1
Interest on certificates of deposit 87
------
Total interest expense on deposits 143
Interest on note payable 4
------
Total interest expense 147
------
Net interest income 145
Provision for possible loan losses (note 4) 68
------
Net interest income after provision for possible loan losses 77
------
Non-interest income:
Service charges on deposits 4
Other fees and commissions 1
Other non-interest income 1
------
Total non-interest income 6
------
Non-interest expense:
Salaries and employee benefits 202
Occupancy expenses, net (note 5) 12
Furniture and equipment expense (note 5) 24
Other non-interest expenses 214
------
Total non-interest expense 452
------
Loss before income taxes (369)
Income tax benefit (note 7) --
------
Net loss $ (369)
======
Loss per share - basic (no dilutive items outstanding) $(1.71)
======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 49
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(Tabular amounts are in thousands except shares)
<TABLE>
<CAPTION>
Unrealized
Common Stock Loss on
--------------------- Additional Available
Par Paid-in for Sale
Shares Value Capital Deficit securities Total
-------- ------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1 $ -- $ -- $ -- -- $ --
October 6, 1997 - Redemption of
organizational stock for $25 (1) -- -- -- -- --
October 6, 1997 - Sale of
907,609 shares of common
stock, net of issue costs of $8,000 907,609 4,538 4,530 -- -- 9,068
Increase in unrealized loss
on securities available for
sale -- -- -- (9) (9)
Net loss -- -- -- (369) -- (369)
-------- ------ ------ ----- --- -------
Balance at
December 31, 1997 907,609 $4,538 $4,530 $(369) $(9) $ 8,690
======== ====== ====== ===== === =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 50
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Tabular amounts are in thousands)
<TABLE>
<S> <C>
Operating activities:
Net loss $ (369)
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Provision for loan losses 68
Provision for depreciation, amortization and accretion, net 22
Changes in assets and liabilities:
Increase in accrued interest receivable (149)
Increase in other assets (128)
Increase in accrued interest payable 74
Increase in other liabilities 81
--------
Net cash used by operating activities (401)
--------
Investing activities:
Purchase of securities available for sale (14,741)
Increase in loans, net (5,401)
Additions to premises and equipment (1,280)
--------
Net cash used in investing activities (21,422)
--------
Financing activities:
Proceeds from note payable 150
Repayment of note payable (150)
Net increase in deposits 21,765
Issuance of common stock 8,776
Stock issue costs (8)
--------
Net cash provided by financing activities 30,533
--------
Net increase in cash and cash equivalents 8,710
Cash and cash equivalents at the beginning of the year --
--------
Cash and cash equivalents at the end of the year $ 8,710
========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 73
Non-cash transactions:
Increase in unrealized loss on securities available for sale $ 9
========
Land acquired in exchange for 30,000 shares of common stock $ 300
========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 51
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Murfreesboro Bancorp, Inc. (the Company)
conform to generally accepted accounting principles and to general
practices within the banking industry. The following represent the more
significant of those policies and practices:
(a) Basis of Consolidated Financial Statements
The consolidated financial statements include the accounts of
the Company's wholly-owned subsidiary, Bank of Murfreesboro
(the Bank), which is a full service bank. Intercompany
accounts and transactions have been eliminated in
consolidation.
The Company derives substantially all of its revenues from the
Bank. The Bank is primarily engaged in the business of
attracting demand, savings and time deposits from the general
public in the Rutherford County, Tennessee market area and
investing these funds in investment securities and loans to
commercial and retail enterprises as well as individuals
located in the same general market area.
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates used in
the preparation of the financial statements are based on
various factors including the current interest rate
environment and the general strength of the local economy.
Changes in the overall interest rate environment can
significantly affect the Company's net interest income and the
value of its recorded assets and liabilities. Actual results
could differ from those estimates used in the preparation of
the financial statements.
(b) Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand and in
banks, federal funds sold and investment securities purchased
with an original ninety day or less remaining maturity.
(c) Investment Securities
The Company has adopted Statement of Financial Accounting
Standard ("SFAS") 115 Accounting for Certain Investments in
Debt and Equity Securities. SFAS 115 requires that all
investments in debt securities and all investments in equity
securities that have readily determinable fair values be
classified into three categories. Debt securities that
management has positive intent and ability to hold until
maturity will be classified as to be held to maturity.
Securities that are bought and held specifically for the
purpose of selling them in the near term will
6
<PAGE> 52
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Investment Securities (Continued)
be classified as trading securities. All other securities will
be classified as available for sale. Securities are designated
as available for sale if management intends to use such
securities in its asset/liability management strategy and
therefore such securities may be sold in response to changes
in interest rates. Securities classified as trading and
available for sale will be carried at market value.
Unrealized holding gains and losses for available for sale
securities are reported as a separate component of
shareholders' equity until realized, net of the estimated tax
effect. Investments classified as to be held to maturity will
be carried at amortized cost. Realized gains and losses on any
sales of securities are computed on the basis of specific
identification of the adjusted cost of each security and
included in non-interest income.
(d) Loans, less Allowance for Possible Loan Losses
Loans are stated at the principal amount outstanding. Unearned
interest on loans, which relates principally to installment
loans, is shown as a reduction of loans. Interest income on
installment loans with related unearned interest is recognized
by a method that does not differ materially from the
level-yield method. Interest on all other loans is computed on
the outstanding loan balance.
Loan origination fees are recognized in amounts estimated to
be the Company's loan origination costs related to
underwriting and closing the loans at origination. Fees
received in excess of the amount recognized at origination are
deferred and amortized into income over the estimated average
life of the loans using the level-yield method. The
unamortized balance of deferred loan origination fees is
credited to income at the time a loan is sold or paid off.
Loans, including impaired loans, are placed on a non-accrual
basis when payments of interest and/or principal have remained
delinquent for a period of over 90 days, unless the loan is
both well-secured and in the process of collection, or
management's evaluation indicates probable default prior to
the 90-day delinquency period.
Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are
assured of repayment within an acceptable period of time, and
there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest
7
<PAGE> 53
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Loans, less Allowance for Possible Loan Losses (Continued)
and principal. While a loan is classified as nonaccrual,
interest income is generally recognized on a cash basis.
The decision to charge off a loan is based upon the borrower's
continued failure to pay principal or interest when due, or
circumstances indicating the payments will not or cannot be
made, along with evaluation of any collateral securing the
loan.
Consumer loans generally are charged off when contractually
delinquent 120 days or more, or when five payments have been
missed and there is no recent record of regular payment.
The allowance method is used by the Company to provide for
possible loan losses. Accordingly, all loan losses are charged
to the allowance for possible loan losses and all recoveries
are credited to it. The allowance is an amount that management
believes will be adequate to absorb possible losses on
existing loans that may become uncollectible. The provision
for possible loan losses charged to operating expense is based
on past loan loss experience and other factors which, in
management's judgment, deserve current recognition in
estimating possible loan losses. Such other factors considered
by management include growth and composition of the loan
portfolio, the relationship of the allowance for possible loan
losses to outstanding loans and current economic conditions
that may affect borrowers' ability to repay.
The Financial Accounting Standards Board ("FASB") issued SFAS
114 Accounting by Creditors for Impairment of a Loan. SFAS 114
addresses the accounting by creditors for impairment of
certain loans. It is generally applicable for all loans,
except large groups of smaller-balance homogenous loans that
are collectively evaluated for impairment including
residential mortgage loans and consumer installment loans.
SFAS 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable
market price or the fair value of the collateral if the loan
is collateral dependent. A loan is considered impaired when,
based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement.
The FASB issued SFAS 118, which is effective concurrent with
the effective date of SFAS 114. This Statement amends SFAS 114
to allow a creditor to use existing methods for recognizing
interest income on impaired loans. Also, this
8
<PAGE> 54
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Loans, less Allowance for Possible Loan Losses (Continued)
statement requires the disclosure about the recorded
investment in certain impaired loans and how the creditor
recognizes interest income related to those impaired loans.
(e) Premises and Equipment
Premises and equipment are stated at cost. Depreciation is
computed primarily by the straight-line method over the
estimated useful lives of the related assets which primarily
range from 3 to 30 years. Gain or loss on items retired and
otherwise disposed of is credited or charged to operations and
cost and related accumulated depreciation are removed from the
asset and accumulated depreciation accounts.
(f) Other Real Estate
Properties acquired through foreclosure and unused premises
are stated at the lower of recorded amount of the loan or the
property's estimated net realizable value, reduced by
estimated selling costs. Write-down of the assets at, or prior
to, the date of foreclosure are charged to the allowance for
possible losses on loans. Subsequent write-downs, income and
expenses incurred in connection with holding such assets, and
gains and losses realized from the sales of such assets are
included in noninterest income and expense.
(g) Other Assets
Organizational costs of the Company are amortized on a
straight-line basis over five years.
(h) Income Taxes
The FASB has issued SFAS 109 Accounting for Income Taxes. SFAS
109 required a change from the deferred method previously used
in the consolidated financial statements to the asset and
liability method of computing deferred income taxes. Under the
asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences
by applying future statutory tax rates to differences between
the financial statements carrying amounts and the tax basis of
existing assets and liabilities.
Deferred income taxes arise from temporary differences between
financial and tax reporting, principally related to
depreciation and provision for possible loan losses.
The provision for income taxes relates to items of income and
expense after elimination of principally non-deductible
officers' life insurance premiums.
The Company will file a consolidated federal income tax return
and a combined state excise (income) tax return with its
wholly-owned subsidiary. Income taxes are allocated on a
"separate entity" basis.
9
<PAGE> 55
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(2) CASH AND DUE FROM BANKS
At December 31, 1997, the Company had deposits in other financial
institutions in excess of Federal Deposit Insurance Corporation
insurance coverage limits by approximately $747,000.
The Bank is required to maintain cash balances with the Federal Reserve
Bank or other correspondent banks based on certain percentages of
deposit types. The approximate average amount for cash maintenance for
the year ended December 31, 1997 was $25,000.
(3) SECURITIES
The amortized cost and approximate estimated fair value of securities
available for sale at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Obligations of U.S
Government agencies
and corporations $14,741 $ -- $ 9 $14,732
======= ========= ====== =======
</TABLE>
The amortized cost and estimated fair value of securities available for
sale at December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------- -------
<S> <C> <C>
Due in one year or less $2,741 $2,739
Due after one year
through five years 12,000 11,993
------- -------
Total $14,741 $14,732
======= =======
</TABLE>
There were no sales of securities available for sale during the period
ended December 31, 1997 and no securities were pledged at December 31,
1997 to secure public deposits, securities sold under repurchase
agreements and for the purposes required or permitted by law. There
were no securities classified as "trading" nor "held to maturity" at
December 31, 1997.
10
<PAGE> 56
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(4) LOANS, LESS ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans, less allowance for possible loan losses at December 31, 1997 are
summarized as follows:
<TABLE>
<S> <C>
Commercial, financial and agricultural $1,134
Real estate - construction 334
Real estate - commercial 2,248
Real estate - mortgage 1,018
Consumer and other 667
------
Total 5,401
Less allowance for possible loan losses 68
------
Total loans, net of allowance for possible loan losses $5,333
======
</TABLE>
The Bank grants commercial, consumer, residential and agribusiness
loans to customers throughout southern middle Tennessee, but primarily
concentrated in Rutherford County, Tennessee. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the local economy.
During the year ended December 31, 1997, the Company advanced funds of
$1,357,000 to directors, officers and affiliates of the Company.
Repayments on these loans totaled $142,000 during the year ended
December 31, 1997. At December 31, 1997, the Bank had loans to such
related parties aggregating approximately $1,215,000. In management's
opinion, all such loans were made in the ordinary course of business on
substantially the same terms as those prevailing at the time for
comparable transactions with unrelated parties.
At December 31, 1997, no loans were classified as impaired,
non-accrual, past due ninety days or more nor deemed non-performing.
Transactions in the allowance for possible loan losses for the year
ended December 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
Balance - beginning of year $ -
Provision charged to operating expense 68
---
68
---
Loans charged-off -
Recoveries -
---
Net loans (charged-off) recoveries -
---
Balance - end of year $68
===
</TABLE>
11
<PAGE> 57
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(5) PREMISES AND EQUIPMENT, NET
The detail of premises and equipment, net at December 31, 1997 is as
follows:
<TABLE>
<S> <C>
Land $ 655
Buildings 477
Furniture and equipment 448
------
1,580
Less accumulated depreciation 22
------
Premises and equipment, net $1,558
======
</TABLE>
Depreciation related to premises and equipment for the year ended
December 31, 1997 was $22,000.
The Company purchased its primary bank premises from a director for
$411,000, which approximated its estimated fair value. The Company also
acquired equipment, supplies and furnishings of $57,000 from other
directors.
(6) DEPOSITS
Deposits at December 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
Non-interest bearing deposits:
Demand deposits $ 964
Interest-bearing deposits:
NOW and Super NOW accounts 8,507
Money market demand accounts 2,038
Savings 59
Certificates of deposit $100,000 or greater 3,885
Other certificates of deposit 6,312
-------
Total $21,765
=======
</TABLE>
At December 31, 1997, the scheduled maturities of certificates of
deposit were:
<TABLE>
<S> <C>
For the year ending December 31,
1998 $10,037
1999 -
2000 -
2001 -
2002 160
-------
Total $10,197
=======
</TABLE>
12
<PAGE> 58
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands except percentages)
(7) INCOME TAXES
A reconciliation of income tax benefit for the year ended December 31,
1997 to the "expected" tax benefit computed by applying the statutory
federal income tax rate of 34 percent to loss before income taxes, is
as follows:
<TABLE>
<S> <C> <C>
Computed "expected" tax benefit $(125) (34%)
Increase (reduction) in taxes
resulting from:
Valuation allowance related to deferred tax assets 138 37%
State income taxes, net of federal tax benefit (15) (4%)
Other, net 2 1%
Income tax benefit $ -- --%
===== ===
</TABLE>
The sources of deferred income taxes (benefits) at December 31, 1997
and the tax effect of each are as follows:
<TABLE>
<S> <C>
Net operating loss $(117)
Provision for possible loan losses (23)
Other, net 2
Valuation allowance related to deferred tax asset 138
-----
Deferred taxes, net $ --
=====
</TABLE>
At December 31, 1997, the Company has net operating losses for federal
and state income taxes of approximately $310,000, which expire in tax
year 2012 for federal and state purposes.
(8) CONTINGENCIES
In the normal course of business there are contingent liabilities such
as legal proceedings pending against the Company. In the opinion of
management, no material adverse effect on the consolidated financial
position of the Company is anticipated as a result of these items.
13
<PAGE> 59
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(9) SHAREHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid by
the Bank without prior approval of the Bank's regulatory agency, the
Tennessee Department of Financial Institutions. There were no retained
earnings against which dividends may be charged subsequent to December
31, 1997, without regulatory approval. This amount will be increased
based upon future earnings.
Weighted average shares of common stock outstanding for the year ended
December 31, 1997 was 216,335.
(10) CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific
capital guidelines that involve quantitative measures of the Company's
and the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Company's and
Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum ratios of
Tier 1 and total capital as a percentage of assets and
off-balance-sheet exposures, adjusted for risk weights ranging from 0%
to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available for sale,
minus certain intangible assets. Tier 2 capital consists of the
allowance for loan losses subject to certain limitations. Total capital
for purposes of computing the capital ratios consists of the sum of
Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4%
for Tier 1 and 8% for total risk-based capital.
The Company and Bank are also required to maintain capital at a minimum
level based on total assets, which is known as the leverage ratio. Only
the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios of 1%
to 2% above the minimum.
14
<PAGE> 60
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands except percentages)
(10) CAPITAL REQUIREMENTS, (Continued)
As of December 31, 1997, the most recent notifications from the Bank's
regulators categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. There are no
conditions or events that management believes have changed the Bank's
categories.
The following table summarizes the estimated capital ratios and amounts
on a consolidated and Bank only basis and the regulatory minimum
requirements at December 31, 1997:
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
---------- ---------- --------
<S> <C> <C> <C>
Consolidated:
Actual ratio 73.210% 73.778% 41.885%
Regulatory minimum:
For capital adequacy purposes 4.000% 8.000% 4.000%
Calculated balance $ 8,699 $ 8,767 $ 8,699
Regulatory minimum:
For capital adequacy purposes $475 $951 $ 831
Bank Only:
Actual ratio 65.491% 66.061% 41.211%
Regulatory minimum:
For capital adequacy purposes 4.000% 8.000% 4.000%
To be well capitalized under prompt
corrective action provisions 6.000% 10.000% 5.000%
Calculated balance $ 7,757 $ 7,825 $ 7,757
Regulatory minimum:
For capital adequacy purposes $474 $ 948 $ 753
To be well capitalized under prompt
corrective action provisions $711 $ 1,184 $ 941
</TABLE>
15
<PAGE> 61
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(11) OFF-BALANCE SHEET RISK
During the normal course of business, the Company and the Bank are
party to financial instruments with off-balance sheet risk. This is
done to meet the financing needs of customers and to reduce the
Company's and the Bank's exposure to fluctuations in interest rate
risk. These financial instruments include commitments to extend credit,
letters of credit, unadvanced loan principal, construction loan
commitments, home equity lines of credit and commitments to purchase
financial instruments at predetermined prices. Those instruments
contain, to varying degrees, elements of credit and market risk in
excess of the amounts recognized in the consolidated balance sheets.
The credit risk relates to the possibility that a loss may occur from
the failure of another party to perform according to the terms of a
contract. The market risk relates to the possibility that future
changes in market prices may make a financial instrument less valuable
or more onerous.
Commitments to extend credit are legally binding agreements to lend to
a customer. Commitments, with the exception of credit cards, generally
have variable rates, fixed expiration dates and may require payment of
a fee. The variable rates are tied to the Bank's index rate limiting
the Company's market risk. Remaining unadvanced loan principal of
commitments totaled $278,000 at December 31, 1997. These balances do
not necessarily represent actual future cash requirements since many of
the commitments are expected to expire without being drawn upon. The
Bank, for a majority of the commitments, evaluates each customer's
credit worthiness on a case-by-case basis and collateral is obtained if
deemed necessary. Collateral includes accounts and notes receivable,
inventory, plant and equipment, marketable securities, and mortgages.
Construction loan commitments for both residential and commercial
properties totaled $415,000 at December 31, 1997 with $81,000 being
undrawn.
Credit cards are uncollateralized. At December 31, 1997, the Bank did
not offer credit card lines of credit. Home equity lines represent
collateralized equity in single family residences. At December 31,
1997, the home equity lines of credit totaled $155,000 with $65,000
undrawn.
Letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements, the purchase of domestic and international goods, and
required developer improvements to construction sites. Since most
letters of credit are not expected to be drawn upon, the total contract
amounts do not necessarily represent actual future cash requirements.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. When deemed
necessary, the Bank obtains marketable securities as collateral
supporting these letters of credit. Letters of credit totaled $37,000
at December 31, 1997.
16
<PAGE> 62
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(11) OFF-BALANCE SHEET RISK, (Continued)
The Bank had no commitments to purchase financial instruments at
predetermined prices at December 31, 1997. The exposure to credit risk
resides with the inability to deliver these financial instruments. The
loss would be confined to any adverse change in the market prices that
took place between the time of initiation and consummation of the
transaction. Market risk consists of the normal risk that resides with
any portfolio held when interest rates rise.
(12) EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS
The FASB issued SFAS 119 Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments. This statement
addresses the disclosure of derivative financial statements including
the face amount, nature and terms. For derivatives held for trading,
disclosure of average and period end fair values and disaggregated
gains and losses is required. For derivatives held for purposes other
than trading, disclosure of objectives, strategies, policies on
reporting and income recognition method is required. Currently the
Company does not own any derivative financial instruments, as defined
in SFAS 119. Therefore, the statement had no impact on the consolidated
financial statements.
The FASB issued SFAS 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed of. This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized.
Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should
be based on the fair value of the asset. The impact on the financial
statements for this statement has not been material.
The FASB issued SFAS 122, Accounting for Mortgage Servicing Rights.
This statement amends FASB Statement 65, Accounting for Certain
Mortgage Banking Activities to require that a banking enterprise
recognize as separate assets rights to service mortgage loans for
others, however, those servicing rights are acquired. The total cost of
the mortgage loans to be sold should be allocated between the mortgage
servicing rights and the loans based on their relative fair values if
it is practicable to estimate those fair values. If not, the entire
cost should be allocated to the mortgage loans. The impact on the
financial statements for this statement has not been material.
17
<PAGE> 63
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(12) EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS (Continued)
In June 1996, the FASB issued SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Under
this standard, accounting for transfers and servicing of financial
assets and extinguishments of liabilities is based on control. After a
transfer of financial assets, an entity recognizes the financial and
servicingassets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. The effect of this
statement did not have a material effect on the financial statements of
the Company.
In December 1996, the FASB issued SFAS 126, Exemption from Certain
Required Disclosures about Financial Instruments for Certain Nonpublic
Entities. This statement amends FASB 107, Disclosures about Fair Value
of Financial Instruments, to make disclosures about the fair value of
financial instruments prescribed in FASB 107 optional for entities
meeting the criteria of being a nonpublic entity, having assets less
than $100 million on the financial statement date, and not having held
or issued any derivative financial instruments, as defined in FASB 119,
other than loan commitments, during the reporting period.
This statement is effective for fiscal years ending after December 15,
1996. Management has elected not to disclose fair values, as the
Company meets all criteria required to make such an election optional.
In February 1997, the FASB issued SFAS 128, Earnings Per Share, which
became effective for reporting periods after December 15, 1997. Under
the provisions of SFAS 128, primary and fully diluted earnings per
share were replaced with basic and diluted earnings per share in an
effort to simplify the computation of these measures and align them
with the methodology used internationally. Basic earnings per share is
arrived at by dividing net earnings available to common shareholders by
the weighted-average number of common shares outstanding and does not
include the impact of any potentially dilutive common stock
equivalents. The diluted earnings per share calculation method is
similar to, but slightly different from, the previously required fully
diluted earnings per share method and is arrived a by dividing net
earnings less dividends on nonconvertible preferred stock by the
weighted-average number of shares outstanding, adjusted for the
dilutive effect of outstanding stock options and conversion impact of
convertible equity securities.
In February 1997 the FASB issued SFAS 129, Disclosure of Information
about Capital Structure. The statement established standards for
disclosing information about an entity's capital structure and applies
to all entities. This statement continues the previous requirements to
disclose certain information about an entity's capital structure found
in Accounting Principles Board ("APB") Opinions 10, Omnibus Opinion -
1966, and 15, Earnings Per Share and SFAS 47, Disclosure of Long-Term
Obligations, for entities that
18
<PAGE> 64
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(12) EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS (Continued)
were subject to those standards. This statement is effective for
financial statements for periods ending after December 15, 1997. This
statement contains no change in disclosure requirements for entities
that were previously subject to the requirements of APB Opinions 10 and
15 and SFAS 47. The adoption of the provisions of this statement is not
expected to have a material impact on the Company.
In July 1997 the FASB issued SFAS 130, Comprehensive Income. This
statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is presented with the same statements. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is presented with the same prominence as
other financial statements. This statement requires that companies (i)
classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial
condition. This statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comprehensive purposes is required.
In July 1997 the FASB issued SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. This statement requires that
financial and descriptive information be disclosed for each reportable
operating segment based upon the management approach. The management
approach focuses on financial information that an enterprise's decision
makers use to assess performance and make decisions about resource
allocation. The statement also prescribes the enterprise-wide
disclosures to be made about products, services, geographic areas and
major customers. SFAS 131 is effective for annual financial statements
issued for periods beginning after December 15, 1997, and for interim
financial statements in the second year of application. The adoption of
the provisions of this statement is not expected to have a material
impact on the Company.
19
<PAGE> 65
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(13) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Balance Sheet
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash $ 909*
Investment in subsidiary bank 7,747*
Other assets 39
-------
Total assets $ 8,695
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accrued liabilities $ 5
-------
Total liabilities 5
-------
Shareholders' equity:
Preferred stock, no assigned value or rights, 1,000,000 shares authorized,
no shares issued or outstanding at December 31, 1997 --
Common stock, $5.00 par value,
2,000,000 shares authorized, 907,609 shares
issued and outstanding at December 31, 1997 4,538
Additional paid-in capital 4,530
Deficit (369)
Unrealized loss on securities available for sale (9)
-------
Total shareholders' equity 8,690
-------
Total liabilities and shareholders' equity $ 8,695
=======
</TABLE>
* Eliminated in consolidation.
20
<PAGE> 66
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(13) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
(Continued)
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Statement of Operations
For the Year ended December 31, 1997
<TABLE>
<S> <C>
Income:
Interest on escrow funds $ 27
-----
Total 27
-----
Expenses:
Interest on note payable 4
Salaries and benefits 83
Other non-interest expenses 66
-----
Total 153
-----
Loss before taxes and equity in loss of subsidiary bank (126)
Income tax benefits arising from parent company taxable loss --
-----
Loss before taxes and equity in loss of subsidiary bank (126)
Equity in loss of subsidiary bank (243)*
-----
Net loss $(369)
=====
</TABLE>
* Eliminated in consolidation
21
<PAGE> 67
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(13) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
(Continued)
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Statement of Cash Flows
For the Year ended December 31, 1997
<TABLE>
<S> <C>
Operating activities:
Net loss $ (369)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for amortization 1
Equity in loss of subsidiary bank 243
Changes in assets and liabilities:
Increase in other assets (39)
Increase in accrued interest payable and other liabilities 5
-------
Net cash used by operating activities (159)
-------
Investing activities:
Proceeds from transfer of land to subsidiary bank 300
Investment in bank subsidiary (8,000)
-------
Net cash used by investing activities (7,700)
-------
Financing activities:
Proceeds from note payable 150
Repayment of note payable (150)
Issuance of common stock 8,768
-------
Net cash provided by financing activities 8,768
-------
Net increase in cash and cash equivalents 909
Cash and cash equivalents at beginning of year --
-------
Cash and cash equivalents at end of year $ 909
=======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4
=======
Non-cash transactions:
Land acquired in exchange for 30,000 shares of common stock $ 300
=======
Increase in unrealized loss on securities available for sale $ 9
=======
</TABLE>
22
<PAGE> 68
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 8,710 $ 8,710
Securities available for sale 14,732 14,732
Loans 5,333 5,333
-------- ------
Total $ 28,775 $28,775
======== ======
FINANCIAL LIABILITIES:
Deposits $ 21,765 $21,765
-------- ------
Total $ 21,765 $21,765
======== ======
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount for cash and
short-term investments approximates the fair value of the assets.
Included in this classification are cash and due from banks
(non-earning assets) and federal funds sold.
SECURITIES AVAILABLE FOR SALE - Fair values of these instruments are
based upon quoted market prices, where available. If quoted market
prices are not available, fair values are based upon the quoted values
of similar instruments.
LOANS - The fair values of loans are estimated using the discounted
cash flow analyses and using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality and
risk.
DEPOSITS - The fair value of demand deposits, NOW and Super NOW
accounts, money market demand accounts and savings accounts are, by
definition, equal to the amount payable on demand at the reporting date
(i.e. their carrying amount). The fair values of certificates of
deposit and IRA's are estimated using a discounted cash flow
calculation that applied interest rates currently being offered on
these instruments to a schedule of aggregated expected monthly
maturities on time deposits.
23
<PAGE> 69
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - Fair value of commitments to
extend credit and letters of credit is not presented, since management
believes the fair value to be insignificant.
(15) SUBSEQUENT EVENTS
The Bank has placed into effect a contributory profit-sharing 401(k)
plan that covers employees beginning January 1, 1998. The Bank's
contribution are made at the discretion of the Board of Directors.
Effective March 18, 1998, the Board of Directors adopted a Shareholder
Protection Rights Plan. The Board of Directors has declared a dividend
of one right for each share of common stock as of March 18, 1998. The
distribution of the rights is designed to deter coercive takeover
tactics and help prevent partial tender offers and other abusive
tactics to gain control of the Company without dealing with all
shareholders on a fair and equal basis. Each right entitles
shareholders, under alternative circumstances, to buy either securities
of the Company or securities of the acquiring company (depending upon
the form of the transaction) at an exercise price that will be half the
market value of such securities at that time. The rights can be
exercised only if certain persons or groups acquire nineteen per cent
or more of the Company's outstanding common stock or launch a tender or
exchange offer that would result in ownership of nineteen percent or
more of its common stock and for a period of ten days following the
public announcement of such acquisition, the Company will be entitled
to redeem the rights at one cent per right. The rights expire on March
18, 2008.
(16) COMMENCEMENT OF OPERATIONS
Prior to October 6, 1997, the Company was in organization. Commencement
of operations began on October 6, 1997 upon formal approval by the
Company's and the subsidiary's regulatory authorities and the opening
of business of the Bank. Organizational expenditures of approximately
$40,000 were capitalized and are to be amortized using the
straight-line method over a period of five years.
The Company was inactive prior to January 1, 1997. The only previous
activity was the issuance of 1 share of organizational common stock in
exchange for $25.
24
<PAGE> 70
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
(Tabular amounts are in thousands)
(16) COMMENCEMENT OF OPERATIONS (Continued)
The following items were incurred before October 6, 1997 and reflected
as income and expense items in the Consolidated Statement of
Operations:
<TABLE>
<S> <C>
Interest income:
Interest on escrow funds $27
Interest expense:
Interest on note payable 4
Non-interest expense:
Salaries and employee benefits 83
Occupancy expenses, net 1
Other non-interest expenses 61
</TABLE>
(17) YEAR 2000 ISSUES
The Company has initiated a program to study the impact on its computer
system in order to be compliant when the system must process data
beyond December 31, 1999. This is commonly referred to as the Year 2000
("Y2K") and Century Date Change ("CDC"). This study not only involves
identifying any modifications and/or replacements of certain hardware
and/or software maintained by the Company and any of its key
third-party processors, but also receiving assurance from qualified,
independent parties that the appropriate actions have or are being
taken by third parties to remedy their Y2K issues for computer and data
processing systems that the third party is responsible for maintaining
and that are relied upon by the Company. In addition, the Company is
also taking appropriate actions to determine to receive assurance that
any of its customers, principally large commercial lending customers,
are taking necessary steps to remedy their Y2K issues due to the fact
that noncompliance could adversely effect their ability to repay
borrowings to the Company.
Under this program, the Company has identified the computer systems
which will require either modification, upgrade or replacement. The
Company anticipates that in-house personnel will be primarily
responsible for monitoring and completing these tasks and although
outside contractors may be used, the costs will not be significant. As
such, the Company believes that the necessary and/or planned
modifications, upgrades and replacement of existing systems, along with
third party confirmation, will be completed in a timely manner to
assure Y2K compliance and any related costs will not have a material
impact on the Company's results of operations, cash flows or financial
condition in future periods.
25
<PAGE> 71
MURFREESBORO BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
C O N T E N T S
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Consolidated Balance Sheet .......................................................................... 1
Consolidated Statement of Operations ................................................................ 2
Consolidated Statement of Cash Flows ................................................................ 3
Notes to Consolidated Financial Statements .......................................................... 4
</TABLE>
<PAGE> 72
MURFREESBORO BANCORP, INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(Tabular amounts are in thousands)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks (note 2) $ 841
Federal funds sold 2,566
-------
Total cash and cash equivalents 3,407
-------
Investment securities:
Available for sale 18,771
Held to maturity 3,551
-------
Investment securities 22,322
-------
Loans less allowance for possible loan losses of $181,000 14,292
-------
Premises and equipment, net 1,550
Accrued interest receivable 348
Other assets 362
-------
Total assets $42,281
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $33,603
Accrued interest payable 105
Other liabilities 52
-------
Total Liabilities 33,760
-------
Shareholders' Equity:
Preferred stock, no assigned value or rights, 1,000,000 shares authorized,
no shares issued or outstanding at December 31, 1997 -
Common stock, $5.00 par value, 2,000,000 shares authorized
and 907,609 shares issued and outstanding at December 31, 1997 4,538
Additional paid-in capital 4,530
Retained earnings (544)
Unrealized loss on securities available for sale (3)
-------
Total shareholders' equity 8,521
-------
Total liabilities and shareholders' equity $42,281
=======
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 73
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
(Tabular amounts are in thousands except per share amounts)
<TABLE>
<S> <C>
Interest Income:
Interest on loans $ 206
Interest on investment securities 260
Interest on federal funds sold 72
------
Total interest income 538
------
Interest Expense:
Interest on interest-bearing transactions accounts 172
Interest on time deposits less than $100,000 113
Interest on time deposits $100,000 and greater 60
------
Total interest expense 345
------
Net interest income 193
Provision for possible loan losses 113
------
Net interest income after provision for possible loan losses 80
------
Non-Interest Income:
Service charges on deposits 12
Other fees and commissions 1
Other non-interest income 2
------
Total non-interest income 15
------
Non-Interest Expense:
Salaries and employee benefits 139
Occupancy expenses, net 9
Furniture and equipment expense 19
Other non-interest expenses 103
------
Total non-interest expense 270
------
Net income before taxes (175)
Income tax benefit (note 4) -
------
Net loss $ (175)
======
Loss per share - basic (no dilutive items outstanding) $(0.19)
======
Dividends per common share $ -
======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 74
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
(Tabular amounts are in thousands)
<TABLE>
<S> <C>
Operating activities:
Net loss $ (175)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for loan losses 113
Provision for depreciation, amortization and accretion, net 15
Changes in assets and liabilities:
Increase in accrued interest receivable (199)
Increase in other assets (230)
Increase in accrued interest payable 31
Decrease in other liabilities (34)
--------
Net cash used by operating activities (479)
--------
Investing activities:
Purchase of securities available for sale (7,036)
Purchase of securities held for maturity (4,553)
Maturities and calls of securities available for sale 3,000
Maturities and calls of securities held to maturity 1,000
Increase in loans, net (9,072)
Additions to premises and equipment (6)
--------
Net cash used in investing activities (16,667)
--------
Financing activities:
Proceeds from note payable -
Repayment of note payable -
Net increase in deposits 11,843
Issuance of common stock -
Stock issue costs -
--------
Net cash provided by financing activities 11,843
--------
Net increase (decrease) in cash and cash equivalents (5,303)
Cash and cash equivalents at the beginning of the quarter 8,710
--------
Cash and cash equivalents at the end of the quarter $ 3,407
========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 313
--------
Non-cash transactions:
Decrease in unrealized loss on securities available for sale $ (6)
========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 75
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
(1) General
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments necessary for
a fair presentation of the financial position and results of operations
of the interim periods have been made. All such adjustments are of a
normal recurring nature. Results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results of
operations for the full year or any interim periods.
(2) Summary of Significant Accounting Policies
Reference is made to the accounting policies of the Company described
in the notes to consolidated financial statements contained in the
Company's general financial statements for the year ended December 31,
1997. The Company has followed those policies in preparing this report.
(3) Asset Growth
As a recently formed banking entity, the Company has had concentrated
efforts in generated loans and attracting new deposits. The Company has
increased loans from $5,401,000 at December 31, 1997 to $14,473,000 at
March 31, 1998 and deposits have increased from $21,765,000 at December
31, 1997 to $33,603,000 at March 31, 1998.
Such increases have been primarily the result of marketing and business
development efforts and not from rate pricings. The growth of loans has
been monitored by management, and the Company's loan underwriting
standards have been maintained during this period.
(4) Income Taxes
A valuation allowance of the deferred tax benefit of the net operating
loss for the quarter ended March 31, 1998 has been recorded as it has
not been determined that it more likely than not that at March 31, 1998
that this benefit is to be realized.
(5) Per Share
Loss per share of common stock is based on the weighted average number
of shares of common stock outstanding during the period.
4
<PAGE> 76
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Murfreesboro Bancorp, Inc.
- --------------------------------------------------------------------------------
(Registrant)
Date April 25, 1998
------------------
By /s/ William E. Rowland
----------------------------------
(Signature) *
William E. Rowland,
President and Chief Executive Officer
* Print the name and title of each signing officer under his or her signature.
<PAGE> 77
EXHIBITS
<TABLE>
<CAPTION>
INDEX
-----
<S> <C> <C>
(3) (i) Charter I
(ii) Bylaws II
(10) Material Contracts
(i) Shareholder protection rights agreement III
(ii) 1997 Statutory-Nonstatutory Stock Option Plan IV
(11) Statement Re: Computation of Per Share Earnings See Part III -
Income Statement
and Footnote 9
(12) Subsidiaries of the Registrant See Part I -
Item I
Description
of Business
(27) Financial Data Schedules V
</TABLE>
<PAGE> 1
EXHIBIT I
CHARTER
OF
MURFREESBORO BANCORP, INC.
The undersigned person, having capacity to contract and act as the
Incorporator of a corporation under the Tennessee Business Corporation Act,
adopts the following Charter for such Corporation:
1. The name of the Corporation is:
MURFREESBORO BANCORP, INC.
2. The maximum number of shares which the Corporation shall have
authority to issue is one million (1,000,000) shares of voting common stock
having $12.50 par value, that have unlimited voting rights and that are entitled
to receive the net assets of the corporation upon dissolution. There shall be no
preemptive rights for holders of common stock.
The authorized amount of preferred stock of the Corporation shall be
one million (1,000,000) shares, but said preferred stock may be increased or
decreased from time to time in accordance with the provisions of the laws of
Tennessee. Except as otherwise limited by law, the Board of Directors shall be
empowered to issue such stock in one or more series, and with such rights and
preferences and upon such terms, including convertibility, as the Board shall
determine.
3. The Corporation's initial registered office is 2007 Riverview Drive,
Murfreesboro, Tennessee 37129, which is located in Rutherford County, and its
initial registered agent at that office is Olin Williams.
4. The Incorporator of the Corporation is:
Steven J. Eisen
1700 Nashville City Center
511 Union Street
Nashville, Tennessee 37219
5. The principal office of the Corporation is:
615 Memorial Boulevard
Post Office Box 2851
Murfreesboro, Tennessee 37129
6. The Corporation is for profit.
7. The purpose or purposes for which the Corporation is organized are:
<PAGE> 2
To acquire by purchase, lease or otherwise, and to hold,
operate, manage, develop, encumber and otherwise deal with any and all
kinds of real and personal property and to engage in any business not
prohibited by law under the laws of Tennessee; and to do any and all
things necessary or incidental in the operation of such business or
businesses.
8. The shareholders may adopt or amend a bylaw that fixes a greater
quorum or voting requirement for shareholders (or voting groups of shareholders)
than is required by law.
9. Liability
(a) To the fullest extent that the law of the State of Tennessee, as
it exists on the date hereof or as it may hereafter be amended, permits the
limitation or elimination of the liability of directors, no director of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director.
(b) The Corporation shall have the power to indemnify any director,
officer, employee, agent of the Corporation, or any other person who is serving
at the request of the Corporation in any such capacity with another corporation,
partnership, joint venture, trust, or other enterprises to the fullest extent
permitted by the law of the State of Tennessee, as it exists on the date hereof
or as it may hereafter be amended, and any such indemnification may continue as
to any person who has ceased to be a director, officer, employee, or agent and
may inure to the benefit of the heirs, executors, and administrators of such a
person.
(c) If the Tennessee Business Corporation Act is amended after
approval of this Article to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Tennessee Business Corporation Act, as so amended.
10. Any or all of the directors of the Corporation may be removed for
cause by a vote of a majority of the entire Board of Directors and with or
without cause by a proper vote of the shareholders. "Cause" shall include, but
not be limited to, a director willfully or without reasonable cause being absent
from any regular or special meeting for the purpose of obstructing or hindering
the business of the Corporation.
11. This Corporation shall have all the powers granted to corporations
under the Tennessee Business Corporation Act.
12. The Corporation's fiscal year shall end on December 31 of each year
until changed by the Board of Directors or Bylaws.
Dated: October 21, 1996
-----------------------------------
Steven J. Eisen, Incorporator
<PAGE> 3
This Instrument Prepared By:
Baker, Donelson, Bearman & Caldwell
1700 Nashville City Center
511 Union Street
Post Office Box 190613
Nashville, Tennessee 37219
ARTICLES OF AMENDMENT TO THE CHARTER
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
articles of amendment to its charter:
I. The name of the corporation is Murfreesboro Bancorp, Inc.
II. The text of each amendment adopted is: The following Articles of the
charter are amended to read as follows:
2. The maximum number of shares which the Corporation shall have
authority to issue is two million (2,000,000) shares of voting common stock
having $5.00 par value, that have unlimited voting rights and that are
entitled to receive the net assets of the corporation upon dissolution.
There shall be no preemptive rights for holders of common stock.
The authorized amount of preferred stock of the Corporation shall be
one million (1,000,000) shares, but said preferred stock may be increased
or decreased from time to time in accordance with the provisions of the
laws of Tennessee. Except as otherwise limited by law, the Board of
Directors shall be empowered to issue such stock in one or more series, and
with such rights and preferences and upon such terms, including
convertibility, as the Board shall determine.
3. The Corporation's registered office is 615 Memorial Boulevard,
Murfreesboro, Tennessee 37129, which is located in Rutherford County, and
its registered agent at that office is William E. Rowland.
III. The corporation is a for-profit corporation.
IV. The manner (if not set forth in the amendment) for implementation of any
exchange, reclassification, or cancellation of issued shares is as follows: Not
Applicable.
V. The amendment was duly adopted on June 9, 1997, by the shareholders.
VI. The amendment is to be effective when these articles are filed by the
Secretary of State.
Dated: June 9, 1997 MURFREESBORO BANCORP, INC.
By:
------------------------------------
William E. Rowland, President
<PAGE> 1
EXHIBIT II
BYLAWS
OF
MURFREESBORO BANCORP, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1. ANNUAL MEETING. The annual meeting of the shareholders shall be held
at such time and place, either within or without this State, as may be
designated from time to time by the directors.
2. SPECIAL MEETINGS. Special meetings of the shareholders may be called
by the president, a majority of the board of directors, or, upon written demand,
by the holders of not less than one-tenth (1/10) of all the shares entitled to
vote at such meeting. The place of said meetings shall be the principal office
of the corporation, unless otherwise designated by the directors.
3. NOTICE OF SHAREHOLDER MEETINGS. Written or printed notice stating
the place, day, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called and the person or
persons calling the meeting, shall be delivered either personally or by mail or
at the direction of the president, secretary, officer, or person calling the
meeting to each shareholder entitled to vote at the meeting. If mailed, such
notice shall be delivered not less than ten (10) days nor more than two (2)
months before the date of the meeting, and shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid. The person giving such notice shall certify that the notice
required by this paragraph has been given.
4. QUORUM REQUIREMENTS. A majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. When a quorum is present at any
meeting, a majority in interest of the stock there represented shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of the charter, these bylaws, or by the laws of Tennessee, a
larger or different vote is required, in which case such express provision shall
govern the decision of such question.
5. VOTING AND PROXIES. Every shareholder shall be entitled to one (1)
vote for each share of stock standing in his name on the books of the
Corporation at the time of any regular or special meeting. Every shareholder
entitled to vote at a meeting may do so either in person or by written proxy,
which proxy shall be filed with the secretary of the meeting before being voted.
Such proxy shall entitle the holders thereof to vote at any adjournment of such
meeting, but shall not be valid after the final adjournment thereof. No proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy.
<PAGE> 2
ARTICLE II
BOARD OF DIRECTORS
1. QUALIFICATION AND ELECTION. Directors need not be shareholders or
Tennessee residents, but they must be of legal age. They shall be elected by a
plurality of the votes cast at the annual meetings of the shareholders. Each
director shall hold office until the expiration of the term for which he is
elected, and thereafter until his successor has been elected and qualified.
2. NUMBER. The number of directors shall be fixed from time to time by
the shareholders, or by a majority of the entire board of directors, but shall
never be less than the number required by law.
3. MEETINGS. The annual meeting of the board of directors shall be held
immediately after the adjournment of the annual meeting of the shareholders, at
which time the officers of the corporation shall be elected. The board may also
designate more frequent intervals for regular meetings. Special meetings may be
called at any time by the chairman of the board, president, or any two (2)
directors.
4. NOTICE OF DIRECTORS' MEETINGS. The annual and all regular board
meetings may be held without notice. Special meetings shall be held upon notice
sent by any usual means of communication not less than the minimum number of
days before the meeting as permitted by law.
5. QUORUM AND VOTE. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are fixed at the
meeting at which the adjournment is taken and if the period of adjournment does
not exceed one (1) month in any one adjournment. The vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board, unless the vote of a greater number is required by the charter, these
bylaws, or by the laws of Tennessee.
6. EXECUTIVE AND OTHER COMMITTEES. The board of directors, by a
resolution adopted by a majority of its members, may name an executive committee
and other committees, consisting of one or more persons, and may delegate to
such committee or committees any and all such authority as it deems desirable
and as is permissible under Tennessee law.
ARTICLE III
OFFICERS
1. NUMBER. The corporation shall have a president and a secretary, and
such other officers as the board of directors shall from time to time deem
necessary. Any two or more offices may be held by the same person, except the
offices of president and secretary.
2. ELECTION AND TERM. The officers shall be elected by the board at its
annual meeting. Each officer shall serve until the expiration of the term for
which he is elected, and thereafter until his successor has been elected and
qualified. Any director, having been elected chairman of the board, may not
again be elected to such position until the third annual election of a chairman
of the board following the election of such chairman.
<PAGE> 3
3. DUTIES. All officers shall have such authority and perform such duties
in the management of the corporation as are normally incident to their offices
and as the board of directors may from time to time provide. If not specified,
the duties shall be as follows:
(a) Chairman of the Board (if any): The chairman of the board shall
preside at all meetings of the board of directors, unless he requests
another officer to preside in his stead. He shall perform all other duties
as are properly required of him by the board of directors. The chairman of
the board hereby is excluded from participation (other than in the capacity
of a director) in major policymaking functions of the corporation, and he
shall not actually participate therein.
(b) President: The president shall preside at all meetings of the
shareholders and, if there is not a chairman of the board, board of
directors and shall have general charge and control of the affairs of the
corporation, subject to the direction of the board of directors and to
these bylaws. The president shall have the power to call special meetings
of the board of directors and of the shareholders, as provided for in these
bylaws, and he shall have the power to sign and execute all contracts and
instruments of conveyance in the name of the corporation; to sign stock
certificates, checks, drafts, and notes; to vote shares or interests in
another corporation or other entity owned by the corporation; and to
perform all other duties usually incident to the office of the president.
(c) Vice-President (if any): The vice-president shall perform such
duties as may be assigned to him by the board of directors. In case of the
death, disability, or absence of the president, the vice-president shall
perform and be vested with all the duties and powers of the president.
(d) Secretary: The secretary shall keep the minutes of the meetings of
the board of directors and of the shareholders in a well bound book or
books; he shall attend to the giving and serving of notice; he may sign
with the president in the name of the corporation all stock certificates,
contracts, and instruments authorized by the board of directors; he shall
have charge of the certificate books and other books or papers as the board
of directors may direct; all of which shall at all reasonable times be open
to the examination of any director or shareholder, to the extent required
by law, upon application at the office of the corporation during business
hours; he shall authenticate records of the corporation; and he shall in
addition perform all duties incident to the office of secretary, subject to
the control of the board of directors. He shall submit such reports to the
board of directors as may be required by it.
(e) Treasurer (if any): The treasurer shall have the custody of all
funds and securities of the corporation and shall keep proper accounts of
same; when necessary or proper, he shall endorse, on behalf of the
corporation, all checks, notes, and other obligations and shall deposit the
same to the credit of the corporation in such bank or banks as the board of
directors may designate. He shall enter regularly in the books of the
corporation to be kept by him for that purpose a full and accurate account
of all monies received and paid out by him on account of the corporation,
and he shall at all reasonable times exhibit his books and accounts to any
director or shareholder upon application at the office of the corporation
during business hours; he shall perform all acts incident to the position
of the treasurer, subject to the control of the board of directors.
<PAGE> 4
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
1. RESIGNATIONS. Any officer or director may resign at any time by
giving written notice to the chairman of the board, the president, or the
secretary. Any such resignation shall take effect at the time specified therein,
or, if no time is specified, then upon its delivery to the corporation.
2. REMOVAL OF OFFICERS. Any officer or agent may be removed by the
board at any time, with or without cause.
3. REMOVAL OF DIRECTORS. Any or all of the directors may be removed
either with or without cause by a proper vote of the shareholders; and, as
provided in the charter, may be removed with cause by a majority vote of the
entire board. "Cause" shall include a director willfully or without reasonable
cause being absent from any regular or special meeting for the purpose of
obstructing or hindering the business of the corporation.
4. VACANCIES OF DIRECTORS. Newly created directorships resulting from
an increase in the number of directors, and vacancies occurring in any
directorship for any reason, including removal of a director, may be filled by
the vote of a majority of the directors then in office, even if less than a
quorum exists.
ARTICLE V
INDEMNIFICATION
1. LIABILITY OF OFFICERS AND DIRECTORS. No person shall be liable for
any loss or damage suffered on account of any action taken or omitted to be
taken by him as a director or officer of the corporation in good faith and in
accordance with the standard of conduct set forth in T.C.A. ss. 48-18-502.
2. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The corporation shall
indemnify to the fullest extent permitted by law any and all persons who may
serve or who have served at any time as directors or officers, or who at the
request of the board of directors of the corporation may serve or at any time
have served as directors or officers of another corporation in which the
corporation at such time owned or may own shares of stock or of which it was or
may be a creditor, and their respective heirs, administrators, successors, and
assigns, against any and all expenses, including amounts paid upon judgments,
counsel fees, and amounts paid in settlement (before or after suit is
commenced), actually and necessarily incurred by such persons in connection with
the defense or settlement of any claim, action, suit, or proceeding in which
they, or any of them, are made parties, or a party, or which may be asserted
against them or any of them, by reason of being or having been directors or
officers or a director or officer of the corporation or such other corporation,
except in relation to such matters to which any such director or officer or
former director or officer or person shall be adjudged in any action, suit, or
proceeding to be liable for his own negligence or misconduct in the performance
of his duty. Such indemnification shall be in addition to any other rights to
which those indemnified may be entitled under any law, bylaw, agreement, vote of
shareholders, or otherwise.
<PAGE> 5
ARTICLE VI
CAPITAL STOCK
1. STOCK CERTIFICATES. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the corporation in such form as
may be prescribed by the board of directors. Unless otherwise decided by the
board, such certificates shall be signed by the president and the secretary of
the corporation.
2. TRANSFER OF SHARES. Shares of stock may be transferred on the books
of the corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.
3. LOSS OF CERTIFICATES. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the board of directors shall prescribe.
ARTICLE VII
ACTION BY CONSENT
Whenever the shareholders or directors are required or permitted to
take any action by vote, such action may be taken without a meeting on written
consent, setting forth the action so taken, signed by all the persons or
entities entitled to vote thereon and indicating each person or entity's vote or
abstention on the action. The action must receive the affirmative vote of the
number of votes that would be necessary to authorize or take such action at a
meeting.
ARTICLE VIII
RESERVED
ARTICLE IX
AMENDMENT OF BYLAWS
Except as otherwise permitted by law, these bylaws may be amended,
added to, or repealed either by: (1) a majority vote of the shares represented
at any duly constituted shareholders' meeting, or (2) a majority vote of the
entire board of directors. Any change in the bylaws made by the board of
directors, however, may be amended or repealed by the shareholders.
CERTIFICATION
I certify that these bylaws were adopted by the organizational meeting
of the corporation held on October 21, 1996.
----------------------------------------
Joe Swanson, Secretary
<PAGE> 1
EXHIBIT III
- --------------------------------------------------------------------------------
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
dated as of
March 18, 1998
between
Murfreesboro Bancorp, Inc.
and
Bank of Murfreesboro,
as Rights Agent
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
TABLE OF CONTENTS
<S> <C>
ARTICLE I CERTAIN DEFINITIONS................................................
1.1 Certain Definitions...............................................
ARTICLE II THE RIGHTS........................................................
2.1 Summary of Rights.................................................
2.2 Legend on Common Stock Certificates...............................
2.3 Exercise of Rights: Separation of Rights. ........................
2.4 Adjustments to Exercise Price; Number of Rights...................
2.5 Date on Which Exercise is Effective...............................
2.6 Execution, Authentication, Delivery and Dating of Rights
Certificates.....................................................
2.7 Registration. Registration of Transfer and Exchange. .............
2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates.........
2.9 Persons Deemed Owners.............................................
2.10 Delivery and Cancellation of Certificates.........................
2.11 Agreement of Rights Holders.......................................
ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN
TRANSACTIONS......................................................
3.1 Flip-in...........................................................
3.2 Flip-over.........................................................
ARTICLE IV THE RIGHTS AGENT .................................................
4.1 General...........................................................
4.2 Merger or Consolidation or Change of Name of Rights Agent.........
4.3 Duties of Rights Agent............................................
4.4 Change of Rights Agent............................................
ARTICLE V MISCELLANEOUS.....................................................
5.1 Redemption........................................................
5.2 Expiration........................................................
5.3 Issuance of New Rights Certificates...............................
5.4 Supplements and Amendments........................................
5.5 Fractional Shares.................................................
5.6 Rights of Action..................................................
5.7 Holder of Rights Not Deemed a Shareholder.........................
5.8 Notice of Proposed Actions........................................
5.9 Notices...........................................................
5.10 Suspension of Exercisability......................................
5.11 Costs of Enforcement..............................................
5.12 Successors........................................................
5.13 Benefits of this Agreement........................................
5.14 Determination and Actions by the Board of Directors, etc..........
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.15 Certain Events....................................................
5.16 Descriptive Headings..............................................
5.17 Governing Law.....................................................
5.18 Counterparts......................................................
5.19 Severability......................................................
</TABLE>
<PAGE> 4
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
SHAREHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time,
this "Agreement"), dated as of March 18, 1998, between Murfreesboro Bancorp,
Inc., a Tennessee corporation (the "Company"), and Bank of Murfreesboro, a
Tennessee corporation, as Rights Agent (the "Rights Agent", which term shall
include any successor Rights Agent hereunder).
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has (a) authorized and
declared a dividend of one right ("Right") in respect of each share of Common
Stock (as hereinafter defined) held of record as of the close of business on
March 18, 1998 (the "Record Time") and (b) authorized the issuance of one Right
in respect of each share of Common Stock issued after the Record Time and prior
to the Separation Time (as hereinafter defined) and, to the extent provided in
Section 5.3, each share of Common Stock issued after the Separation Time;
WHEREAS, subject to the terms hereof, each Right entitles the holder
thereof, after the Separation Time, to purchase securities of the Company (or,
in certain cases, of certain other entities) pursuant to the terms and subject
to the conditions set forth herein; and
WHEREAS, the Company desires to appoint the Rights Agent to act on
behalf of the Company, and the Rights Agent is willing so to act, in connection
with the issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein;
NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
I.1 Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
"Acquiring Person" shall mean any Person who is a Beneficial Owner of
19% or more of the outstanding shares of Common Stock; provided, however, that
the term "Acquiring Person" shall not include (i) any Person who shall become
the Beneficial Owner of 19% or more of the outstanding shares of Common Stock
solely as a result-of an acquisition by the Company of shares of Common Stock,
until such time thereafter as such Person shall become the Beneficial Owner
(other than by means of a stock dividend or stock split) of any additional
shares of Common Stock, or (ii) any Person who is the Beneficial Owner of 19% or
more of the outstanding shares of Common Stock but who acquired Beneficial
Ownership of shares of Common Stock without any plan or intention to seek or
affect control of the Company, if such Person promptly enters into an
irrevocable commitment promptly to divest, and thereafter promptly divests
(without exercising or retaining any power, including voting, with respect to
such shares), sufficient shares of Common Stock (or securities convertible into,
exchangeable into or exercisable for Common Stock) so that such Person ceases to
be the Beneficial Owner of 19% or more of the outstanding shares of Common
Stock. In addition, the Company, any wholly-owned Subsidiary
<PAGE> 5
of the Company and any employee stock ownership or other employee benefit plan
of the Company or a wholly-owned Subsidiary of the Company shall not be an
Acquiring Person.
"Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such
Rule is in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner", and to have
"Beneficial Ownership" of, and to "Beneficially Own", any securities as to which
such Person or any of such Person's Affiliates or Associates is or may be deemed
to be the beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the
Securities Exchange Act, as such Rules are in effect on the date of this
Agreement as well as any securities as to which such Person or any of such
Person's Affiliates or Associates has the right to become Beneficial Owner
(whether such right is exercisable immediately or only after the passage of time
or the occurrence of conditions) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the "Beneficial Owner", or to have
"Beneficial Ownership" of, or to "Beneficially Own", any security (i) solely
because such security has been tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or Associates until such
tendered security is accepted for payment or exchange or (ii) solely because
such Person or any of such Person's Affiliates or Associates has or shares the
power to vote or direct the voting of such security pursuant to a revocable
proxy given in response to a public proxy or consent solicitation made to more
than ten holders of shares of a class of stock of the Company registered under
Section 12 of the Securities Exchange Act of 1934 and pursuant to, and in
accordance with, the applicable rules and regulations under the Securities
Exchange Act of 1934, except if such power (or the arrangements relating
thereto) is then reportable under Item 6 of Schedule 13D under the Securities
Exchange Act of 1934 (or any similar provision of a comparable or successor
report). For purposes of this Agreement, in determining the percentage of the
outstanding shares of Common Stock with respect to which a Person is the
Beneficial Owner, all shares as to which such Person is deemed the Beneficial
Owner shall be deemed outstanding.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Murfreesboro, Tennessee, are generally
authorized or obligated by law or executive order to close.
"Close of business" on any given date shall mean 5:00 p.m.
Murfreesboro, Tennessee, time on such date (or, if such date is not a Business
Day, 5:00 p.m. Murfreesboro, Tennessee, time on the next succeeding Business
Day) at which the Murfreesboro, Tennessee, office of the Company is open to the
public.
"Common Stock" shall mean the shares of Common Stock, par value $5.00
per share, of the Company.
"Exchange Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 3.1(c) hereof.
"Exercise Price" shall mean, as of any date, the price which a holder
may purchase the securities issuable upon exercise of one whole Right. Until
adjustment thereof in accordance with the terms hereof, the Exercise Price shall
equal $25.00.
<PAGE> 6
"Expiration Time" shall mean the earliest of (i) the Exchange Time,
(ii) the Redemption Time, or (iii) the close of business on the tenth-year
anniversary of the Record Time.
"Flip-in Date" shall mean the tenth business day after any Stock
Acquisition Date which is not the result of a Flip-over Transaction or Event or
such earlier or later date as the Board of Directors of the Company may from
time to time fix by resolution adopted by a two-thirds vote prior to the Flip-in
Date that would otherwise have occurred.
"Flip-over Entity," for purposes of Section 3.2, shall mean (i) in the
case of a Flip-over Transaction or Event described in clause-(i) of the
definition thereof, the Person issuing any securities into which shares of
Common Stock are being converted or exchanged and, if no such securities are
being issued, the other party to such Flip-over Transaction or Event and (ii) in
the case of a Flip-over Transaction or Event referred to in clause (ii) of the
definition thereof, the Person receiving the greatest portion of the assets or
earning power being transferred in such Flip-over Transaction or Event, provided
in all cases if such Person is a subsidiary of a corporation, the parent
corporation shall be the Flip-Over Entity.
"Flip-over Stock" shall mean the capital stock (or similar equity
interest) with the greatest voting power in respect of the election of directors
(or other persons similarly responsible for direction of the business and
affairs) of the Flip-Over Entity.
"Flip-over Transaction or Event" shall mean a transaction or series of
transactions after the time when an Acquiring Person has become such in which,
directly or indirectly, (i) the Company shall consolidate or merge or
participate in a share exchange with any other Person if, at the time of the
consolidation, merger or share exchange or at the time the Company enters into
any agreement with respect to any such consolidation, merger or share exchange,
the Acquiring Person controls the Board of Directors of the Company and any term
of or arrangement concerning the treatment of shares of capital stock in such
consolidation, merger or share exchange relating to the Acquiring Person is not
identical to the terms and arrangements relating to other holders of the Common
Stock or (ii) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer) assets (A) aggregating more
than 50% of the assets (measured by either book value or fair market value) or
(B) generating more than 50% of the operating income or cash flow, of the
Company and its Subsidiaries (taken as a whole) to any Person (other than the
Company or one or more of its wholly owned Subsidiaries) or to two or more such
Persons which are Affiliates or Associates or otherwise acting in concert, if,
at the time of the entry by the Company (or any such Subsidiary) into an
agreement with respect to such sale or transfer of assets, the Acquiring Person
controls the Board of Directors of the Company.
"Market Price" per share of any securities on any date shall mean the
average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events described in Section
2.4 hereof shall have caused the closing prices used to determine the Market
Price on any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
securities are listed or admitted to trading or, if
<PAGE> 7
the securities are not listed or admitted to trading on any national securities
exchange, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, if on any such
date the securities are not listed or admitted to trading on any national
securities exchange or quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the securities selected by the Board of Directors of the Company;
provided, however, that if on any such date the securities are not listed or
admitted to trading on a national securities exchange or traded in the
over-the-counter market, the closing price per share of such securities on such
date shall mean the fair value per share of securities on such date as
determined by a two-thirds vote in good faith by the Board of Directors of the
Company, after consultation with a recognized investment banking firm, and set
forth in a certificate delivered to the Rights Agent.
"Person" shall mean any individual, firm, partnership, association,
group (as such term is used in Rule 13d-5 under the Securities Exchange Act of
1934, as such Rule is in effect on the date of this Agreement), corporation or
other entity.
"Preferred Stock" shall mean the series of Participating Preferred
Stock, par value $5.00 per share, of the Company created by a Certificate of
Amendment and Terms in substantially the form set forth in Exhibit B hereto
appropriately completed. Such Certificate of Amendment may be filed after an
event has occurred which may lead to the issuance of the Preferred Stock.
"Redemption Price" shall mean an amount equal to one cent, $0.01.
"Redemption Time" shall mean the time at which the right to exercise
the Rights shall terminate pursuant to Section 5.1 hereof.
"Separation Time" shall mean the close of business on the earlier of
(i) the tenth business day (or such later date as the Board of Directors of the
Company may from time to time fix by resolution adopted by a two-thirds vote
prior to the Separation Time that would otherwise have occurred) after the date
on which any Person commences a tender or exchange offer which, if consummated,
would result in such Person's becoming an Acquiring Person and (ii) the Flip-in
Date; provided, that if the foregoing results in the Separation Time being prior
to the Record Time, the Separation Time shall be the Record Time and provided
further, that if any tender or exchange offer referred to in clause (i) of this
paragraph is canceled, terminated or otherwise withdrawn prior to the Separation
Time without the purchase of any shares of Common Stock pursuant thereto, such
offer shall be deemed, for purposes of this paragraph, never to have been made.
"Stock Acquisition Date" shall mean the first date of public
announcement by the Company (by any means) that an Acquiring Person has become
such.
"Subsidiary" of any specified Person shall mean any corporation or
other entity of which a majority of the voting power of the equity securities or
a majority of the equity interest is Beneficially Owned, directly or indirectly,
by such Person.
"Trading Day", when used with respect to any securities, shall mean a
day on which the Tennessee Stock Exchange, Inc. is open for the transaction of
business or, if such securities are not listed or admitted to trading on the
Tennessee Stock Exchange, Inc., a day on which the principal national securities
exchange on which such securities are listed or admitted to trading is open for
the transaction of business or, if such securities are not listed or admitted to
trading on any national securities exchange, a Business Day.
<PAGE> 8
ARTICLE II
THE RIGHTS
II.1 Summary of Rights. As soon as practicable after the Record Time,
the Company will mail a letter (or include information in its proxy materials)
summarizing the terms of the Rights to each holder of record of Common Stock as
of the Record Time, at such holder's address as shown by the records of the
Company.
II.2 Legend on Common Stock Certificates. Certificates for the Common
Stock issued after the Record Time but prior to the Separation Time shall
evidence one Right for each share of Common Stock represented thereby and shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
Until the Separation Time (as defined in the Rights Agreement referred
to below), this certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights Agreement, dated as
of March 18, 1998 (as such may be amended from time to time, the
"Rights Agreement"), between Murfreesboro Bancorp, Inc. (the"Company")
and Bank of Murfreesboro, as Rights Agent, the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may be exchanged for shares of Common Stock or other
securities or assets of the Company or a Subsidiary of the Company, may
expire, may become void (if they are "Beneficially Owned" by an
"Acquiring Person" or an Affiliate or Associate thereof, as such terms
are defined in the Rights Agreement, or by any transferee of any of the
foregoing) or may be evidenced by separate certificates and may no
longer be evidenced by this certificate. The Company will mail or
arrange for the mailing of a copy of the Rights Agreement to the holder
of this certificate without charge within five days after the receipt
of a written request therefor. Certificates representing shares of
Common Stock that are issued and outstanding at the Record Time shall
evidence one Right for each share of Common Stock evidenced thereby
notwithstanding the absence of the foregoing legend.
II.3 Exercise of Rights: Separation of Rights.
(1) Subject to Sections 3.1, 5.1 and 5.10 and subject to adjustment as
herein set forth, each Right will entitle the holder thereof, after the
Separation Time and prior to the Expiration Time; to purchase, for the Exercise
Price, one one-hundredth of a share of Preferred Stock.
(2) Until the Separation Time, (i) no Right may be exercised and (ii)
each Right will be evidenced by the certificate for the associated share of
Common Stock (together, in the case of certificates issued prior to the Record
Time, with the letter mailed to the record holder thereof pursuant to Section
2.1) and will be transferable only together with, and will be transferred by a
transfer (whether with or without such letter) of, such associated share.
(3) Subject to the terms hereof, after the Separation Time and prior to
the Expiration Time, the Rights (i) may be exercised and (ii) may be transferred
independent of shares of Common Stock. Promptly following the Separation Time,
the Rights Agent will mail to each holder of record of
<PAGE> 9
Common Stock as of the Separation Time (other than any Person whose Rights have
become void pursuant to Section 3.1(b)), at such holder's address as shown by
the records of the Company (the Company hereby agreeing to furnish copies of
such records to the Rights Agent for this purpose), (x) a certificate (a "Rights
Certificate") in substantially the form of Exhibit A hereto appropriately
completed, representing the number of Rights held by such holder at the
Separation Time and having such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any national securities
exchange or quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (y) a disclosure statement describing the
Rights.
(4) Subject to the terms hereof, Rights may be exercised on any
Business Day after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent the Rights Certificate evidencing such Rights
with an Election to Exercise (an "Election to Exercise") substantially in the
form attached to the Rights Certificate duly completed, accompanied by payment
in cash, or by certified or official bank check or money order payable to the
order of the Company, of a sum equal to the Exercise Price multiplied by the
number of Rights being exercised and a sum sufficient to cover any transfer tax
or charge which may be payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the issuance or delivery of
certificates for shares or depositary receipts (or both) in a name other than
that of the holder of the Rights being exercised.
(5) Upon receipt of a Rights Certificate, with an Election to Exercise
accompanied by payment as set forth in Section 2.3(d), and subject to the terms
hereof, the Rights Agent will thereupon promptly (i) (A) requisition from a
transfer agent stock certificates evidencing such number of shares or other
securities to be purchased (the Company hereby irrevocably authorizing its
transfer agents to comply with all such requisitions) and (B) if the Company
elects pursuant to Section 5.5 not to issue certificates representing fractional
shares, requisition from the depositary selected by the Company depositary
receipts representing the fractional shares to be purchased or requisition from
the Company the amount of cash to be paid in lieu of fractional shares in
accordance with Section 5.5 and (ii) after receipt of such certificates,
depositary receipts and/or cash, deliver the same to or upon the order of the
registered holder of such Rights Certificate, registered (in the case of
certificates or depositary receipts) in such name or names as may be designated
by such holder.
(6) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.
(7) The Company covenants and agrees that it will (i) take all such
action as may be necessary to ensure that all shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Exercise Price), be duly and validly authorized,
executed, issued and delivered and fully paid and nonassessable; (ii) take all
such action as may be necessary to comply with any applicable requirements of
the Securities Act of 1933 or the Securities Exchange Act of 1934, and the rules
and regulations thereunder, and any other applicable law, rule or regulation, in
connection with the issuance of any shares upon exercise of Rights; and (iii)
pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the original issuance or delivery of
the Rights Certificates or of any shares issued upon the exercise of Rights,
provided that the Company shall not be required to pay any transfer tax or
charge which may be
<PAGE> 10
payable in respect of any transfer involved in the transfer of delivery of
Rights Certificates or the issuance or delivery of certificates for shares in a
name other than that of the holder of the Rights being transferred or exercised.
II.4 Adjustments to Exercise Price; Number of Rights.
(1) In the even the Company shall at any time after the Record Time and
prior to the Separation Time (i) declare or pay a dividend on Common Stock
payable in Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares of Common
Stock, (x) the Exercise Price in effect after such adjustment will be equal to
the Exercise Price in effect immediately prior to such adjustment divided by the
number of shares of Common Stock (the "Expansion Factor") that a holder of one
share of Common Stock immediately prior to such dividend, subdivision or
combination would hold thereafter as a result thereof and (y) each Right held
prior to such adjustment will become that number of Rights equal to the
Expansion Factor, and the adjusted number of Rights will be deemed to be
distributed among the shares of Common Stock with respect to which the original
Rights were associated (if they remain outstanding) and the shares issued in
respect of such dividend, subdivision or combination, so that each such share of
Common Stock will have exactly one Right associated with it. Each adjustment
made pursuant to this paragraph shall be made as of the payment or effective
date for the applicable dividend, subdivision or combination.
In the event the Company shall at any time after the Record Time and
prior to the Separation Time issue any shares of Common Stock otherwise than in
a transaction referred to in the preceding paragraph, each such share of Common
Stock so issued shall automatically have one new Right associated with it, which
Right shall be evidenced by the certificate representing such share. To the
extent provided in Section 5.3, Rights shall be issued by the Company in respect
of shares of Common Stock that are issued or sold by the Company after the
Separation Time.
(2) In the event the Company shall at any time after the Record Time
and prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Stock (other than pursuant to a
regular periodic cash dividend or a dividend paid solely in Common Stock)
whether by dividend, in a reclassification or recapitalization (including any
such transaction involving a merger, consolidation or share exchange), or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon
exercise of Rights as the Board of Directors of the Company, in its sole
discretion by a two-thirds vote, may deem to be appropriate under the
circumstances in order to adequately protect the interests of the holders of
Rights generally, and the Company and the Rights Agent shall amend this
Agreement as necessary to provide for such adjustments.
(3) Each adjustment to the Exercise Price made pursuant to this Section
2.4 shall be calculated to the nearest cent. Whenever an adjustment to the
Exercise Price is made pursuant to this Section 2.4, the Company shall (i)
promptly prepare a certificate setting forth such adjustment and a brief
statement of the facts accounting for such adjustment, (ii) promptly file with
the Rights Agent and with each transfer agent for the Common Stock a copy of
such certificate and (iii) mail a brief summary thereof to each holder of
Rights.
(4) Irrespective of any adjustment or change in the securities
purchasable upon exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the securities so purchasable which
were expressed in the initial Rights Certificates issued hereunder.
<PAGE> 11
II.5 Date on Which Exercise is Effective. Each person in whose name any
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise Price for such Rights (and any applicable taxes and other governmental
charges payable by the exercising holder hereunder) was made; provided, however,
that if the date of such surrender and payment is a date upon which the stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the stock transfer books of the
Company are open.
II.6 Execution, Authentication, Delivery and Dating of Rights
Certificates. (1) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or one of its Vice Presidents,
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such Rights
Certificates.
Promptly after the Company learns of the Separation Time, the Company
will notify the Rights Agent of such Separation Time and will deliver Rights
Certificates executed by the Company to the Rights Agent for countersignature,
and, subject to Section 3.1(b), the Rights Agent shall manually countersign and
deliver such Rights Certificates to the holders of the Rights pursuant to
Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose
unless manually countersigned by the Rights Agent.
(2) Each Rights Certificate shall be dated the date of countersignature
thereof.
II.7 Registration. Registration of Transfer and Exchange. (1) After the
Separation Time, the Company will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times after the Separation Time.
After the Separation Time and prior to the Expiration Time, upon
surrender for registration of transfer or exchange of any Rights Certificate,
and subject to the provisions of Section 2.7(c) and (d), the Company will
execute, and the Rights Agent will countersign and deliver, in the name of the
holder or the designated transferee or transferees, as required pursuant to the
holder's instructions, one or more new Rights Certificates evidencing the same
aggregate number of Rights as did the Rights Certificate so surrendered.
<PAGE> 12
(2) Except as otherwise provided in Section 3.1(b), all Rights issued
upon any registration of transfer or exchange of Rights Certificates shall be
the valid obligations of the Company, and such Rights shall be entitled to the
same benefits under this Agreement as the Rights surrendered upon such
registration of transfer or exchange.
(3) Every Rights Certificate surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company or the Rights Agent, as the case
may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
(4) The Company shall not be required to register the transfer or
exchange of any Rights after such Rights have become void under Section 3.1(b),
been exchanged under Section 3.1(c) or been redeemed or terminated under Section
5.1;
II.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (1) If
any mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b) and 5.1, the Company shall
execute and the Rights Agent shall countersign and deliver in exchange therefor
a new Rights Certificate evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(2) If there shall be delivered to the Company and the Rights Agent
prior to the Expiration Time (i) evidence to their satisfaction of the
destruction, loss or theft of any Rights Certificate and (ii) such security or
indemnity as may be required by them to save each of them and any of their
agents harmless, then, subject to Sections 3.1(b) and 5.1 and in the absence of
notice to the Company or the Rights Agent that such Rights Certificate has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Rights Agent shall countersign and deliver, in lieu of any such
destroyed, lost or stolen Rights Certificate, a new Rights Certificate
evidencing the same number of Rights as did the Rights Certificate so destroyed,
lost or stolen.
(3) As a condition to the issuance of any new Rights Certificate under
this Section 2.8, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Rights
Agent) connected therewith.
(4) Every new Rights Certificate issued pursuant to this Section 2.8 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement equally and
proportionately with any and all other Rights duly issued hereunder.
II.9 Persons Deemed Owners. Prior to due presentment of a Rights
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person in whose
name such Rights Certificate (or, prior to the Separation Time, such Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, including the payment of the
Redemption
<PAGE> 13
Price and neither the Company nor the Rights Agent shall be affected by any
notice to the contrary. As used in this Agreement, unless the context otherwise
requires, the term "holder" of any Rights shall mean the registered holder of
such Rights (or, prior to the Separation Time, the associated shares of Common
Stock).
II.10 Delivery and Cancellation of Certificates. All Rights
Certificates surrendered upon exercise or for registration of transfer or
exchange shall, if surrendered to any person other than the Rights Agent, be
delivered to the Rights Agent and, in any case, shall be promptly canceled by
the Rights Agent. The Company may at any time deliver to the Rights Agent for
cancellation any Rights Certificates previously countersigned and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Rights Certificates so delivered shall be promptly canceled by the Rights Agent.
No Rights Certificates shall be countersigned in lieu of or in exchange for any
Rights Certificates canceled as provided in this Section 2.10, except as
expressly permitted by this Agreement. The Rights Agent shall destroy all
canceled Rights Certificates and deliver a certificate of destruction to the
Company.
II.11 Agreement of Rights Holders. Every holder of Rights by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of Rights that:
(1) prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the associated share of
Common Stock;
(2) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(3) prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Stock certificate) for registration of
transfer, the Company, the Rights Agent and any agent of the Company or the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Separation Time, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary;
(4) Rights beneficially owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become void; and
(5) this Agreement may be supplemented or amended from time to time
pursuant to Section 2.4(b) or 5.4 hereof.
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
III.1 Flip-in. (1) In the event that prior to the Expiration Time a
Flip-in Date shall occur, the Company shall take such action as shall be
necessary to ensure and provide that, except as provided in this Section 3.1,
each Right shall constitute the right to purchase from the Company, upon
exercise thereof in accordance with the terms hereof (but subject to Section
5.10), that number of shares of Common Stock having an aggregate Market Price on
the Stock Acquisition Date
<PAGE> 14
equal to twice the Exercise Price for an amount in cash equal to the Exercise
Price (such right to be appropriately adjusted in order to protect the interests
of the holders of Rights generally in the event that on or after such Stock
Acquisition Date an event of a type analogous to any of the events described in
Section 2.4(a) or (b) shall have occurred with respect to the Common Stock).
(2) Notwithstanding the foregoing, any Rights that are or were
Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person
or an Affiliate or Associate thereof or by any transferee, direct or indirect,
of any of the foregoing shall become void and any holder of such Rights
(including transferees) shall thereafter have no right to exercise or transfer
such Rights under any provision of this Agreement. If any Rights Certificate is
presented for assignment or exercise and the Person presenting the same will not
complete the certification set forth at the end of the form of assignment or
notice of election to exercise and provide such additional evidence of the
identity of the Beneficial Owner and its Affiliates and Associates (or former
Beneficial Owners and their Affiliates and Associates) as the Company shall
reasonably request, then the Company shall be entitled conclusively to deem the
Beneficial Owner thereof to be an Acquiring Person or an Affiliate or Associate
thereof or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced thereby to be void and not transferable or exercisable.
(3) The Board of Directors of the Company may, at its option, at any
time after a Flip-in Date and prior to the time that an Acquiring Person becomes
the Beneficial Owner of more than 50% of the outstanding shares of Common Stock,
elect by a two-thirds vote to exchange all (but not less than all) the then
outstanding Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 3.1(b)) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted in
order to protect the interests of holders of Rights generally in the event that
after the Separation Time an event of a type analogous to any of the events
described in Section 2.4(a) or (b) shall have occurred with respect to the
Common Stock (such exchange ratio, as adjusted from time to time, being
hereinafter referred to as the "Exchange Ratio").
Immediately upon the action of the Board of Directors of the Company
electing to exchange the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right (other
than Rights that have become void pursuant to Section 3.1(b)) will thereafter
represent only the right to receive a number of shares of Common Stock equal to
the Exchange Ratio. Promptly after the action of the Board of Directors electing
to exchange the Rights, the Company shall give notice thereof (specifying the
steps to be taken to receive shares of Common Stock in exchange for Rights) to
the Rights Agent and the holders of the Rights (other than Rights that have
become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by
mailing such notice in accordance with Section 5.9.
Each Person in whose name any certificate for shares is issued upon the
exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for
all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of any applicable taxes and other governmental charges payable by the holder was
made; provided, however, that if the date of such surrender and payment is a
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the stock
transfer books of the Company are open.
<PAGE> 15
(4) Whenever the Company shall become obligated under Section 3.1(a) or
(c) to issue shares of Common Stock upon exercise of or in exchange for Rights,
the Company, at its option, may substitute therefor shares of Preferred Stock,
at a ratio of one one-hundredth of a share of Preferred Stock for each share of
Common Stock so issuable.
(5) In the event that there shall not be sufficient treasury shares or
authorized but unissued shares of Common Stock or Preferred Stock of the Company
to permit the exercise or exchange in full of the Rights in accordance with
Section 3.1(a) or (c), the Company shall either (i) call a meeting of
stockholders seeking approval to cause sufficient additional shares to be
authorized (provided that if such approval is not obtained the Company will take
the action specified in clause (ii) of this sentence) or (ii) take such action
as shall be necessary to ensure and provide, to the extent permitted by
applicable law and any agreements or instruments in effect on the Stock
Acquisition Date to which it is a party, that each Right shall thereafter
constitute the right to receive, (x) at the Company's option, either (A) in
return for the Exercise Price, debt or equity securities or other assets (or a
combination thereof) having a fair value equal to twice the Exercise Price, or
(B) without payment of consideration (except as otherwise required by applicable
law), debt or equity securities or other assets (or a combination thereof)
having a fair value equal to the Exercise Price, or (y) if the Board of
Directors of the Company elects to exchange the Rights in accordance with
Section 3.1(c), debt or equity securities or other assets (or a combination
thereof) having a fair value equal to the product of the Market Price of a share
of Common Stock on the Flip-in Date times the Exchange Ratio in effect on the
Flip-in Date, where in any case set forth in (x) or (y) above the fair value of
such debt or equity securities or other assets shall be as determined by a
two-thirds vote in good faith by the Board of Directors of the Company, after
consultation with a nationally recognized investment banking firm.
III.2 Flip-over. (1) Prior to the Expiration Time, the Company shall
not enter into any agreement with an Acquiring Person (or any of its Affiliates
or Associates) with respect to, consummate or permit to occur any Flip-over
Transaction or Event unless and until it shall have entered into a supplemental
agreement with the Flip-over Entity, for the benefit of the holders of the
Rights, providing that, upon consummation or occurrence of the Flip-over
Transaction or Event (i) each Right shall thereafter constitute the right to
purchase from the Flip-over Entity, upon exercise thereof in accordance with the
terms hereof, that number of shares of Flip-over Stock of the Flip-over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-over Transaction or Event equal to twice the Exercise Price for an
amount in cash equal to the Exercise Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights generally in
the event that after such date of consummation or occurrence an event of a type
analogous to any of the events described in Section 2.4(a) or (b) shall have
occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity
shall thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to this Agreement. The provisions of this Section
3.2 shall apply to successive Flip-over Transactions or Events.
(2) Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 hereof in connection therewith, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event if at the time thereof there are any rights,
warrants or securities outstanding or any other arrangements, agreements or
instruments that would eliminate or otherwise diminish in any material respect
the benefits intended to be afforded by this Rights Agreement to the holders of
Rights upon consummation of such transaction.
<PAGE> 16
ARTICLE IV
THE RIGHTS AGENT
IV.1 General. (1) The Company hereby appoints the Rights Agent to act
as agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted to be done by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability.
(2) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any certificate for
securities purchasable upon exercise of Rights, Rights Certificate, certificate
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons.
IV.2 Merger or Consolidation or Change of Name of Rights Agent. (1) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent is a party, or any corporation succeeding to the shareholder services
business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without, the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 4.4 hereof. In case at the time
such successor Rights Agent succeeds to the agency created by this Agreement any
of the Rights Certificates have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates have not been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(2) In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
<PAGE> 17
IV.3 Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following-terms and conditions,
by all of which the Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(1) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel will be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(2) Whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by a person believed by the Rights Agent to be the
Chairman of the Board, the President or any Vice President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate will be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(3) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(4) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for securities purchasable upon exercise of Rights or the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and will be deemed to have been
made by the Company only.
(5) The Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due authorization, execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any certificate for securities
purchasable upon exercise of Rights or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b) hereof) or any adjustment required under the provisions of
Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.4 describing any such
adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
securities purchasable upon exercise of Rights or any Rights or as to whether
any securities purchasable upon exercise of Rights will, when issued, be duly
and validly authorized, executed, issued and delivered and fully paid and
nonassessable.
(6) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
<PAGE> 18
(7) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person believed by the Rights Agent to be the Chairman of the Board, the
President or any Vice President or the Secretary or any Assistant Secretary or
the Treasurer or any Assistant Treasurer of the Company, and to apply to such
persons for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such person .
(8) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in Common Stock, Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(9) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
IV.4 Change of Rights Agent. The Rights Agent may resign and be
discharged from its duties under this Agreement upon 90 days' notice (or such
lesser notice as is acceptable to the Company) in writing mailed to the Company
and to each transfer agent of Common Stock by registered or certified mail, and
to the holders of the Rights in accordance with Section 5.9. The Company may
remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent and to each transfer agent of the Common Stock by registered or certified
mail, and to the holders of the Rights in accordance with Section 5.9. If the
Rights Agent should resign or be removed or otherwise become incapable of
acting, the Company will appoint a successor to the Rights Agent. If the Company
fails to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of any Rights (which
holder shall, with such notice, submit such holder's Rights Certificate for
inspection by the Company), then the holder of any Rights may apply to any court
of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of Tennessee, in good standing, having its principal
office in the State of Tennessee, which is authorized under such laws to
exercise the powers of the Rights Agent contemplated by this Agreement and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $5,000,000. After appointment, the successor Rights Agent
will be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company will file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock, and mail a notice thereof in writing to the holders of the
Rights. Failure to give any notice provided for in this Section 4.4, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
<PAGE> 19
ARTICLE V
MISCELLANEOUS
V.1 Redemption (1) The Board of Directors of the Company may, at its
option, at any time prior to the close of business on the Flip-in Date, elect by
a two-thirds vote to redeem all (but not less than all) the then outstanding
Rights at the Redemption Price and the Company, at its option, may pay the
Redemption Price either in cash or shares of Common Stock or other securities of
the Company deemed by the Board of Directors by a two-thirds vote, in the
exercise of its sole discretion, to be at least equivalent in value to the
Redemption Price.
(2) Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights (or, if the resolution of the Board of
Directors electing to redeem the Rights states that the redemption will not be
effective until the occurrence of a specified future time or event, upon the
occurrence of such future time or event), without any further action and without
any notice, the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive the Redemption Price in cash or
securities, as determined by the Board of Directors. Promptly after the Rights
are redeemed, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice in
accordance with Section 5.9.
V.2 Expiration. The Rights and this Agreement shall expire at the
Expiration Time, and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1(c), 3.1(d), 3.1(e), 3.2 or 5.1 hereof.
V.3 Issuance of New Rights Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by a two-thirds vote by its Board of Directors to reflect any
adjustment or change in the number or kind or class of shares of stock
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement. In addition, in connection with the issuance or sale of shares
of Common Stock by the Company following the Separation Time and prior to the
Redemption Time or Expiration Time pursuant to the terms of securities
convertible or redeemable into shares of Common Stock or to options, including
the Option, in each case issued or granted prior to, and outstanding at, the
Separation Time, the Company shall issue holders of such shares of Common Stock,
Rights Certificates representing the appropriate number of Rights in connection
with the issuance or sale of such shares of Common Stock; provided, however, in
each case, (i) no such Rights Certificate shall be issued, if, and to the extent
that, the Company shall be advised by counsel that such issuance would crate a
significant risk of material adverse tax consequences to the Company or to the
Person to whom such Rights Certificates would be issued (ii) no such Rights
Certificates shall be issued if, and to the extent that, appropriate adjustment
shall have otherwise been made in lieu of the issuance thereof, and (iii) the
Company shall have no obligation to distribute Rights Certificates to any
Acquiring Person or Affiliate or Associate of an Acquiring Person or any
transferee of any of the foregoing.
V.4 Supplements and Amendments. The Company and the Rights Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Rights (i) prior to the close of the business of the Flip-in Date, in
any response and (ii) after the close of business on the Flip-in Date, to make
any changes that the
<PAGE> 20
Company may deem necessary or desirable and which shall not materially adversely
affect the interests of the holders of Rights generally or in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be inconsistent with any other provisions herein or otherwise defective. The
Rights Agent will duly execute and deliver any supplement or amendment hereto
requested by the Company which satisfies the terms of the preceding sentence.
V.5 Fractional Shares. If the Company elects not to issue certificates
representing fractional shares upon exercise or redemption of Rights, the
Company shall, in lieu thereof, in the sole discretion by a two-thirds vote of
the Board of Directors, either (a) evidence such fractional shares by depositary
receipts issued pursuant to an appropriate agreement between the Company and a
depositary selected by it, providing that each holder of a depositary receipt
shall have all of the rights, privileges and preferences to which such holder
would be entitled as a beneficial owner of such fractional share, or (b) sell
such shares on behalf of the holders of Right and pay to the registered holder
of such Rights the appropriate fraction of price per share received upon such
sale.
V.6 Rights of Action. Subject to the terms of this Agreement (including
Section 3.1(b)), rights of action in respect of this Agreement, other than
rights of action vested solely in the Rights Agent, are vested in the respective
holders of the Rights; and any holder of any Rights, without the consent of the
Rights Agent or of the holder of any other Rights, may, on such holder's own
behalf and for such holder's own benefit and the benefit of other holders of
Rights, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise such holder's Rights in the manner provided in such holder's
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
V.7 Holder of Rights Not Deemed a Shareholder. No holder, as such, of
any Rights shall be entitled to vote, receive dividends or be deemed for any
purpose the holder of shares or any other securities which may at any time be
issuable on the exercise of such Rights, nor shall anything contained herein or
in any Rights Certificate be construed to confer upon the holder of any Rights,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
V.8 Notice of Proposed Actions. In case the Company shall propose after
the Separation Time and prior to the Expiration Time (i) to effect or permit (in
cases where the Company's permission is required) occurrence of any Flip-in Date
or Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution
or winding up of the Company, then, in each such case, the Company shall give to
each holder of a Right, in accordance with Section 5.9 hereof, a notice of such
proposed action, which shall specify the Flip-in Date or the date on which such
Flip-over Transaction or Event, liquidation, dissolution, or winding up is to
take place, and such notice shall be so given at least 20 Business Days prior to
the date of the taking of such proposed action.
<PAGE> 21
V.9 Notices. Notices or demands authorized or required by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
to or on the Company shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Murfreesboro Bancorp, Inc.
615 Memorial Boulevard
Murfreesboro, Tennessee 37133-7000
Attention: Secretary
Any notice or demand authorized or required by this Agreement to be given or
made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:
Bank of Murfreesboro
615 Memorial Boulevard
Murfreesboro, Tennessee 37133-7000
Attention: Secretary
Notices or demands authorized or required by this Agreement to be given or made
by the Company or the Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Separation Time, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice.
V.10 Suspension of Exercisability. To the extent that the Company
determines in good faith that some action will or need be taken pursuant to
Section 3.1(a), (b), (d) or (e) or to comply with federal or state securities
laws, the Company may suspend the exercisability of the Rights for a period of
up to ninety (90) days following the date of the occurrence of the Separation
Time or the Flip-in Date in order to take such action or comply with such laws.
In the event of any such suspension, the Company shall issue as promptly as
practicable a public announcement stating that the exercisability or
exchangeability of the Rights has been temporarily suspended. Notice thereof
pursuant to Section 5.9 shall not be required.
Failure to give a notice pursuant to the provisions of this Agreement
shall not affect the validity of any action taken hereunder.
V.11 Costs of Enforcement. The Company agrees that if the Company or
any other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
V.12 Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
<PAGE> 22
V.13 Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.
V.14 Determination and Actions by the Board of Directors, etc. The
Board of Directors of the Company shall have the exclusive power and authority
by a two-thirds vote to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board of Directors of the Company to any liability to the holders of
the Rights.
V.15 Descriptive Headings. Descriptive headings appear herein for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
V.16 Governing Law. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF TENNESSEE
AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY
WITHIN SUCH STATE.
V.17 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
V.18 Severability. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MURFREESBORO BANCORP, INC.
By
-------------------------------
Name: William E. Rowland
Title: President
BANK OF MURFREESBORO
By
-------------------------------
Name: Joyce Ewell
Title: Senior Vice President
<PAGE> 23
EXHIBIT A
[Form of Rights Certificate]
Certificate No. W- _____________ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY
EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY
OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
OR TRANSFEREES OF ANY OF THE FOREGOING WILL BE VOID.
Rights Certificate
Murfreesboro Bancorp, Inc.
This certifies that ___________________________, or registered assigns,
is the registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof each of which entitles the registered
holder thereof, subject to the terms, provisions and conditions of the
Shareholder Protection Rights Agreement, dated as of March 18, 1998 (as amended
from time to time, the "Rights Agreement"), between Murfreesboro Bancorp, Inc.,
a Tennessee corporation (the "Company"), and Bank of Murfreesboro, a Tennessee
corporation, as Rights Agent (the "Rights Agent", which term shall include any
successor Rights-Agent under the Rights Agreement), to purchase from the Company
at any time after the Separation Time (as such term is defined in the Rights
Agreement) and prior to the close of business on March 18, 2003, one
one-hundredth of a fully paid share of Participating Preferred Stock, par value
$5.00 per share (the "Preferred Stock"), of the Company (subject to adjustment
as provided in the Rights Agreement) at the Exercise Price referred to below,
upon presentation and surrender of this Rights Certificate with the Form of
Election to Exercise duly executed at the principal office of the Rights Agent
in Albany. The Exercise Price shall initially be $25.00 per Right and shall be
subject to adjustment in certain events as provided in the Rights Agreement.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other than the Company or securities or assets of the
Company other than Preferred Stock, all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request.
<PAGE> 24
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor evidencing an aggregate number of Rights equal to the aggregate number of
Rights evidenced by the Rights Certificate or Rights Certificates surrendered.
If this Rights Certificate shall be exercised in part, the registered holder
shall be entitled to receive, upon surrender hereof, another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right evidenced
by this Certificate may be (a) redeemed by the Company under certain
circumstances, at its option, at a redemption price of $0.01 per Right or (b)
exchanged by the Company under certain circumstances, at its option, for one
share of Common Stock or one one-hundredth of a share of Preferred Stock per
Right (or, in certain cases, other securities or assets of the Company), subject
in each case to adjustment in certain events as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of any
securities which may at any time be issuable on the exercise hereof, nor shall
anything contained in the Rights Agreement or herein be construed to confer upon
the holder hereof, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised or exchanged as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company.
Date: __________________
ATTEST:
By
-----------------------------------------
Secretary
Countersigned:
Bank of Murfreesboro
By
-----------------------------
Authorized Signature
[Form of Reverse Side of Rights Certificate]
<PAGE> 25
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer this Rights Certificate.)
FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto _______________________________________ (Please print
name and address of transferee) this Rights Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________ Attorney, to transfer the within Rights Certificate on
the books of the within-named Company, with full power of substitution.
Dated: __________________, 19____
Signature Guaranteed: _______
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent
in the United States.
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
shares of Common Stock, that the Rights evidenced by this Rights Certificate are
not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
--------------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported assignment, the Company will deem the Beneficial
Owner of the Rights evidenced by the enclosed Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.
<PAGE> 26
[To be attached to each Rights Certificate]
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: Murfreesboro Bancorp, Inc.
The undersigned hereby irrevocably elects to exercise ________________
whole Rights represented by the attached Rights Certificate to purchase the
shares of Participating Preferred Stock issuable upon the exercise of such
Rights and requests that certificates for such shares be issued in the name of:
Address:
---------------------------------------
Social Security or Other Taxpayer
Identification Number:
-----------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
Address:
----------------------------------------
Social Security or Other Taxpayer
Identification Number:
-----------------
Signature Guaranteed: ______
Signature
(Signature must correspond to name as
written upon the face of the attached
Rights Certificate in every particular,
without alteration or enlargement
or any change whatsoever)
<PAGE> 27
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and shares of Common Stock, that the Rights evidenced by the attached
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement).
-------------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
<PAGE> 28
EXHIBIT B
ARTICLES OF AMENDMENT
OF
CHARTER
OF
MURFREESBORO BANCORP, INC.
Under Section 48-20-106 of the Tennessee Business Corporation Act, the
undersigned Corporation hereby adopts the following Articles of Amendment to its
charter:
1. The name of the corporation is Murfreesboro Bancorp, Inc.
2. The charter is amended, pursuant to authority vested by the charter
of the Corporation in the Board of Directors, by the addition to Article 2 of
the charter of the following provision:
A statement of the designation, number of shares, relative rights,
preferences, and limitations of the first series of Preferred Stock
established by the Board of Directors pursuant to the authority vested
in it by Paragraph 2 is as follows:
(a) The distinctive serial designation of this series shall
be "Participating Preferred Stock" (hereinafter called "this
Series"). Each share of this Series shall be identical in all
respects with the other shares of this Series except as to the
dates from and after which dividends thereon shall be cumulative.
(b) The number of shares in this Series shall initially be
50,000, which number may from time to time be increased or
decreased (but not below the number then outstanding) by the
Board of Directors. Shares of this Series purchased by the
Corporation shall be canceled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.
Shares of this Series may be issued in fractional shares, which
fractional shares shall entitle the holder, in proportion to such
holder's fractional share, to all rights of a holder of a whole
share of this Series.
(c) The holders of full or fractional shares of this Series
shall be entitled to receive, when and as declared by the Board
of Directors, but only out of funds legally available therefor,
dividends, (A) on each date that dividends or other distributions
(other than dividends or distributions payable in Common Stock of
the Corporation) are payable on or in respect of Common Stock
comprising part of the Reference Package (as defined below), in
an amount per whole share of this Series equal to the aggregate
amount of dividends or other distributions (other than dividends
or distributions payable in Common Stock of the Corporation) that
would be payable on such date to a holder of the Reference
Package and (B) on the last day of March, June, September and
December in each year, in an amount per whole share of this
Series
<PAGE> 29
equal to the excess (if any) of $6.25(1) over the aggregate
dividends paid per whole share of this Series during the three
month period ending on such last day. Each such dividend shall be
paid to the holders of record of shares of this Series on the
date, not exceeding fifty days preceding such dividend or
distribution payment date, fixed for the purpose by the Board of
Directors in advance of payment of each particular dividend or
distribution. Dividends on each full and each fractional share of
this Series shall be cumulative from the date such full or
fractional share is originally issued; provided that any such
full or fractional share originally issued after a dividend
record date and on or prior to the dividend payment date to which
such record date relates shall not be entitled to receive the
dividend payable on such dividend payment date or any amount in
respect of the period from such original issuance to such
dividend payment date.
The term "Reference Package" shall initially mean 100 shares
of Common Stock, par value $5.00 per share ("Common Stock"), of
the Corporation. In the event the Corporation shall at any time
after the close of business on __________________, 19_____(2) (A)
declare or pay a dividend on any Common Stock payable in Common
Stock, (B) subdivide any Common Stock or (C) combine any Common
Stock into a smaller number of shares, then and in each such case
the Reference Package after such event shall be the Common Stock
that a holder of the Reference Package immediately prior to such
event would hold thereafter as a result thereof.
Holders of shares of this Series shall not be entitled to
any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends, as herein provided on this
Series.
So long as any shares of this Series are outstanding, no dividend
(other than a dividend in Common Stock or in any other stock
ranking junior to this Series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment
or other distribution declared or made upon the Common Stock or
upon any other stock ranking junior to this Series as to
dividends or upon liquidation, nor shall any Common Stock nor any
other stock of the Corporation ranking junior to or on a parity
with this Series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Corporation
(except by conversion into or exchange for stock of the
Corporation ranking junior to this Series as to dividends and
upon liquidation), unless, in each case, the full cumulative
dividends
- ----------------
(1)As may be adjusted to always be an amount equal to 1/4 of 1% of the
Exercise Price divided by the number of shares of Preferred Stock purchasable
upon exercise of one Right (i.e., a guaranteed 1% annualized dividend). Where a
Right is exercisable for one one-hundredth of a share, this simplifies to
one-fourth the Exercise Price. See definitions in the Shareholder Protection
Rights Agreement ("Rights Agreement") dated March 18, 1998.
(2)For a certificate of designation relating to shares to be issued
pursuant to Section 2.3 of the Rights Agreement, insert the Separation Time. For
a certificate of designation relating to shares to be issued pursuant to Section
3.1(d) of the Rights Agreement, insert the Flip-in Date.
<PAGE> 30
(including the dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition) on all
outstanding shares of this Series shall have been, or shall
contemporaneously be, paid.
(d) In the event of any merger, consolidation,
reclassification or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
the shares of this Series shall at the same time be similarly
exchanged or changed in an amount per whole share equal to the
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, that a holder of
the Reference Package would be entitled to receive as a result of
such transaction.
(e) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of full and fractional shares of this
Series shall be entitled, before any distribution or payment is
made on any date to the holders of the Common Stock or any other
stock of the Corporation ranking junior to this Series upon
liquidation, to be paid in full an amount per whole share of this
Series equal to the greater of (A) $____________(3) or (B) the
aggregate amount distributed or to be distributed prior to such
date in connection with such liquidation, dissolution or winding
up to a holder of the Reference Package (such greater amount
being hereinafter referred to as the "Liquidation Preference"),
together with accrued dividends to such distribution or payment
date, whether or not earned or declared. If such payment shall
have been made in full to all holders of shares of this Series,
the holders of shares of this Series as such shall have no right
or claim to any of the remaining assets of the Corporation..
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to
the first paragraph of this Section (e), no such distribution
shall be made on account of any shares of any other class or
series of Preferred Stock ranking on a parity with the shares of
this Series upon such liquidation, dissolution or winding up
unless proportionate distributive amounts shall be paid on
account of the shares of this Series, ratably in proportion to
the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such liquidation,
dissolution or winding up.
Upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series then
outstanding shall be entitled to be paid out of assets of the
Corporation available for distribution to its stockholders all
amounts to which such holders are entitled pursuant to the first
paragraph of this Section (e) before any payment shall be made to
the holders of Common Stock or any other stock of the Corporation
ranking junior upon liquidation to this Series.
- ----------------------
(3)Insert an amount equal to 100 times the Exercise Price in effect as
of the Separation Time. [Note: this footnote should remain in the final version
of Exhibit B to the Rights Agreement. The blank above would actually be
completed (and this footnote would be deleted) when a certificate of designation
is filed after the Separation Time.]
<PAGE> 31
For the purposes of this Section (e), the consolidation or
merger of, or binding share exchange by, the Corporation with any
other corporation shall not be deemed to constitute a
liquidation, dissolution or winding up of the Corporation.
(f) The shares of this Series shall not be redeemable.
(g) In addition to any other vote or consent of stockholders
required by law or by the charter, as amended, of the
Corporation, each whole share of this Series shall, on any
matter, vote as a class with any other capital stock comprising
part of the Reference Package and voting on such matter and shall
have the number of votes thereon that a holder of the Reference
Package would have.
3. The Corporation is a for-profit corporation.
4. The foregoing amendment of the certificate of incorporation was
authorized by the Board of Directors of the corporation at a meeting duly called
and held on March 18, 1998.
Date: ______________ MURFREESBORO BANCORP, INC.
By:
----------------------------------
William E. Rowland, President
<PAGE> 32
EXHIBIT C
SUMMARY OF SHAREHOLDER PROTECTION RIGHTS PLAN
At a meeting on March 18, 1998, the Murfreesboro Bancorp, Inc. Board of
Directors adopted a Shareholder Protection Rights Plan which is similar to plans
adopted by many other bank holding companies. The purpose of the plan is to
enhance the ability of the Board of Directors to deal with acquisition proposals
in the best interests of shareholders.
What follows is a summary of the major terms of the Shareholder
Protection Rights Plan. A copy of the entire Plan may be obtained free of charge
by contacting William E. Rowland, Bank of Murfreesboro, 615 Memorial Boulevard,
Murfreesboro, Tennessee 37133, (615-890-1111).
Distribution and Transfer of Rights; Rights Certificates: The Board has
declared a dividend of one Right for each share of Common Stock outstanding on
March 18, 1998. Prior to the Separation Time referred to below, the Rights will
be evidenced by and trade with the Common Stock and will not be exercisable.
After the Separation Time, the Company will mail Rights Certificates to
shareholders, and the Rights will become transferable apart from the Common
Stock.
Separation Time: Rights will separate from the Common Stock and become
exercisable following the earlier of the (i) the date of the Flip-in Trigger
referred to below or (ii) the tenth business day (or such later date as the
Board by a two-thirds vote may decide) after any person commenced a tender offer
that would result in such person holding a total of 19% or more of the Common
Stock.
Exercise of Rights: After the Separation Time, each Right will entitle
the holder to purchase, Participating Preferred Stock designed to have economic
and voting terms similar to those of one share of Common Stock.
"Flip-in" Trigger: Upon announcement that any person has acquired 19%
or more of the outstanding Common Stock, then 10 days thereafter (or such
earlier or later day as the Board by a two-thirds vote may decide):
(i) Rights owned by the person acquiring such stock (an "Acquiring
Person") or transferees thereof will automatically become void; and
(ii) each other Right will automatically become a right to buy, for the
Exercise Price, that a number of shares of Common Stock or Participating
Preferred Stock having a market value of twice the Exercise Price.
Exchange Option: If any person acquires between 19% and 50% of the
outstanding Common Stock, the Board by a two-thirds vote may, in lieu of
allowing Rights to be exercised, require each outstanding Right to be exchanged
for one share of Common Stock or Participating Preferred Stock designed to have
economic and voting terms similar to those of one share of Common Stock.
"Flip-over" Trigger: After an Acquiring Person has become such, the
Company may not consolidate or merge with, or sell 50% or more of its assets or
earning power to, any person (a "Flip-over Transaction or Event") if at the time
of such merger or sale (or agreement to do any of the
<PAGE> 33
foregoing) the Acquiring Person controls the Board of Directors and, in the case
of a merger, will receive different treatment than all other shareholders unless
proper provision is made so that each right would thereafter become a right to
buy, for the Exercise Price, that number of shares of common stock of such other
person having a market value of twice the Exercise Price.
Redemption: The Rights may be redeemed by the Board by a two-thirds
vote at any time until a "Flip-in" Trigger has occurred at a Redemption Price of
$0.01 per Right.
Power to Amend: The Board by a two-thirds vote may amend the Plan in
any respect until a "Flip-in" Trigger has occurred. Thereafter, the Board by a
two-thirds vote may amend the Plan in any respect not materially adverse to
Rights holders generally.
Expiration: The Rights will expire ten years from the date of their
issuance.
<PAGE> 1
EXHIBIT IV
MURFREESBORO BANCORP, INC.
1997 STATUTORY-NONSTATUTORY STOCK OPTION PLAN
1. Purpose. The purpose of this Murfreesboro Bancorp, Inc. 1997
Statutory-Nonstatutory Stock Option Plan (the "Plan") is to motivate
Participants (as defined herein), thereby benefiting the stockholders of
Murfreesboro Bancorp, Inc., a Tennessee corporation ("Corporation"). In
furtherance of this purpose, the Plan is to advance the interests of Corporation
by stimulating the efforts of key employees, directors and consultants,
increasing their desire to continue in their employment with or services to the
Corporation, assisting Corporation in competing effectively with other
enterprises for the services of new employees and directors necessary for the
continued improvement of operations, and to attract and retain the best possible
personnel for service as employees, officers and directors of Corporation.
Accordingly, the Plan is designed to promote the interests of Corporation and
its stockholders, and, by facilitating stock ownership on the part of such
directors, officers and employees, to encourage them to acquire a proprietary
interest in Corporation and to remain in its employ and service.
2. Definitions.
"Board" means the Board of Directors of Corporation.
"Cause", as used in Section 12 of this Plan, means the engaging by a
Participant in illegal conduct that is materially and demonstrably injurious to
the Corporation unless otherwise defined in an agreement between Participant and
the Corporation.
"Change in Control" means the occurrence of any of the following:
(a) The Corporation has actual knowledge that any person or
entity other than the Corporation, a subsidiary of the Corporation, or any
employee benefit plan sponsored by the Corporation or subsidiary has acquired
the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of 25% or
more of the then outstanding Stock (other than upon conversion of any then
outstanding Convertible Preferred Stock);
(b) A tender offer is made to acquire securities of the
Corporation entitling the holders thereof to 25% or more of the voting power to
elect directors of the Corporation;
(c) A solicitation subject to Rule 14a-11 under the Securities
Exchange Act of 1934, as amended (or any successor Rule) relating to the
election or removal of 50% or more of the members of the Board shall be made by
any person or entity other than the Corporation;
(d) Individuals who constitute the Board immediately prior to
any meeting of stockholders (the "Incumbent Board") have ceased for any reason
to constitute at least a majority thereof;
<PAGE> 2
(e) The stockholders of the Corporation shall approve a merger,
consolidation, share exchange, division or other reorganization of the
Corporation as a result of which the stockholders of the Corporation immediately
prior to such transaction shall not hold, directly or indirectly, immediately
following such transaction 51% or more of the voting power to elect directors of
(i) the surviving or resulting corporation in the case of a merger or
consolidation, (ii) the acquiring corporation, in the case of a share exchange,
or (iii) each surviving, resulting or acquiring corporation which, immediately
following such transaction, in the case of a division, holds more than 15% of
the consolidated assets of the Corporation immediately preceding such
transaction; or
(f) The stockholders of the Corporation shall approve a complete
liquidation and dissolution of the Corporation or the sale or other disposition
of all or substantially all of the assets of the Corporation other than to a
wholly-owned subsidiary of the Corporation.
Notwithstanding the occurrence of any of the foregoing, the Board
may determine, if it deems it to be in the best interest of the Corporation and
consistent with a good faith interpretation of this Plan, that an event or
events otherwise constituting a Change of Control shall not be so considered.
Such determination shall be effective if it is made by the Board prior to the
occurrence of an event that otherwise would be or probably will lead to a Change
in Control or after such event if made by the Board a majority of which is
composed of all directors who were members of the Board immediately prior to the
event that otherwise would be or probably will lead to a Change in Control. Upon
such determination, such event or events shall not be deemed to be a Change in
Control for any purposes under this Plan.
"Change in Control Price" means the highest closing price per
share paid for the purchase of stock in a national securities market during the
ninety day period preceding the date the Change in Control occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Committee or Committees chosen by the Board
to administer the Plan, as provided in Section 5(a) hereof.
"Fair Market Value of Stock" means the closing price of the shares
of Stock on a national securities exchange on which it is principally traded on
the day on which such value is to be determined or, if no shares were traded on
such day, on the next preceding day on which shares of Stock were traded, as
reported by the National Quotation Bureau, Inc. or other national quotation
service. If the shares are not traded on a national securities exchange but are
traded in the over-the-counter market, Fair Market Value of Stock means the
closing "asked" price of the shares in the over-the-counter market on the day on
which such value is to be determined or, if such "asked" price is not available,
the last sales price on such day or, if no shares of Stock were traded on such
day, on the next preceding day on which shares of Stock were traded, as reported
by the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or other national quotation service. If the Stock is traded neither on
a national securities exchange nor in the over-the-counter market, the Fair
Market Value of Stock shall be determined based upon such factors as the Board
or Committee, as applicable, shall reasonably deem appropriate, including
without limitation prices or values at which the Stock has most recently been
issued to third parties or redeemed or purchased from stockholders.
<PAGE> 3
"Incentive Stock Option" has the meaning ascribed in Section 422
of the Code.
"Non-Employee Director" is defined in Section 5(a).
"Non-Qualified Stock Option" means all Options which do not
qualify as Incentive Stock Options such as those granted to Non-Employee
Directors.
"Option" means an award of an Incentive Stock Option or
Non-Qualified Stock Option pursuant to this Plan.
"Option Agreement" means the written instrument from the Committee
to Participant describing the terms of the Option.
"Option Price" means the exercise price of an Option.
"Option Stock" or "Stock" means the common stock of Corporation.
"Participant" means a person to whom an Option has been granted.
3. Effective Date of Plan; Term. The Plan is effective November 5,
1997, the date on which the Board of the Corporation approved the Plan;
provided, however, the Plan shall not be effective and all Options granted
pursuant to the Plan shall be null and void unless the Plan is adopted by the
shareholders of the Corporation within one year following the effective date. No
Options intended to be Incentive Stock Options may be granted after the tenth
anniversary of the effective date of the Plan.
4. Shares Subject to the Plan. The aggregate number of shares of Stock
available for grant under the Plan is 90,000 subject to adjustments as provided
in Section 9 herein. The Committee may allocate the Options between Options
which are Incentive Stock Options and Options which are Non-Qualified Stock
Options as the Committee determines in its sole discretion. Stock issued
pursuant to the Plan may be either authorized but unissued shares or shares held
in the treasury of Corporation. In the event that, prior to the end of the
period during which Options may be granted under the Plan, any Option under the
Plan expires unexercised or is terminated or surrendered without being
exercised, in whole or in part, the number of shares theretofore subject to such
Option or the unexercised or terminated portion thereof, shall be added to the
remaining number of shares of Stock available for grant as an Option under the
Plan, including a grant to a former holder of such Option, upon such terms and
conditions as the Committee shall determine, which terms may be more or less
favorable than those applicable to such former Option.
5. Administration of the Plan by the Committee.
(a) The Committee. The Plan shall be administered by the Committee,
whose members shall be appointed from time to time by, and shall serve at the
pleasure of, the Board. The members of the Committee shall be non-employee
directors of the Corporation within the meaning of Rule 16b-3(b)(3) of the
United States Securities and Exchange Commission (or any successor rule)
("Non-Employee Directors"). The Board, in its discretion, may appoint separate
committees consisting of Non-Employee Directors to administer the Incentive
Stock Options and the Non-Qualified Stock Options. No member of the Committee
shall be liable for any action taken, or determination made,
<PAGE> 4
hereunder in good faith. Service on the Committee shall constitute service as a
director of Corporation so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of Corporation pursuant to its
Charter and Bylaws. The Committee may take action only upon the agreement of a
majority of the entire Committee. Any action which the Committee takes through a
written instrument signed by a majority of its members shall be as effective as
though taken at a meeting duly called and held.
(b) Powers of the Committee. Subject to the express provisions of
the Plan, the Committee may interpret the Plan, prescribe, amend and rescind
rules and regulations relating to it and make all determinations it deems
necessary or advisable for the administration of the Plan. The powers of the
Committee shall include plenary authority to administer and interpret the Plan,
and subject to the provisions hereof, to determine the persons to whom Options
shall be granted, the number of shares subject to each Option, the terms and
provisions of each Option, and the date on which Options shall be granted. In
making such determinations, the Committee may take into account the nature of
the services rendered by such Participants, or classes of Participants, their
present and potential contributions to Corporation's success and such other
factors as the Committee, in its discretion, shall deem relevant. Any
interpretation of Options intended to be Incentive Stock Options shall be made
in such a manner that they continue to be Incentive Stock Options. Accordingly,
the Committee shall determine, as soon as practicable after the effective date
of the Plan and at any time and from time to time thereafter, (i) the persons
who are eligible, (ii) the number of shares of Stock which an eligible person
may purchase pursuant to an Option, (iii) the price of each share of Stock
subject to the Option and (iv) the terms on which each share of Stock subject to
the Option may be purchased.
(c) Conclusiveness of Determinations. Any action taken by the
Committee or by the Board with respect to the implementation, interpretation, or
administration of the Plan shall be final, conclusive and binding. The
Committee's determinations under the Plan, including, without limitation,
determinations as to the persons to receive awards, the terms and provisions of
such awards and the agreements evidencing the same, need not be uniform and may
be made by it selectively among persons who receive or are eligible to receive
awards under the Plan, whether or not such persons are similarly situated.
6. Options.
(a) Grant of Options. Incentive Stock Options and Non-Qualified
Stock Options may be granted under the Plan by the Committee for the purchase of
Stock. Options shall be subject to such terms and conditions, shall be
exercisable at such times, and shall be evidenced by such form of written option
agreement between Participant and Corporation, as the Committee shall determine;
provided, that such determinations are not inconsistent with the other
provisions of the Plan. The Committee shall have authority to grant Options
exercisable in whole or in part at any time during their term. Option Agreements
need not be identical.
(b) Restrictions on the Grant of Incentive Stock Options. No Option
intended to be an Incentive Stock Option shall be granted to any person owning,
within the meaning of Sections 422 and 424 of the Code, Stock of Corporation
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of Corporation unless the provisions of Section 7(a) and (b)
hereof are complied with. In any one calendar year, no individual shall receive
Options to purchase Stock under any plan of Corporation intended to be Incentive
Stock Options to the extent that the Stock subject to such Options exercisable
for the first time by an individual during any calendar year has an aggregate
Fair Market Value (determined at the time the Options are granted) in excess of
$100,000.
<PAGE> 5
(c) Persons Eligible to Receive Options. The persons who shall
be eligible to receive Options granted hereunder intended to be Incentive Stock
Options shall be those key employees and officers of Corporation who are
selected by the Committee from time to time. Persons designated by the Committee
who are eligible to receive Non-Qualified Options hereunder need not be
employees of Corporation, and generally will be non-employee directors or
advisory directors of Corporation. A Participant may hold more than one Option.
The Committee shall determine the terms for payment by each Participant for his
shares of Option Stock. Such terms shall be set forth in the Option Agreement.
The terms for payment so set by the Committee may vary from one Participant to
another.
7. Terms and Exercise of Options.
(a) Option Price. The Option Price to be paid by Participant to
Corporation upon exercise of the Option shall be determined by the Committee on
the date of the grant of the Option and shall be set forth in the Option
Agreement. No Option shall have an Option Price less than the Fair Market Value
of the Stock on the date of the grant. If any Option intended to be an Incentive
Stock Option is granted to any person holding Stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
Corporation, the Option Price shall be not less than one hundred ten percent
(110%) of the Fair Market Value of the Stock on the date of the grant.
(b) Term. Each Option granted under the Plan shall be exercisable
only during a term commencing on the date when the Option was granted and ending
(unless the Option shall have terminated earlier under other provisions of the
Plan) on a date to be fixed by the Committee, but not later than ten (10) years
from the date of grant in the case of any Option intended to be an Incentive
Stock Option, subject to the following limitations:
(i) any Option intended to be an Incentive Stock Option which is
granted to any person possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of Corporation
shall be exercisable not later than five (5) years from the date of
grant; and
(ii) any Option intended to be an Incentive Stock Option may not
be exercisable more than three (3) months after Participant ceases to
be an employee of Corporation.
(c) Death or Disability. Upon the death or disability (within the
meaning of Section 22(e)(3) of the Code) of a Participant holding a
Non-Qualified Stock Option, in the absence of terms in the Option Agreement to
the contrary, the Option may be exercised, to the extent not previously
exercised, by Participant's legal representative, the legatees of the Option
under Participant's Will or the distributees of the Option under the applicable
laws of descent and distribution until the Termination Date, but only to the
extent that the Option would otherwise have been exercisable by Participant.
Upon the death of a Participant holding an Incentive Stock Option, in the
absence of terms in the Option Agreement to the contrary, the Option may be
exercised, to the extent not previously exercised, by Participant's legal
representative, the legatees of the Option under Participant's Will or the
distributees of the Option under the applicable laws of descent and distribution
until the Termination Date, but only to the extent that the Option would
otherwise have been exercisable by Participant. Upon the disability of a
Participant holding an Incentive Stock Option, the Option may be exercised by
Participant or Participant's legal representative, to the extent not previously
exercised, until the earlier of the termination date for such Option or the date
occurring one year from the date of the termination of Participant's employment
due to disability.
<PAGE> 6
(d) Exercise of Options. Options shall be exercised by delivering
or mailing to the Committee (i) a notice and "investment letter" in the form
prescribed by the Committee, specifying the number of shares to be purchased;
and (ii) a check payable to Corporation or such other medium of payment as the
Committee shall approve, in an amount equal to the Option Price plus any
withholding tax required by law as determined by Corporation. Upon receipt of
each of the foregoing, Corporation shall promptly deliver to Participant a
certificate or certificates for the Stock purchased, without charge to
Participant for issue or transfer tax. The stock certificate may, at the request
of Participant, be issued in Participant's name and the name of another person
as joint tenants with the right of survivorship, provided that any restrictions
upon such Stock shall apply equally to such joint tenant. In the event that such
shares are not registered under the Securities Act of 1933, such certificates
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES ACT ("STATE ACTS"), AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS SUCH SHARES ARE REGISTERED UNDER SUCH
ACT AND EACH RELEVANT STATE ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO CORPORATION IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS
NOT NECESSARY.
(e) Transferability of Options. No Option may be transferred,
assigned, pledged or hypothecated (whether by operation of law or otherwise),
except that an Option may be transferred upon the death of a Participant as
provided by Participant's Will or the applicable laws of descent or
distribution. No Option shall be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of an Option, or levy of attachment or similar process upon the
Option not specifically permitted herein shall be null and void and without
effect. Notwithstanding the provisions of this Section, a Participant, at any
time prior to his death, may assign all or any portion of a Non-Qualified Stock
Option to (i) his spouse or lineal descendant, (ii) the trustee of a trust for
the primary benefit of his spouse and lineal descendant, (iii) a partnership of
which his spouse and lineal descendants are the only partners, or (iv) a tax
exempt organization as described in Section 501(c)(3) of the Code. In such
event, the permitted transferee will be entitled to all of the rights of
Participant with respect to the assigned portion of such Non-Qualified Stock
Option, and such portion of the Non-Qualified Stock Option will continue to be
subject to all of the terms, conditions and restrictions applicable to the
Option, as set forth herein and in the related Option Agreement, immediately
prior to the effective date of the assignment. Any such assignment will be
permitted only if (i) Participant does not receive any consideration therefore,
and (ii) the assignment is expressly permitted by the applicable Option
Agreement, as approved by the Committee. Any such assignment shall be evidenced
by a written document executed by Participant, and a copy thereof shall be
delivered to Corporation prior to the assignment.
(f) Stockholders' Agreement. The exercise of an Option shall be
conditioned upon Participant executing, if so requested by Corporation, a
Stockholders' Agreement. All Stock issued to a Participant pursuant to an Option
shall be subject to any applicable Stockholders' Agreement previously entered
into by such Participant. Any legend required by any such agreement shall be
placed on the certificates evidencing the Stock.
(g) Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon a Participant to exercise such Option.
<PAGE> 7
8. Participant's Rights. No person shall have the rights of a
stockholder by virtue of an Option except with respect to Stock actually issued
to the stockholder, and issuance of Stock shall confer no retroactive rights to
dividends. Nothing in the Plan or any Option Agreement entered into pursuant to
the Plan shall confer upon any Participant the right to continue as a member of
the Board of Corporation or affect any right which Corporation may have to
remove such Participant as a director of Corporation. Nothing in this Plan or in
any Option Agreement shall confer upon any employee any right to continue in the
employ of Corporation or interfere in any way with the right of Corporation to
terminate his employment at any time.
9. Adjustments. In the event of the declaration of any stock dividend
on the Stock or in the event of any reorganization, merger, consolidation,
acquisition, separation, recapitalization, split-up, combination or exchange of
shares of Stock, or like adjustment, the number of shares of Stock and the class
of shares of Stock available pursuant to the Plan, and the Option Prices, shall
be adjusted by appropriate changes in the Plan and in any Option Agreement
outstanding pursuant to the Plan. Any such adjustment to the Plan or to Option
Agreements or Option Prices shall be made by action of the Committee, whose
determination shall be conclusive; provided, however, that each Option granted
pursuant to the Plan intended to be an Incentive Stock Option shall be so
adjusted as to continue to qualify as an Incentive Stock Option. Notwithstanding
the foregoing, in the event of such a reorganization, merger, consolidation,
acquisition, separation, recapitalization, split-up, combination or exchange of
shares of stock, or like adjustment which results in substantially all the
shares of the Stock of Corporation being exchanged for, or converted into cash
or other property, the Committee shall have the right to terminate the Plan as
of the date of the exchange or conversion in which case the Options shall
convert into the right to receive such cash or property net of the exercise
price of the Options.
10. Termination, Suspension or Amendment of Plan. The Committee may at
any time terminate, suspend or amend the Plan, except that the Committee shall
not, without the authorization of the holders of a majority of the Stock voted
at a stockholders' meeting duly called and held, change any provisions (other
than those adjustments for changes in capitalization as hereinbefore provided)
which determine (a) the aggregate number of shares for which Options may be
granted under the Plan or to any person; (b) the classes of persons eligible for
Options; or (c) the duration of the Plan.
11. Postponement of Exercise. The Committee may postpone any exercise
of a Option for such time as the Committee may deem necessary in order to permit
Corporation (i) to effect, amend or maintain any necessary registration of the
Plan or the shares of Stock issuable upon the exercise of an Option under the
Securities Act of 1933, as amended, or the securities laws of any applicable
jurisdiction, (ii) to permit any action to be taken in order to (A) list such
shares of Stock on a stock exchange if shares of Stock are then listed on such
exchange or (B) comply with restrictions or regulations incident to the
maintenance of a public market for its shares of Stock, including any rules or
regulations of any stock exchange on which the shares of Stock are listed, or
(iii) to determine that such shares of Stock and the Plan are exempt from such
registration or that no action of the kind referred to in (ii)(B) above needs to
be taken; and Corporation shall not be obligated by virtue of any terms and
conditions of any Option Agreement or any provision of the Plan to recognize the
exercise of an Option or to sell or issue shares of Stock in violation of the
Securities Act of 1933 or the law of any government having jurisdiction thereof.
Any such postponement shall not extend the terms of an Option and neither
Corporation nor its directors or officers shall have any obligation or liability
to any Participant or to any other person with respect to any shares of Stock as
to which the Option shall lapse because of such postponement.
<PAGE> 8
12. Changes in Control. (a) Change in Control Followed by Employment
Termination. In the event that a Change in Control shall occur and an employee
Participant's employment shall terminate within twelve months after the Change
in Control (except as provided in the next sentence), then (i) all unexercised
Options (whether or not vested or then exercisable) shall automatically become
one hundred percent vested and exercisable immediately, (ii) no other terms,
conditions, restrictions or limitations shall be imposed upon any of such
Options after such date, and in no circumstance shall an Option be forfeited on
or after such date and (iii) all such Options shall be valued on the basis of
the greater of the Change in Control Price or the Fair Market Value on the date
of such termination, and such value shall promptly be paid to such Participant
in cash by the Corporation or its successor. The foregoing shall not apply if
employment termination is due to (i) death, (ii) disability entitling the
Participant to benefits under the Corporation's or its successor's long-term
disability plan, (iii) Cause or (iv) resignation (other than (A) resignation
from a declined reassignment to a job that is not reasonably equivalent in
responsibility or compensation or that is not in the same geographic area, or
(B) resignation within 30 days following a reduction in base pay).
(b) Automatic Acceleration and Cash-Out. Upon a Change in Control
that results directly or indirectly in the Stock (or the stock of any successor
to the Corporation received in exchange for Stock) ceasing to be publicly traded
in a national securities market, (i) all unexercised Options (whether or not
vested) shall automatically become one hundred percent vested and exercisable
immediately, (ii) no other terms, conditions, restrictions or limitations shall
be imposed on any such Options after such date, and in no circumstances shall an
Option be forfeited on or after such date, and (iii) all such Options shall be
valued on the basis of the Change in Control Price, and such value shall
promptly be paid to the Participants in cash by the Company or its successor.
(c) Miscellaneous. Upon a Change in Control, no action, including,
without limitation, the amendment, suspension or termination of the Plan, shall
be taken that would adversely affect the rights of any Participant or the
operation of the Plan with respect to any Option to which a Participant may have
become entitled hereunder on or prior to the date of the Change in Control or to
which such Participant may become entitled as a result of such Change in
Control.
(d) Section 16 Insiders. Notwithstanding anything to the contrary
herein, any Participant who is subject to the reporting requirements of the
Exchange Act with respect to the Corporation, who on the date of the Change in
Control holds Options that have been outstanding for a period of less than six
months from their date of grant, shall not be paid the consideration described
in Section 12(b) above until the first day next following the end of such
six-month period.
13. Application of Proceeds. The proceeds received by Corporation from
the sale of its Stock under the Plan shall be used for general corporate
purposes.
14. Elimination of Fractional Shares. If under any provision of the
Plan that requires a computation of the number of shares of Stock subject to an
Option, the number so computed is not a whole number of shares of Stock, such
number of shares of Stock shall be rounded down to the next whole number.
15. Validity. In the event that any provision of the Plan or any
related agreement is held to be invalid, void or unenforceable, the Board shall
have the right to declare the entire Plan void and unenforceable, taking such
action as shall be deemed to be in the best interest of the stockholders of
Corporation.
<PAGE> 9
16. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
17. Governing Law. All questions pertaining to the validity,
construction and administration of the Plan and Options granted hereunder shall
be determined in conformity with the laws of the State of Tennessee.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MURFREESBORO BANCORP FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,006
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,704
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,732
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,401
<ALLOWANCE> 68
<TOTAL-ASSETS> 30,610
<DEPOSITS> 21,765
<SHORT-TERM> 0
<LIABILITIES-OTHER> 155
<LONG-TERM> 0
0
0
<COMMON> 9,068
<OTHER-SE> (378)
<TOTAL-LIABILITIES-AND-EQUITY> 30,610
<INTEREST-LOAN> 63
<INTEREST-INVEST> 90
<INTEREST-OTHER> 139
<INTEREST-TOTAL> 292
<INTEREST-DEPOSIT> 143
<INTEREST-EXPENSE> 147
<INTEREST-INCOME-NET> 145
<LOAN-LOSSES> 68
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 452
<INCOME-PRETAX> (369)
<INCOME-PRE-EXTRAORDINARY> (369)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (369)
<EPS-PRIMARY> (1.71)
<EPS-DILUTED> (1.71)
<YIELD-ACTUAL> 6.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 68
<ALLOWANCE-DOMESTIC> 68
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MURFREESBORO BANCORP FOR THE QUARTER ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 841
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,566
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,813
<INVESTMENTS-CARRYING> 3,551
<INVESTMENTS-MARKET> 3,561
<LOANS> 14,473
<ALLOWANCE> 181
<TOTAL-ASSETS> 42,282
<DEPOSITS> 33,603
<SHORT-TERM> 0
<LIABILITIES-OTHER> 158
<LONG-TERM> 0
9,068
0
<COMMON> 0
<OTHER-SE> (546)
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</TABLE>
