<PAGE> 1
Filed with the SEC on April 13, 1995 Registration No. 33-58427
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
____________________
DEPOSIT GUARANTY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSISSIPPI 6711 64-072169
(State or other jurisdiction (Primary Standard Industrial (IRS Employer Identi-
of incorporation or Classification Code Number) fication Number)
organization)
ARLEN L. MCDONALD
210 EAST CAPITOL STREET 210 EAST CAPITOL STREET
POST OFFICE BOX 730 POST OFFICE BOX 730
JACKSON, MISSISSIPPI 39205 JACKSON, MISSISSIPPI 39205
TELEPHONE NUMBER: (601)354-8497 TELEPHONE NUMBER: (601)354-8497
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code of registrant's including area code, of agent
principal executive offices) for service)
Copies to:
L. Keith Parsons, Esq. Paul M. Haygood, Esq.
Watkins Ludlam & Stennis Stone Pigman Walther Wittmann
633 North State Street & Hutchinson
Post Office Box 427 546 Carondelet Street
Jackson, Mississippi 39205-0427 New Orleans, Louisiana 70130
Telephone Number: (601)949-4701 Telephone Number: (504) 581-3200
</TABLE>
Approximate date of commencement of proposed sale of securities to the public:
At the Effective Time of the merger of Citizens National Bancshares, Inc. into
Commercial National Corporation as described in the attached Proxy
Statement/Prospectus.
If the securities being registered on this form are being offered in
conjunction with the formation of a holding company and there is compliance
with General Instruction G, check the following box. /__/
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
<PAGE> 2
DEPOSIT GUARANTY CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
Caption or Location
in Proxy
Items in Form S-4 Statement/Prospectus
- ----------------- --------------------
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Cover Page of
Registration Statement;
Cross Reference Sheet;
Cover Page of the Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Available Information;
Incorporation of
Certain Documents by
Reference
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information...................... Summary
4. Terms of the Transaction......... Summary; The Merger; Comparison of the Rights of Holders of
CNB Common Stock and Deposit Guaranty Common Stock
5. Pro Forma Financial Information.. Not Applicable
6. Material Contracts with the
Company Being Acquired........... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Under-
writers.......................... Not Applicable
8. Interest of Named Experts and
Counsel.......................... Legal Opinion; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
10. Information with Respect to
S-3 Registrants.................. Available Information;
Incorporation of
Certain Documents by
Reference
11. Incorporation of Certain Infor-
mation by Reference.............. Available Information;
Incorporation of
Certain Documents by
Reference
12. Information with Respect to S-2
or S-3 Registrants............... Not Applicable
13. Incorporation of Certain Infor-
mation by Reference.............. Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants.................. Not Applicable
15. Information with Respect to S-3
Companies........................ Not Applicable
16. Information with Respect to S-2
or S-3 Companies................. Not Applicable
17. Information with Respect to
Companies Other Than S-3 or
S-2 Companies.................... Information Concerning
CNB; Market Prices of and
Dividends on CNB Common
Stock; CNB - Selected
Financial Data;
Management's Discussion
and Analysis of Consolidated
Financial Condition and
Results of Operations for the
Years Ended December 31, 1994,
1993 and 1992;
Index to Financial
Statements
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
18. Information if Proxies, Consents
or Authorizations Are to be
Solicited........................ Incorporation of
Certain Documents by
Reference; Summary;
Introduction; The Merger--Interests
of Certain Persons in
the Merger; Stock
Ownership of Management of
CNB; Principal Shareholders of CNB; Experts
19. Information if Proxies, Consents
or Authorizations Are Not to be
Solicited or in an Exchange
Offer............................ Not Applicable
</TABLE>
<PAGE> 5
April 14, 1995
To Our Shareholders:
You are cordially invited to attend a Special Meeting (the "Meeting")
of Shareholders of Citizens National Bancshares, Inc. ("CNB") to be held at
2:00 p.m., local time, on May 18, 1995 at the main branch of Citizens National
Bank, 201 NW Railroad Avenue, Hammond, Louisiana 70401-3249.
At the Meeting you will be asked to consider and vote upon a proposal
to approve the merger (the "Merger") of CNB with and into Commercial National
Corporation, a wholly-owned subsidiary of Deposit Guaranty Corp. ("Deposit
Guaranty") and the related Agreement and Plan of Merger. If the Merger is
consummated, CNB will be merged into Commercial National Corporation and
Citizens National Bank will become a wholly-owned subsidiary of Commercial
National Corporation, and you will receive shares of common stock of Deposit
Guaranty for each share of common stock of CNB which you own at the effective
time of the Merger.
The affirmative vote of the holders of at least two-thirds of the
total voting power of the shares of common stock of CNB, present or represented
by proxy at the Meeting, must approve the Merger. Consummation of the Merger
also requires certain regulatory approvals.
The Board of Directors of CNB believes the Merger is in the best
interests of CNB and its shareholders and unanimously recommends that you vote
for approval of the Merger. The reasons for such recommendation are set forth
in the accompanying Proxy Statement/Prospectus. Furthermore, CNB's financial
advisor, Alex Sheshunoff & Co. Investment Banking, has issued its opinion to
the effect that, as of the date of such opinion and based upon the
considerations described therein, the terms of the Merger are fair, from a
financial point of view, to the shareholders of CNB.
We believe that the Merger represents an exceptional opportunity for
CNB shareholders to join on favorable terms in a combined enterprise with
greater financial resources and a more geographically diversified business. As
a result of the proposed Merger, you, as a shareholder of Deposit Guaranty,
will own common stock in a bank holding company whose shares are publicly
traded. Combining CNB with Deposit Guaranty through the Merger should thus
provide CNB shareholders with a continued equity interest in a larger, more
diversified banking company.
We urge you to read the enclosed materials carefully so that you can
evaluate the Merger for yourself.
All shareholders are invited to attend the Meeting in person.
However, in order to ensure that your shares will be represented at the
Meeting, please date, sign and promptly return the enclosed proxy card in the
enclosed postage-paid envelope whether or not you plan to attend the Meeting.
If you attend the Meeting in person, you may, if you wish, vote personally on
all matters brought before the Meeting.
Chairman of the Board President and Chief
Executive Officer
<PAGE> 6
CITIZENS NATIONAL BANCSHARES, INC.
201 NW RAILROAD AVE.
HAMMOND, LOUISIANA 70401-3249
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF CITIZENS NATIONAL BANCSHARES, INC.
TO BE HELD MAY 18, 1995
To the Shareholders of Citizens National Bancshares, Inc.:
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Citizens National Bancshares, Inc. ("CNB") will be held at the
main branch of Citizens National Bank, 201 NW Railroad Avenue, Hammond,
Louisiana 70401-3249 on May 18, 1995 at 2:00 p.m., local time, for the purpose
of considering and voting upon the following matters:
1. To consider and vote upon the proposal to approve an
Agreement and Plan of Merger (the "Merger Agreement"), dated
as of December 2, 1994, by and among Deposit Guaranty Corp., a
Mississippi corporation ("Deposit Guaranty"), Commercial
National Corporation ("CNC"), a Louisiana corporation and a
wholly-owned subsidiary of Deposit Guaranty, and Citizens
National Bancshares, Inc., a Louisiana corporation ("CNB"), as
amended by the Amendment to Agreement and Plan of Merger dated
effective March 27, 1995 and by the Second Amendment to
Agreement and Plan of Merger dated as of April 11, 1995,
conformed copies of which are attached to the accompanying
Proxy Statement/Prospectus as Exhibit A and incorporated
herein by this reference, and pursuant to which (a) CNB will
merge into CNC and Citizens National Bank will become a
wholly-owned subsidiary of CNC (the "Merger"), and (b) except
as provided in the Merger Agreement, each share of common
stock of CNB ("CNB Common Stock") issued and outstanding at
the effective time of the Merger will be converted into
and exchangeable for shares of common stock of Deposit
Guaranty.
2. To transact such other business as may lawfully come before
the meeting or any adjournment or postponement thereof.
DISSENTING SHAREHOLDERS WHO COMPLY WITH THE PROCEDURAL REQUIREMENTS OF
THE BUSINESS CORPORATION LAW OF LOUISIANA WILL BE ENTITLED TO RECEIVE PAYMENT
OF THE FAIR CASH VALUE OF THEIR SHARES IF THE MERGER IS EFFECTED UPON APPROVAL
BY LESS THAN EIGHTY PERCENT (80%) OF THE TOTAL VOTING POWER OF CNB.
The affirmative vote of the holders of two-thirds of the total voting
power of the shares of CNB Common Stock, present or represented by proxy at the
Meeting, is required for approval of the Merger.
Only shareholders of record as of the close of business on April 12,
1995, are entitled to vote at the Meeting.
Action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date to which the Meeting may be adjourned or
postponed.
By Order of the Board of Directors
Mayson H. Foster
Secretary
April 14, 1995
Hammond, Louisiana
YOUR VOTE IS IMPORTANT
All shareholders are invited to attend the Meeting in person. However, in
order to ensure that your shares will be represented at the Meeting, please
date, sign and promptly return the enclosed proxy card in the enclosed
postage-paid envelope, whether or not you plan to attend the Meeting. Your
proxy may be revoked by appropriate notice to the Secretary of CNB at any time
prior to the voting thereof. If you attend the Meeting in person, you may, if
you wish, vote personally on all matters brought before the Meeting.
<PAGE> 7
PROSPECTUS PROXY STATEMENT
DEPOSIT GUARANTY CORP. CITIZENS NATIONAL
BANCSHARES, INC.
___________________ ______________
1,491,228 SHARES OF SPECIAL MEETING OF
COMMON STOCK, NO PAR VALUE SHAREHOLDERS TO BE HELD
MAY 18, 1995
This Proxy Statement/Prospectus is being furnished to the shareholders
of Citizens National Bancshares, Inc. ("CNB") in connection with the
solicitation of proxies by the Board of Directors of CNB for use at its Special
Meeting (the "Meeting") of Shareholders to be held on May 18, 1995. This Proxy
Statement/Prospectus was first mailed to shareholders of CNB on or about April
14, 1995.
At the Meeting, the holders of CNB Common Stock, par value $10.00 per
share ("CNB Common Stock"), will be asked to approve the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of December 2, 1994, by and among
Deposit Guaranty Corp. ("Deposit Guaranty"), a Mississippi corporation,
Commercial National Corporation ("CNC"), a Louisiana corporation and a
wholly-owned subsidiary of Deposit Guaranty, and CNB, as amended by the
Amendment to Agreement and Plan of Merger dated effective March 27, 1995, and
by the Second Amendment to Agreement and Plan of Merger dated as of April 11,
1995, pursuant to which CNB will merge into CNC and Citizens National Bank will
become a wholly-owned subsidiary of CNC (the "Merger"). Upon consummation of
the Merger, each outstanding share of CNB Common Stock, other than shares held
by CNB shareholders who perfect dissenters' rights, will be converted into
shares of Deposit Guaranty common stock, no par value per share ("Deposit
Guaranty Common Stock"), and cash in lieu of any fractional shares. For a more
complete description of the Merger Agreement and the terms of the Merger, see
"The Merger." A conformed copy of the Merger Agreement is attached to this
Proxy Statement/Prospectus as Exhibit A. For a more complete description of
dissenters' rights see "Appraisal Rights" and "Comparison of the Rights of
Holders of CNB Common Stock and Deposit Guaranty Common Stock."
Deposit Guaranty has filed a Registration Statement on Form S-4 with
the Securities and Exchange Commission (the "Commission"), pursuant to the
Securities Act of 1933, as amended, covering up to 1,491,228 shares of Deposit
Guaranty Common Stock to be issued in connection with the Merger.
No person is authorized to give any information or to make any
representation concerning the Merger not contained in this Proxy
Statement/Prospectus and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to
or from any person to whom it is unlawful to make such offer or solicitation of
an offer or proxy solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of the securities made
under this Proxy Statement/Prospectus shall, under any circumstances, create
any implication that there has been no change in the information set forth
herein since the date of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus does not cover any resales of Deposit
Guaranty Common Stock to be received by CNB shareholders upon consummation of
the Merger, and no person is authorized to make use of this Proxy
Statement/Prospectus in connection with any such resale.
_________________________
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
The date of this Proxy Statement/Prospectus is April 14, 1995.
<PAGE> 8
AVAILABLE INFORMATION
Deposit Guaranty is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by Deposit Guaranty can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 and at its Regional
Offices located in the Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can also be obtained from the Commission's
Public Reference Section, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, at prescribed rates.
This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 covering the securities
offered hereby which has been filed with the Commission, certain portions of
which have been omitted pursuant to the Rules and Regulations of the
Commission, and to which portions reference is hereby made for further
information with respect to Deposit Guaranty and the securities offered hereby.
AS INDICATED BELOW, THIS PROXY STATEMENT/PROSPECTUS INCORPORATES
DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE
NOT SPECIFICALLY INCORPORATED BY REFERENCE HEREIN, ARE AVAILABLE WITHOUT
CHARGE, UPON THE WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY MAY 10, 1995, AND SUCH REQUESTS SHOULD BE DIRECTED TO DEPOSIT GUARANTY'S
PRINCIPAL EXECUTIVE OFFICES AT 210 EAST CAPITOL STREET, JACKSON, MISSISSIPPI
39201, ATTENTION: ARLEN L. MCDONALD, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, TELEPHONE NUMBER (601) 354-8497.
<PAGE> 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Deposit Guaranty with the Commission
are hereby incorporated by reference:
(1) Deposit Guaranty's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994;
(2) The description of capital stock contained in Item 14 of
Deposit Guaranty's Registration Statement on Form 10 filed
April 21, 1970, Item 4 of Deposit Guaranty's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1982, Item 4 of
Deposit Guaranty's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986, Item 4 of Deposit Guaranty's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1987, relating to the description of Deposit Guaranty's Common
Stock.
All documents filed by Deposit Guaranty pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the date of the Meeting of shareholders of CNB are hereby incorporated by
reference into this Proxy Statement/Prospectus and shall be deemed a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference shall
be deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Date, Time, Place and Purpose of Meeting;
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recommendation of the CNB and Deposit
Guaranty Boards of Directors; Reasons for the Merger . . . . . . . . . . . . . . 2
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 3
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 3
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange of CNB Certificates;
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . 4
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparison of the Rights of Holders
of CNB Common Stock and Deposit
Guaranty Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CNB and Subsidiaries - Selected Financial Data . . . . . . . . . . . . . . . . . . .
Deposit Guaranty and Subsidiaries - Selected Financial Data . . . . . . . . . . . 5
Comparative per Share Information . . . . . . . . . . . . . . . . . . . . . . . . . 7
Introduction
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Record Date; Voting Rights; Proxies . . . . . . . . . . . . . . . . . . . . . . . . 8
Employee Stock Ownership Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Background of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Recommendation of the CNB and Deposit
Guaranty Boards of Directors; Reasons for the Merger . . . . . . . . . . . . . . 13
Fairness Opinion of CNB's Financial
Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 18
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 20
Cash in Lieu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dissenters' Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exchange of CNB Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Resales of Deposit Guaranty Common Stock Issued
in the Merger; Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Filing Written Objection and Vote Against
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notice by CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Written Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Payment and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Comparison of the Rights of Holders of CNB
Common Stock and Deposit Guaranty Common Stock . . . . . . . . . . . . . . . . . . . . . 26
Authorized Shares of Capital Stock;
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limitations on Directors' and Officers'
Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Supermajority Voting Requirements; Business Combinations; Control Shares . . . . . 29
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Vacancies in the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 30
Amendment of the Articles of Incorporation
or Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 31
Shareholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . . 31
Information Concerning CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Market Prices of and Dividends on CNB
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Stock Ownership of Management of CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Principal Shareholders of CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Selected Financial Data - CNB and Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . 36
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Provision for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Non-Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Investment Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Remaining Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Interest Rate Sensitivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Fair Value of Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . 51
New Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
<PAGE> 12
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
herein by reference. This summary does not contain a complete statement of all
material information relating to the proposed Merger and is subject to and
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Proxy Statement/Prospectus,
including the Exhibits and the documents incorporated in this Proxy
Statement/Prospectus by reference. Certain capitalized terms used in this
summary are defined elsewhere in this Proxy Statement/Prospectus.
THE MERGER
The shareholders of CNB are being asked to consider and vote upon a
proposal to approve the Merger Agreement pursuant to which CNB will be merged
into a subsidiary of Deposit Guaranty and each share of CNB Common Stock issued
and outstanding immediately prior to the Effective Time of the Merger (except
shares held directly or indirectly by Deposit Guaranty other than in a
fiduciary capacity and except Dissenting Shares) will be converted into and
exchangeable for shares of Deposit Guaranty Common Stock, with the exchange
ratio to be determined in accordance with a formula. Under the formula, if the
"Average Market Price" (as defined below) of Deposit Guaranty Common Stock is
greater than $28.50 per share, but less than $30.50 per share, each share of
CNB Common Stock will be exchanged for the number of shares of Deposit Guaranty
Common Stock determined by dividing $42,500,000 by the Average Market Price,
and then dividing the resulting quotient by the total number of shares of CNB
Common Stock outstanding immediately before the effective time of the Merger.
If the Average Market Price is greater than or equal to $30.50 per share, the
exchange ratio instead will equal 1,393,442 divided by the total number of
shares of CNB Common Stock outstanding. If the Average Market Price is less
than or equal to $28.50 per share, the exchange ratio will equal 1,491,228
divided by the total number of shares of CNB Common Stock outstanding. In
general, the "Average Market Price" will be the average of the closing per
share trading prices of Deposit Guaranty Common Stock (adjusted for any stock
split or similar transaction) over 20 consecutive trading days preceding the
trading day immediately before the effective time of the Merger. As a result
of the Merger, the shareholders of CNB will become shareholders of Deposit
Guaranty. A conformed copy of the Merger Agreement is attached hereto as
Exhibit A.
THE PARTIES
Deposit Guaranty Corp. Deposit Guaranty is a bank holding company
headquartered at 210 East Capitol Street, Jackson, Mississippi 39201, telephone
(601) 354-8497. Its principal subsidiaries are Deposit Guaranty National Bank,
a national banking association, with its principal office in Jackson,
Mississippi, and Commercial National Bank, a national banking association with
its principal office in Shreveport, Louisiana. Deposit Guaranty, through its
subsidiaries, provides comprehensive corporate, commercial, correspondent and
individual banking services, and personal and corporate trust services.
As of December 31, 1994, Deposit Guaranty had total assets of $5.1
billion, total deposits of $4 billion, total loans of $2.9 billion and
shareholders' equity of $443.5 million. Based on total assets at December 31,
1994, Deposit Guaranty ranked first among Mississippi-based bank holding
companies.
Commercial National Corporation. Commercial National Corporation is a
Louisiana corporation, which owns 100% of Commercial National Bank. Deposit
Guaranty acquired 100% of the stock of Commercial National Corporation in
February, 1990. Other than its ownership of Commercial National Bank,
Commercial National Corporation does not engage in substantial business
activities.
Citizens National Bancshares, Inc. CNB is a bank holding company
headquartered at 201 NW Railroad Ave., Hammond, Louisiana 70401-3249, telephone
number (504) 542-2265. Its only subsidiary is Citizens National Bank in
Hammond, a national bank ("Citizens National"). CNB, through its subsidiary,
provides a full complement of consumer and commercial banking services in
Tangipahoa Parish, Louisiana.
1
<PAGE> 13
As of December 31, 1994, CNB had total assets of $189.9 million, total
deposits of $167.3 million, total loans of $84.8 million and shareholders'
equity of $21 million.
DATE, TIME, PLACE AND PURPOSE OF MEETING; RECORD DATE
A Special Meeting (the "Meeting") of the Shareholders of CNB will be
held on May 18, 1995, at 2:00 p.m., at the main branch of Citizens National
Bank at 201 NW Railroad Avenue, Hammond, Louisiana 70401-3249, to consider and
vote upon the proposal to approve the Merger Agreement. The Board of Directors
of CNB has fixed the close of business on April 12, 1995, as the record date
(the "Record Date") for determining holders of outstanding shares of CNB Common
Stock entitled to notice of and to vote at the Meeting. Only holders of CNB
Common Stock of record on the books of CNB at the close of business on the
Record Date are entitled to vote at the Meeting or at any adjournment or
postponement thereof. As of the Record Date, there were 361,684 shares of CNB
Common Stock issued and outstanding, each of which is entitled to one vote.
See "Introduction -- General" and "Introduction -- Record Date; Voting Rights;
Proxies."
VOTE REQUIRED
Approval of the Merger Agreement requires the affirmative vote at the
Meeting of the holders of two-thirds of the total voting power of the shares of
CNB Common Stock. Executive officers, directors and affiliates of CNB are
entitled to vote approximately 141,079 shares of CNB Common Stock,
representing approximately 39.06% of the outstanding shares, all of which are
expected to be voted in favor of the Merger.
RECOMMENDATION OF THE CNB AND DEPOSIT GUARANTY BOARDS OF DIRECTORS; REASONS FOR
THE MERGER
The CNB Board has unanimously approved the Merger and the Merger
Agreement and has determined that the Merger is in the best interests of CNB
and its shareholders. In approving the Merger, CNB's directors considered
among other factors the financial terms of the transaction; the liquidity
afforded to shareholders of CNB through ownership of a publicly traded stock; a
review of the business and prospects of CNB and Deposit Guaranty; the federal
income tax consequences of the Merger; the likelihood of the Merger being
approved by regulatory authorities without undue conditions or delays; and a
report and opinion from Alex Sheshunoff & Co. Investment Banking ("Sheshunoff")
regarding the fairness of the terms of the Merger, from a financial point of
view, to CNB's shareholders. THE CNB BOARD OF DIRECTORS BELIEVES THE MERGER IS
IN THE BEST INTEREST OF CNB'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
CNB'S SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
The Board of Directors of Deposit Guaranty has approved the Merger
Agreement because it believes that the Merger will enhance Deposit Guaranty's
earnings capacity by enabling it to deliver products and provide services to a
larger geographic customer base and that the combination of Deposit Guaranty
and CNB can take advantage of increased overall efficiencies and economies of
scale. See "The Merger -- Recommendation of the CNB and Deposit Guaranty
Boards of Directors; Reasons for the Merger," "The Merger -- Fairness Opinion
of CNB's Financial Advisor" and Exhibit B.
FAIRNESS OPINION
The Board of Directors of CNB has received the written opinion of
Sheshunoff, CNB's financial advisor, that the terms of the Merger are fair,
from a financial point of view, to CNB and CNB shareholders. The opinion of
Sheshunoff is attached hereto as Exhibit B and should be read in its entirety.
See "The Merger -- Fairness Opinion of CNB's Financial Advisor."
REGULATORY APPROVALS
It is a condition to the consummation of the Merger that all required
regulatory approvals, including the approval of the Federal Reserve Board, be
obtained. Federal Reserve Board approval was obtained on March 8, 1995. See
"The Merger -- Conditions" and "The Merger -- Regulatory Approvals."
2
<PAGE> 14
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of CNB's management and Board of Directors have
interests in the Merger in addition to their interests as shareholders of CNB
generally. Those interests relate to, among other things, provisions in the
Merger Agreement regarding indemnification and eligibility to participate in
certain Deposit Guaranty employee benefit plans. Executive officers of CNB
have an interest in the Merger as a result of change in control severance
arrangements in their existing employment agreements, and certain directors
will benefit from registration rights which Deposit Guaranty has agreed to
provide to certain major shareholders of CNB. See "The Merger - Interests of
Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon receipt of an opinion
of counsel substantially to the effect that the Merger will be treated, for
federal income tax purposes, as a tax-free reorganization, with the result
that, no gain or loss will be recognized by CNB or by holders of CNB Common
Stock who exchange all of their CNB Common Stock solely for Deposit Guaranty
Common Stock pursuant to the Merger (except with respect to cash, if any,
received in lieu of fractional shares). CNB shareholders are urged to consult
their own tax advisors as to the specific tax consequences to them of the
Merger. See "The Merger -- Certain Federal Income Tax Consequences."
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of the
shareholders of CNB and the Merger is approved by all required regulatory
agencies and the other conditions to the Merger are satisfied or waived (where
permissible), the Merger will become effective at the time (the "Effective
Time") specified in a short form merger agreement or certificate of merger (the
"Certificate of Merger") is filed with the Secretary of State of Louisiana, or
as of such later date in time to which Deposit Guaranty and CNB agree, which
may be specified in the short form merger agreement or the Certificate of
Merger to be filed with the Louisiana Secretary of State pursuant to the
Business Corporation Law of the State of Louisiana (the "Louisiana BCL"). It
is expected that the Effective Time will occur in mid-1995; however, there can
be no assurance that the conditions to the Merger will be satisfied or waived
so that the Merger can be consummated. See "The Merger -- Effective Time" and
"The Merger -- Conditions."
AFFILIATES
It is a condition to Deposit Guaranty's obligation to consummate the
Merger that, at or prior to the Effective Time, each person who may be deemed
to be an "affiliate" (as such term is defined by Rule 145 of the Securities Act
of 1933) of CNB shall have executed and delivered to Deposit Guaranty an
agreement which provides, among other things, that such affiliate will not
sell, transfer or otherwise dispose of any Deposit Guaranty Common Stock to be
received by such affiliate pursuant to the Merger in violation of the
Securities Act of 1933 and the rules and regulations thereunder. For a further
discussion of the provisions of the agreements between Deposit Guaranty and
such affiliates, see "The Merger -- Resales of Deposit Guaranty Common Stock
Issued in the Merger; Affiliates."
ACCOUNTING TREATMENT
The pooling method of accounting will be used to reflect the Merger
upon consummation. "The Merger -- Accounting Treatment."
EXCHANGE OF CNB CERTIFICATES; NO FRACTIONAL SHARES
As soon as practicable after the Effective Time, The Bank of New York
(the "Exchange Agent") will mail to each holder of record of CNB Common Stock,
a letter of transmittal and instructions for use in effecting the surrender of
the certificates which, immediately prior to the Effective Time, represented
outstanding shares of CNB Common Stock in exchange for certificates
representing Deposit Guaranty Common Stock. See "The Merger -- Exchange of CNB
Certificates." Cash will be paid in lieu of any fractional share interests in
Deposit Guaranty Common Stock. See "The
3
<PAGE> 15
Merger -- No Fractional Shares." Certificates representing CNB Common Stock
should not be surrendered until the transmittal form is received.
APPRAISAL RIGHTS
Under certain conditions and by complying with the specific procedures
required by Louisiana law and described herein, CNB's shareholders will have
the right to dissent from the Merger, in which event, if the Merger is
consummated, such shareholders may be entitled to receive in cash the fair
value of their shares of CNB Common Stock. See "Appraisal Rights" and Exhibit
C hereto.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party under the Merger Agreement
are subject, among other conditions, to approval of the Merger Agreement by the
affirmative vote of the holders of at least two-thirds of the total voting
power of the shares of CNB Common Stock, the receipt of all necessary
regulatory approvals, and the absence of any material adverse change from
September 30, 1994 in the financial condition, results of operations, business,
or prospects of the other party's consolidated group, taken as a whole. See
"The Merger -- Conditions" for a fuller discussion of the conditions to
consummation.
TERMINATION
Among other reasons, the Merger Agreement may be terminated by either
party at any time prior to the Effective Time, in the event any consent or
approval of any regulatory authority required for consummation of the Merger
and the other related transactions has been denied by final nonappealable
action of such authority; the shareholders of CNB fail to vote their approval
of the Merger Agreement and the related transactions as required by the
Louisiana BCL at the Meeting; or if the Closing has not occurred by September
30, 1995. See "The Merger -- Amendment and Termination."
COMPARISON OF THE RIGHTS OF HOLDERS OF CNB COMMON STOCK AND DEPOSIT GUARANTY
COMMON STOCK
For a comparison of Louisiana and Mississippi law and the charter and
bylaw provisions of CNB and Deposit Guaranty governing the rights of holders of
CNB Common Stock and Deposit Guaranty Common Stock, see "Comparison of the
Rights of Holders of CNB Common Stock and Deposit Guaranty Common Stock."
4
<PAGE> 16
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARIES - SELECTED FINANCIAL DATA
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
Interest income $13,149 $13,952 $15,067 $15,215 $14,583
Interest expense 4,858 5,337 6,938 8,608 8,682
---------------------------------------------------------
Net interest income 8,291 8,615 8,129 6,607 5,901
Provision for possible loan losses --- --- --- 634 1,311
---------------------------------------------------------
Net interest income after provision for 8,291 8,615 8,129 5,973 4,590
possible loan losses
Other operating income 1,982 1,976 1,927 1,798 1,697
Other operating expense 6,758 6,146 6,226 6,026 5,866
---------------------------------------------------------
Income before income taxes and cumulative 3,515 4,445 3,830 1,745 421
effect of accounting change
Income tax expense 919 1,315 1,119 354 58
---------------------------------------------------------
Income before cumulative effect of 2,596 3,130 2,711 1,391 363
accounting change
Cumulative effect of accounting change --- 172 --- --- ---
---------------------------------------------------------
Net income $2,596 $3,302 $2,711 $1,391 $363
=========================================================
NET INCOME PER SHARE
Income before cumulative effect of $7.14 $8.93 $8.05 $4.15 $1.07
accounting change
Cumulative effect of accounting change --- 0.49 --- --- ---
---------------------------------------------------------
Net income per share $7.14 $9.42 $8.05 $4.15 $1.07
=========================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 363,360 350,634 336,981 334,294 278,704
CASH DIVIDENDS PER SHARE $2.20 $1.45 $1.32 $1.32 $1.32
STATEMENTS OF CONDITION - AVERAGES
Securities available for sale and $83,954 $88,389 $86,609 $68,676 $40,056
investment securities
Loans, net of unearned income 84,821 79,424 81,521 84,397 89,575
Total deposits 169,500 176,211 184,048 167,311 146,938
Total assets 188,753 194,242 201,355 176,815 158,081
Total stockholders' equity 17,943 16,684 15,582 13,049 12,907
SELECTED RATIOS
Return on average assets 1.38% 1.70% 1.35% 0.79% 0.23%
Return on average equity 14.47 19.79 17.40 10.66 2.81
Net interest margin - tax equivalent 4.70 4.73 4.30 3.91 4.10
Allowance for possible loan losses to
loans, net of unearned income 1.95 2.14 2.17 2.08 1.88
Net charge-offs to average loans, net of
unearned income 0.12 0.07 0.11 0.54 0.96
Dividend payout 30.81 15.39 16.40 31.81 123.36
Average equity to average assets 9.51 8.59 7.74 7.38 8.16
Leverage ratio 9.59 8.70 7.83 7.86 7.97
Tier I risk-based capital 19.34 18.26 17.84 14.78 18.21
Total risk-based capital 20.59 19.51 19.10 16.04 14.47
</TABLE>
5
<PAGE> 17
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts) Year Ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
Interest income $307,272 $299,327 $322,114 $382,432 $406,724
Interest expense 125,881 124,687 155,459 231,473 257,023
-----------------------------------------------------------------
Net interest income 181,391 174,640 166,655 150,959 149,701
Provision for possible loan losses (4,750) (16,000) 10,378 17,260 46,409
-----------------------------------------------------------------
Net interest income after provision for possible 186,141 190,640 156,277 133,699 103,292
loan losses
Other operating income 93,499 74,781 67,977 61,439 74,955
Other operating expense 180,047 171,567 164,470 152,828 145,315
-----------------------------------------------------------------
Income before income taxes 99,593 93,854 59,784 42,310 32,932
Income tax expense 32,463 27,302 14,270 10,090 8,407
-----------------------------------------------------------------
Net income $67,130 $66,552 $45,514 $32,220 $24,525
=================================================================
NET INCOME PER SHARE
Primary $3.80 $3.77 $2.67 $2.04 $1.55
Fully diluted 3.80 3.77 2.63 1.93 1.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 17,668,062 17,649,852 17,033,664 15,799,996 15,799,996
Fully diluted 17,668,062 17,649,852 17,465,282 17,442,388 17,442,388
CASH DIVIDENDS PER SHARE $1.06 $.93 $.80 $.78 $.78
STATEMENTS OF CONDITION - AVERAGES
Total assets $4,940,977 $4,826,726 $4,777,596 $4,814,533 $4,522,212
Earning assets 4,413,938 4,333,740 4,275,345 4,329,336 4,036,671
Securities available for sale 712,184 1,308,634 --- --- ---
Investment securities 718,891 396,011 1,616,658 1,417,299 1,036,123
Loans, net of unearned income 2,581,724 2,293,416 2,261,034 2,411,731 2,633,394
Deposits 3,997,038 3,867,669 3,876,927 3,990,963 3,692,556
Long-term debt --- --- 6,320 24,020 24,236
Total stockholders' equity 429,967 367,592 315,833 275,345 259,644
SELECTED RATIOS
Return on average assets 1.36% 1.38% .95% .67% .54%
Return on average equity 15.61 18.10 14.41 11.70 9.45
Net interest margin - tax equivalent 4.24 4.18 4.12 3.77 4.04
Allowance for possible loan losses to loans,
net of unearned income 1.95 2.56 3.30 3.74 3.46
Net charge-offs (recoveries) to average
loans, net of unearned income .10 (.14) 1.02 .77 1.14
Dividend payout 27.89 24.67 29.96 38.24 50.32
Average equity to average assets 8.70 7.62 6.61 5.72 5.74
Leverage ratio 8.43 8.13 6.80 5.42 5.19
Tier I risk-based capital 12.49 13.28 12.00 9.95 8.25
Total risk-based capital 13.75 14.54 13.27 12.11 10.31
</TABLE>
6
<PAGE> 18
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
Historical
--------------------------
Deposit CNB
Guaranty and Pro Forma
Deposit CNB Pro Forma Equivalent
Per Common Share Guaranty CNB Combined(a) (b)
---------------- -------- --- ----------- ----------
<S> <C> <C> <C> <C>
NET INCOME (c)
For the twelve months ended
December 31, 1994
Primary $3.80 $7.14 $3.64 $14.88
Fully Diluted 3.80 7.14 3.64 14.88
For the year ended
December 31,
1993
Primary 3.77 9.42 3.65 14.93
Fully Diluted 3.77 9.42 3.65 14.93
1992
Primary 2.67 8.05 2.60 10.65
Fully Diluted 2.63 8.05 2.56 10.49
1991
Primary 2.04 4.15 1.94 7.95
Fully Diluted 1.93 4.15 1.85 7.56
CASH DIVIDENDS (d)
For the twelve months ended
December 31, 1994 1.06 2.20 1.06 4.34
For the year ended
December 31,
1993 .93 1.45 .93 3.80
1992 .80 1.32 .80 3.27
1991 .78 1.32 .78 3.19
BOOK VALUE (e)
As of December 31, 1994 25.23 52.77 24.36 99.65
As of December 31, 1993 22.41 48.05 21.66 88.60
</TABLE>
(a) In accordance with generally accepted acccounting principles, Deposit
Guaranty will account for the Merger using the pooling-of-interests
method.
(b) CNB pro forma equivalent amounts are computed by multiplying the pro
forma combined amounts by assuming the maximum number of shares issued
which results in an assumed Conversion Number of 4.090.
(c) Net income per common share is based on weighted average common shares
outstanding.
(d) Pro forma cash dividends represent historical cash dividends of Deposit
Guaranty.
(e) Book value per common share is based on total period-end shareholders'
equity.
7
<PAGE> 19
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of
CNB in connection with the solicitation by the Board of Directors of CNB of
proxies for use at a Special Meeting of Shareholders (the "Meeting") to be held
on May 18, 1995 at 2:00 p.m., local time, at the main branch of Citizens
National, 201 NW Railroad Avenue, Hammond, Louisiana 70401-3249, and at any
adjournment or postponement thereof. At the Meeting, shareholders will
consider and vote upon a proposal to approve the Merger Agreement, by and among
Deposit Guaranty, CNC and CNB, pursuant to which CNB will be merged into CNC
(the "Merger") and each share of CNB Common Stock issued and outstanding
immediately prior to the effective time of the Merger (except shares held
directly or indirectly by Deposit Guaranty other than in a fiduciary capacity
and Dissenting Shares, as hereinafter defined) will be converted into and
exchangeable for a number of shares of common stock, no par value, of Deposit
Guaranty Common Stock determined in accordance with a formula. Under the
formula, if the Average Market Price of Deposit Guaranty Common Stock is
greater than $28.50 per share, but less than $30.50 per share, each share of
CNB Common Stock will be exchanged for the number of shares of Deposit Guaranty
Common Stock determined by dividing $42,500,000 by the Average Market Price,
and then dividing the resulting quotient by the total number of shares of CNB
Common Stock outstanding immediately before the effective time of the Merger.
If the Average Market Price is greater than or equal to $30.50 per share, the
exchange ratio instead will equal 1,393,442 divided by the total number of
shares of CNB Common Stock outstanding. If the Average Market Price is less
than or equal to $28.50 per share, the exchange ratio will equal 1,491,228
divided by the total number of shares of CNB Common Stock outstanding. See
"The Merger."
This Proxy Statement/Prospectus constitutes a prospectus of Deposit
Guaranty with respect to the shares of Deposit Guaranty Common Stock to be
issued in connection with the Merger. The information in this Proxy
Statement/Prospectus concerning Deposit Guaranty and its subsidiaries and CNB
and its subsidiary has been furnished by each of such entities, respectively.
The principal executive office of Deposit Guaranty is located at 210
East Capitol Street, Jackson, Mississippi 39201, and its telephone number is
(601) 354-8497. The principal executive office of CNB is located at 201 NW
Railroad Ave., Hammond, Louisiana 70401-3249, telephone number (504) 542-2265.
This Proxy Statement/Prospectus is first being mailed to shareholders of
CNB on or about April 14, 1995.
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors of CNB has fixed the close of business on April
12, 1995 as the Record Date for determining holders of outstanding shares of
CNB Common Stock entitled to notice of and to vote at the Meeting. Only
holders of CNB Common Stock of record on the books of CNB at the close of
business on the Record Date are entitled to vote at the Meeting or at any
adjournment or postponement thereof. As of the Record Date, there were 361,684
shares of CNB Common Stock issued and outstanding, each of which is entitled to
one vote. Shares of CNB Common Stock represented by properly executed proxies
will be voted in accordance with the instructions indicated on the proxies or,
if no instructions are indicated, will be voted FOR the proposal to approve the
Merger Agreement and, in the discretion of the proxy holders, as to any other
matter which may properly come before the Meeting or any adjournment or
postponement thereof. A shareholder who has given a proxy may revoke it at any
time before it is voted by filing with the Secretary of CNB a notice in writing
revoking it or a duly executed proxy bearing a later date.
Under the CNB Articles, approval of the Merger Agreement requires the
affirmative vote at the Meeting of the holders of two-thirds of the total
voting power of the CNB Common Stock. Executive officers, directors, their
affiliates and affiliates of CNB are entitled to vote approximately 141,079
shares of CNB Common Stock, representing approximately 39.06% of the
outstanding shares. The obligations of the parties to the Merger Agreement are
subject to the condition that such affirmative vote shall have been obtained.
See "The Merger -- Conditions."
8
<PAGE> 20
CNB will bear the costs of soliciting proxies from its shareholders. In
addition to the use of the mail, proxies may be solicited by the directors,
officers and employees of CNB in person, or by telephone or telegram. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements will also be made with custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of CNB Common Stock held of record by such persons, and CNB may
reimburse such custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
EMPLOYEE STOCK OWNERSHIP PLAN
Each employee of Citizens National who is a participant in its Employee
Stock Ownership Plan (the "ESOP") may direct the trustee of the ESOP (the
"Trustee") on the manner in which shares of CNB Common Stock held for the ESOP
(the "Plan Shares") that are allocated to such participant's account under the
ESOP shall be voted by the Trustee at the Meeting on the proposal to approve
the Merger Agreement. Each ESOP participant has received with this Proxy
Statement/Prospectus a letter from the Trustee providing instructions
concerning the voting of such participant's Plan Shares and a Voting
Instruction Form to be used by the participant to give voting instructions to
the Trustee. In order to direct the Trustee on the voting of Plan Shares, an
ESOP participant must complete, sign and date the Voting Instruction Form and
return it to the Trustee, so that it is received by the Trustee before the
Meeting. The Trustee will tabulate the instructions received prior to the
Meeting, and will determine the aggregate votes for and against approval of the
Merger Agreement. At the Meeting, the Trustee will vote the shares of CNB
Common Stock held by the Trustee on the Record Date for which voting
instructions have been received in the manner so determined. The Trustee will
not vote any Plan Shares for which the Trustee does not receive voting
instructions. Approximately 34,735 shares of CNB Common Stock are held by the
Trustee under the ESOP on behalf of its participants.
THE MERGER
GENERAL
The Merger Agreement provides that, subject to the satisfaction or
waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of
all related waiting periods and the approval by the shareholders of CNB, CNB
will be merged with and into CNC. See "The Merger -- Conditions" and "The
Merger -- Regulatory Approvals." As a result of the Merger, the separate
corporate existence of CNB will cease and the shareholders of CNB will become
shareholders of Deposit Guaranty. The date and time when the Merger will be
consummated is herein referred to as the "Effective Time." See "The Merger --
Effective Time."
The description of the Merger Agreement included in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and a copy of which is
attached hereto as Exhibit A.
EXCHANGE RATIO
Upon consummation of the Merger, CNB will be merged with and into CNC
and each share of CNB Common Stock issued and outstanding at the Effective Time
(other than shares owned by shareholders who, pursuant to the Louisiana BCL,
perfect any right to receive the fair value of such shares ("Dissenting
Shares")) will be converted into and exchangeable for shares of Deposit
Guaranty Common Stock (the "Exchange Ratio"). The Exchange Ratio shall be
determined as follows:
(a) In the event the Average Market Price of Deposit Guaranty Common
Stock is greater than or equal to $30.50 per share, the Exchange Ratio shall
equal 1,393,442 divided by the total number of shares of CNB Common Stock
issued and outstanding immediately prior to the Effective Time;
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(b) In the event the Average Market Price of Deposit Guaranty Common
Stock is less than or equal to $28.50 per share, the Exchange Ratio shall equal
1,491,228 divided by the total number of shares of CNB Common Stock issued and
outstanding immediately prior to the Effective Time; or
(c) In the event the Average Market Price of Deposit Guaranty Common
Stock is greater than $28.50 per share, but less than $30.50 per share, the
Exchange Ratio shall be determined by dividing 42,500,000 by the Average
Market Price, and then dividing the product by the total number of shares of
CNB Common Stock issued and outstanding immediately prior to the Effective
Time.
The "Average Market Price" of the Deposit Guaranty Common Stock shall be
the average of the closing per share trading prices of Deposit Guaranty Common
Stock (adjusted for any stock split or similar transaction) on the twenty (20)
trading days preceding the trading day immediately prior to the Effective Time,
as reported in the Wall Street Journal's National Market Issues Transactions
listing (corrected for typographical errors).
The operation of the Exchange Ratio is illustrated by the table below,
which shows the effect that various Average Closing Prices would have on the
Exchange Ratio, the total number of shares of Deposit Guaranty Common Stock
issuable in the Merger, and the aggregate value of such shares based on the
Average Closing Price. The table assumes that immediately before the effective
time of the Merger, a total of 364,589 shares outstanding of CNB Common Stock,
including 2,905 shares issuable upon the exercise of employee stock options
before the Merger takes effect.
<TABLE>
<CAPTION>
AVERAGE CLOSING TOTAL NUMBER OF
PRICE OF DEPOSIT SHARES OF DEPOSIT AVERAGE CLOSING PRICE
GUARANTY GUARANTY COMMON TIMESTOTAL NUMBER OF
COMMON STOCK EXCHANGE RATIO STOCK ISSUABLE SHARES ISSUABLE
------------ -------------- -------------- ---------------
<S> <C> <C> <C>
$25.50 4.090 1,491,228 $38,026,000
$26.50 4.090 1,491,228 39,517,000
$27.50 4.090 1,491,228 41,008,800
$28.50 4.090 1,491,228 42,500,000
$29.50 3.952 1,440,678 42,500,000
$30.50 3.822 1,393,442 42,500,000
$31.50 3.822 1,393,442 43,893,400
$32.50 3.822 1,393,442 45,286,900
$33.50 3.822 1,393,442 46,680,300
</TABLE>
This table is presented for illustration purposes only and no inference is
intended or may be drawn concerning the actual Average Closing Price which may
occur or the resulting Exchange Ratio. Moreover, CNB shareholders should be
aware that the actual market value of a share of Deposit Guaranty Common Stock
at the effective time of the Merger and at the time certificates for those
shares are delivered to holders of CNB Common Stock may be more or less than
the Average Closing Price used to determine the Exchange Ratio. Also, the
price at which the Deposit Guaranty Common Stock is trading at or before the
time of the Meeting at which shareholders of CNB will vote on whether to
approve the Merger may be higher or lower than the Average Market Price used to
determine the Exchange Ratio, or the market value of Deposit Guaranty Common
Stock at the effective time of the Merger or the time certificates representing
such shares are delivered to holders of CNB Common Stock. CNB shareholders are
urged to obtain information on the trading price of Deposit Guaranty Common
Stock that is more recent than that provided in this Proxy
Statement/Prospectus.
In the event that Deposit Guaranty should split or combine Deposit
Guaranty Common Stock, or pay a dividend or other distribution in Deposit
Guaranty Common Stock, the Exchange Ratio will be appropriately adjusted.
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<PAGE> 22
The Exchange Ratio was determined by a process of arm's length
negotiations involving the managements of CNB and Deposit Guaranty and their
respective financial advisors. As explained above, pursuant to the Merger,
Deposit Guaranty will be required to issue to CNB shareholders between
1,393,442 and 1,491,228 shares of Deposit Guaranty Common Stock, which will
constitute approximately 7.8% to 8.4% of the shares of Deposit Guaranty Common
Stock outstanding immediately after the Effective Time. This calculation does
not make any adjustment for fractional shares or Dissenting Shares and is based
upon the number of shares of CNB Common Stock and Deposit Guaranty Common Stock
outstanding on the Record Date.
No fractional shares of Deposit Guaranty Common Stock will be issued in
the Merger. Any shareholder otherwise entitled to receive a fractional share
of Deposit Guaranty Common Stock will be paid a cash amount in lieu of any such
fractional share. See "The Merger -- No Fractional Shares."
BACKGROUND OF MERGER
For many years, the CNB Board has annually held a strategic planning
conference to review matters of importance to the growth and success of CNB,
including capital needs, organizational structure, product development and ways
to enhance shareholder value. At the CNB Board's strategic conference held in
November 1993, the CNB Board discussed various strategies available to maximize
shareholder value, including remaining independent without making acquisitions,
acquiring other banks or being acquired by a larger financial institution. The
CNB Board invited Sheshunoff to make a presentation at that strategic planning
conference concerning these alternative strategies and concerning pending or
recently completed acquisitions of community banks and bank holding companies
in Louisiana and other states. Following this conference, the CNB Board
continued to monitor mergers and acquisitions of banks and bank holding
companies in Louisiana. In June 1994, the CNB Board decided to attempt to
assess the level of interest that larger financial institutions might have in
acquiring CNB in order to be able to evaluate whether such a transaction would
be in the best interest of CNB's shareholders. In making this decision, the
CNB Board was influenced by a number of factors, including the premiums being
paid for other community banks in Louisiana, the liquidity such a transaction
might afford the shareholders of CNB, and the possible negative effects on CNB
of increasing competition from larger regional institutions that are expanding
rapidly through acquisitions into geographical areas previously served
primarily by community banks, like CNB.
CNB retained Sheshunoff to act as its financial advisor to assist CNB in
assessing the level of interest of other financial institutions in acquiring
CNB and to provide investment banking advice in connection with any transaction
that might result. CNB selected Sheshunoff as its financial advisor on the
basis of Sheshunoff's experience and expertise in providing investment banking
services to financial institutions and its reputation in the banking and
investment communities. Sheshunoff also had previously provided professional
services and products to CNB on a regular basis and was familiar with CNB. (For
a fuller description of CNB's reasons for selecting Sheshunoff to act as its
financial advisor, see "The Merger--Fairness Opinion of CNB's Financial
Advisor" and Exhibit B).
During August 1994, Sheshunoff circulated financial and other
information to six (6) financial institutions that had expressed an interest in
receiving such information. The interested parties were advised that CNB had
not made a decision to sell, but was interested in determining the level of
interest of such parties in acquiring CNB. All six (6) parties subsequently
submitted non-binding, preliminary indications of interest, including the value
such parties would be willing, subject to further due diligence, to pay CNB's
shareholders in a merger or similar transaction. At a meeting held on
September 1, 1994, the CNB Board reviewed all six (6) indications of interest
to determine which, if any, of the interested parties would be permitted to
perform on-site due diligence reviews at CNB and Citizens National. At the
meeting, Sheshunoff provided the CNB Board with a detailed analysis of each
indication of interest and its assessment of the adequacy of each proposal. On
the basis of the presentation by Sheshunoff and other factors, the CNB Board
determined to permit five (5) of the interested parties to perform on-site due
diligence. These due diligence reviews occurred during September and October
1994. While these reviews were taking place Sheshunoff, at the request of the
CNB Board, invited each of the interested parties to submit by October 28,
1994, a final proposal relating to a merger or similar transaction with CNB. A
draft form of agreement and plan of merger (the "Draft Agreement") also was
circulated to each interested party for its review and comment.
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<PAGE> 23
By October 28, 1994, four (4) of the interested parties submitted
proposals to acquire CNB, accompanied by comments or proposed changes to the
Draft Agreement. All four (4) interested parties delivered proposals
contemplating a merger between the interested party and CNB in which the
shareholders of CNB would receive stock of the acquiring financial institution
in a tax-free transaction, and one (1) of these four (4) also presented an
alternative all-cash proposal. The proposal of one (1) of the four (4)
interested parties ("Proposal No. 1") contemplated that shareholders of CNB
would receive an amount of stock of the acquiring financial institution valued
at $46,249,000, with the number of shares to be received dependent on the
market price of the acquiring financial institution's stock determined over a
stated period shortly before the effective date of the merger; provided that
the acquiring financial institution would not be obligated to deliver more than
a fixed maximum number of shares. A second interested party submitted a
proposal ("Proposal No. 2") in which shareholders of CNB would receive stock
valued at $43,875,000, again with the number of shares to be received dependent
on the market price of the acquiring financial institution's stock determined
over a stated period shortly before the effective date of the merger, and (like
Proposal No. 1) subject to the limitation that the acquiring financial
institution would not be obligated to deliver more than a fixed maximum number
of shares. Proposal No. 2, however, also provided a fixed minimum number of
shares that CNB's shareholders would receive in the merger. A third proposal,
which was made by Deposit Guaranty, initially provided for a transaction in
which shareholders of CNB would receive 1,440,000 shares of Deposit Guaranty
Common Stock, at a total value as of October 31, 1994, of $42,120,000, based on
the closing price of the Deposit Guaranty Common Stock on that date of $29.25.
The fourth interested party submitted alternative proposals to acquire the
outstanding shares of CNB for shares of stock valued at $35,015,955, or for
$41,777,055 in cash.
At a meeting held on November 3, 1994, the CNB Board reviewed each of
the four (4) proposals. Sheshunoff made a detailed presentation to the CNB
Board, evaluating each proposal individually and in relation to the other
proposals. Sheshunoff's presentation included, among other information,
financial projections on CNB and each of the four (4) institutions, detailed
pro forma analyses of the effect of each proposed transaction, an analysis of
recent bank acquisitions by each institution, and a comparison of the proposals
to other bank merger and acquisition transactions that had occurred in
Louisiana since January 1, 1994. Based on Sheshunoff's analyses and
recommendations and other considerations, the CNB Board directed Sheshunoff and
CNB's legal counsel to address with the financial institution that had
submitted Proposal No. 1 ("Financial Institution No. 1") certain issues raised
in Proposal No. 1 and report back to the CNB Board on Monday, November 7. The
issues to be addressed included price protection, liquidity, matters relating
to dissenters' rights, closing issues, ambiguities with respect to employee
benefits and the honoring of existing employment agreements between CNB and its
four (4) executive officers, Messrs. Livingston, Foster, Maurin, and Gautier
(the "Employment Agreements"), and various other business and technical points.
By the time of the November 7 meeting of the CNB Board, a number of these
issues remained outstanding, including the status of the Employment Agreements.
The Employment Agreements were long-standing agreements, which CNB
initially had entered into in 1985 with the four (4) executive officers and
which CNB and the executive officers subsequently had renewed and amended from
time to time. Each Employment Agreement provides, among other things, for the
executive officer to receive, under certain circumstances, severance benefits
if his employment with CNB or Citizens National is terminated either (i) by CNB
or Citizens National without "Cause" (as defined in the Employment Agreements)
or (ii) by the executive for "Good Reason" (as defined in the Employment
Agreements), following a change in control of CNB or Citizens National. The
severance benefits would be payable to the executive officer if his employment
were terminated within a specified period following a merger or other
acquisition of CNB or Citizens National. Each executive officer's severance
benefits include the right to receive a payment equal to three (3) times his
average annual salary over the five (5) years preceding the date his employment
is terminated, plus any damages to which he might have a claim. He also would
be entitled to receive for a period of three (3) years after the termination of
his employment certain other benefits, including benefits under benefit plans
and programs in which he was entitled to participate before termination. (For
a discussion of the severance benefits provided under these Employment
Agreements, see "The Merger--Interest of Certain Persons in the Merger.")
The CNB Board met again on November 14, 1994, to review the status of
negotiations. At the time of that meeting, several issues continued to be
unresolved between CNB and Financial Institution No. 1. These issues included
the position of Financial Institution No. 1 that the Draft Agreement should be
modified to require that the existing Employment Agreements be terminated prior
to the merger of CNB into Financial Institution No. 1 and that the four (4)
executive officers enter into employment agreements with Financial Institution
No. 1 that the executive officers viewed as materially and adversely different
from their existing Employment Agreements. The CNB Board considered the
existing Employment
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<PAGE> 24
Agreements with the executive officers to be binding obligations of CNB that
must be honored in the absence of the willingness of the affected executive
officers to abandon the agreements. The executive officers were not willing to
abandon their existing Employment Agreements. In light of the apparent impasse
that had been reached in negotiations, the CNB Board requested at the November
14th meeting that Sheshunoff review the relative merits of the Deposit Guaranty
proposal and Proposal No. 2. Sheshunoff then provided an extensive
presentation on the relative merits of the two (2) institutions and their
respective proposals. The CNB Board was scheduled to meet again on November
17, 1994, and directed management in the interim to determine whether Deposit
Guaranty would provide a revised proposal on a basis comparable to the approach
taken by Proposal No. 2, and whether it would clarify certain other business
points.
At the meeting of the CNB Board held on November 17, 1994, the CNB Board
was advised that Deposit Guaranty had modified its proposal to provide that
shareholders of CNB would receive in the merger shares of Deposit Guaranty
Common Stock valued at $42,500,000; provided that the maximum number of shares
issuable in the Merger would be 1,491,228, and the minimum number of shares
issuable in the Merger would be 1,393,442. A representative of Sheshunoff
participated by telephone in the November 17, 1994, meeting of the CNB Board
and advised the CNB Board that the selection of Deposit Guaranty's proposal
over Proposal No. 2 could be supported from a financial point of view due to
the greater earnings, equity and dividend appreciation for shareholders of CNB
with Deposit Guaranty's proposal. Sheshunoff further advised that the current
market value of the Deposit Guaranty Common Stock appeared to be more
conservative with respect to book value and earnings in comparison to the
then-current market value of the stock of the party who submitted Proposal No.
2, (which, Sheshunoff advised the CNB Board, may provide greater long-term
potential) and Deposit Guaranty was paying more in dividends when compared to
the current dividend payout of the party who submitted Proposal No. 2. These
conclusions of Sheshunoff were based on the assumption that CNB's shareholders
would not liquidate their entire holdings of Deposit Guaranty Common Stock
immediately upon consummation of the proposed Merger. Based on the analyses
and recommendations of Sheshunoff and various other factors, the CNB Board
directed CNB's legal counsel to negotiate with Deposit Guaranty with respect to
changes proposed by Deposit Guaranty to the Draft Agreement.
On November 19, 1994, a draft of a proposed definitive agreement was
circulated to the CNB Board. The draft was reviewed by counsel for CNB with
the CNB Board at a meeting held on November 23, 1994. A further meeting of the
CNB Board was then called for December 2, 1994, to consider whether to
authorize CNB to enter into the definitive agreement. In the interim, the CNB
Board directed management and counsel for CNB to continue to negotiate certain
unresolved issues. Also, the CNB Board was advised that Sheshunoff would
perform due diligence at Deposit Guaranty and CNB before the December 2, 1994,
board meeting to be in a position to deliver its opinion as to the fairness to
CNB's shareholders, from a financial point of view, of the proposed transaction
with Deposit Guaranty.
At the meeting held on December 2, 1994, representatives of Sheshunoff
made a detailed presentation concerning the proposed transaction with Deposit
Guaranty and Sheshunoff issued its opinion (described below) to the effect that
the Merger was fair to the shareholders of CNB, from a financial point of view.
Sheshunoff assumed for purposes of its opinion that the value of the proposed
Merger to CNB's shareholders was $39,144,735, based on the closing price of the
Deposit Guaranty Common Stock on November 30, 1994, of $26.25 per share times
the total number of shares of Deposit Guaranty Common Stock (1,491,228) that
holders of CNB Common Stock would receive in the Merger if the price of the
Deposit Guaranty Common Stock remained unchanged at $26.25. Based on the
presentation by Sheshunoff and various other factors, the CNB Board authorized
entering into the Merger Agreement with Deposit Guaranty, and the parties
executed the Merger Agreement that same day.
RECOMMENDATION OF THE CNB AND DEPOSIT GUARANTY BOARDS OF DIRECTORS; REASONS FOR
THE MERGER
CNB'S REASONS FOR THE MERGER. In authorizing the execution of the
Merger Agreement, the CNB Board considered a number of factors. Without
assigning any relative or specific weights to the factors, the CNB Board of
Directors considered the following material factors:
(a) The information presented to the CNB Board concerning the business,
operations, earnings, asset quality, financial condition and dividend
payouts, of both CNB and Deposit Guaranty;
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<PAGE> 25
(b) The financial terms of the Merger, including the relationship of
the value of the Deposit Guaranty Common Stock issuable in the Merger to
the market value, book value, and earnings per share of CNB Common
Stock, the partial protection against a decline in the market value of
Deposit Guaranty Common Stock, and the partial participation in any
appreciation in value of Deposit Guaranty Common Stock;
(c) The nonfinancial terms of the Merger, including the treatment of
the Merger as a tax-free exchange of CNB Common Stock for Deposit
Guaranty Common Stock for federal and state income tax purposes;
(d) The likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay;
(e) The report of CNB's financial advisor reviewing, among other
information, premiums paid in other recent merger transactions; and
(f) The opinion rendered by CNB's financial advisor to the effect that
the terms of the Merger, as provided in the Merger Agreement, are fair,
from a financial point of view, to the holders of CNB Common Stock.
The terms of the Merger were the result of arms-length negotiations
between representatives of CNB and representatives of Deposit Guaranty. Based
upon its consideration of the foregoing factors, the Board of Directors of CNB
unanimously approved the Merger as being in the best interest of CNB and its
shareholders.
CNB'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CNB SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
DEPOSIT GUARANTY'S REASONS FOR THE MERGER. The Deposit Guaranty Board
of Directors believes that by expanding Deposit Guaranty's customer base into
the southern portion of Louisiana, the Merger should enhance Deposit Guaranty's
earnings capacity by enabling it to deliver products and provide services to
that enlarged customer base, and by permitting cost savings through
consolidation of operations. In addition, the Deposit Guaranty Board of
Directors believes that the combination of Deposit Guaranty and CNB will allow
Deposit Guaranty and CNB to increase overall efficiency and take advantage of
economies of scale in several areas. In evaluating the Merger, the Deposit
Guaranty Board of Directors considered a variety of factors, including the
respective results of operations, financial condition and prospects of Deposit
Guaranty and CNB; the compatibility and complimentary nature of the respective
businesses and managerial philosophies of Deposit Guaranty and CNB; and the
relative prices paid in recent acquisitions of financial institutions.
FAIRNESS OPINION OF CNB'S FINANCIAL ADVISOR
GENERAL. Pursuant to an engagement letter dated July 15, 1994, and
accepted by CNB on July 25, 1994, CNB retained Sheshunoff to act as CNB's
financial advisor in connection with the Merger and related transactions,
including providing certain analyses of the financial terms of the Merger.
Sheshunoff also reviewed the negotiated terms of the Merger Agreement; however,
Sheshunoff did not review corporate governance matters. Sheshunoff has been in
the business of consulting for the banking industry for twenty (20) years,
including the appraisal and valuation of banking institutions and their
securities in connection with mergers and acquisitions and equity offerings.
Sheshunoff has a long history of familiarity and involvement with the banking
industry nationwide, as well as familiarity with the Louisiana market and
recent transactions in this market. Except as described herein, Sheshunoff is
not affiliated in any way with CNB or Deposit Guaranty or their respective
affiliates.
OPINIONS. Sheshunoff delivered a written opinion to the CNB Board dated
December 2, 1994, and a written opinion dated within five (5) days of the date
of this Proxy Statement/Prospectus (the "Proxy Statement Opinion"), in each
case to the effect that, based upon the procedures described in its opinions
and such other matters as Sheshunoff considered relevant, as of the date of
such opinions, the terms of the Merger as provided in the Merger Agreement are
fair, from a financial point of view, to CNB and its shareholders. The full
text of Sheshunoff's Proxy Statement Opinion (which is substantially identical
to the opinion dated December 2, 1994) is attached hereto as Exhibit B and is
incorporated herein by reference. The description of the opinions set forth
herein is qualified in its entirety by reference to Exhibit B. CNB
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<PAGE> 26
shareholders are urged to read the Proxy Statement Opinion in its entirety for
a description of the procedures followed, assumptions made, matters considered
and limitations on the reviews undertaken by Sheshunoff. Sheshunoff's opinions
do not constitute a recommendation to any CNB shareholder as to how such
shareholder should vote at the Meeting.
MATERIALS REVIEWED AND ANALYSES. In rendering its written opinions,
Sheshunoff reviewed certain publicly available information concerning CNB and
Deposit Guaranty, including each party's audited financial statements and
annual reports. Sheshunoff considered many factors in making its evaluation.
In arriving at its opinion dated December 2, 1994, regarding the fairness of
the transaction, Sheshunoff reviewed: (a) the terms of the Merger Agreement
between Deposit Guaranty and CNB; (b) the most recent external auditor's
reports to the Board of Directors of each organization; (c) the September 30,
1994 Report of Condition and Income for each organization and the audited
December 31, 1993 Balance Sheet and Income Statement for each organization; (d)
the Rate Sensitivity Analysis reports for each organization; (e) each
organization's listing of marketable securities showing rate, maturity and
market value as compared to book value; (f) each organization's internal loan
classification list; (g) a listing of other real estate owned for each
organization; (h) the budget and long range operating plan of each
organization; (i) a listing of unfunded letters of credit and any other
off-balance sheet risks for each organization; (j) the Minutes of the Board of
Directors meetings for each organization; (k) the most recent Board report for
each organization; (l) the listing and description of significant real
properties for each organization; (m) the directors and officers liability and
blanket bond insurance policies for each organization; and (n) market
conditions and current trading levels of outstanding equity securities of both
organizations. In connection with rendering the Proxy Statement Opinion,
Sheshunoff reviewed and analyzed the foregoing information and certain
additional information, including the Registration Statement on Form S-4 of
Deposit Guaranty of which this Proxy Statement/Prospectus is a part, and the
audited December 31, 1994 Balance Sheet and Income Statement of CNB.
Sheshunoff conducted an on-site review of each organization's historical
performance, current financial condition and performed a market area analysis.
Sheshunoff's opinions were necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the respective
dates of its opinions.
In addition, Sheshunoff discussed with the management of CNB and Deposit
Guaranty the relative operating performance and future prospects of each
organization, primarily with respect to the current level of their earnings and
future expected operating results, giving weight to Sheshunoff's assessment of
the future of the banking industry and each organization's performance within
the industry. Sheshunoff compared the results of operation of CNB with those
of regional bank holding companies with total assets of $150 to $299 million.
Sheshunoff compared the results of operation of Deposit Guaranty with those of
regional bank holding companies with total assets of $1 billion and over.
In connection with rendering its opinions and preparing its various
written and oral reports to the CNB Board, Sheshunoff employed a variety of
evaluation techniques. The summary set forth below was provided by Sheshunoff,
but does not purport to describe all of the evaluation techniques employed or
to be a complete description of the particular techniques that are described.
In Sheshunoff's view, many variables affect the value of banks, not the
least of which is the uncertainty of future events, so that the relative
importance of the valuation variables differs in different situations, with the
result that appraisal theorists argue about which variables are the most
appropriate ones on which to focus. According to Sheshunoff, most appraisers
agree that the primary financial variables to be considered are earnings,
equity, dividends or dividend-paying capacity, asset quality and cash flow. In
addition, in most instances, if not all, value is further tempered by
non-financial factors such as marketability, voting rights or block size,
history of past sales of the banking company's stock, nature and relationship
of the other shareholders in the bank, and special ownership or management
considerations.
Sheshunoff analyzed the total purchase price on a cash equivalent fair
market value basis using what Sheshunoff regards as the standard evaluation
techniques (as discussed below) including comparable sales multiples, net
present value, cash flow analysis, return on investment and the price equity
index based on certain assumptions of projected growth, earnings and dividends
and a range of discount rates from ten percent (10%) to fifteen percent (15%).
Net asset value is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes liquidation
on the date of appraisal with the recognition of securities gains or losses,
real estate appreciation or depreciation, adjustments to the loan loss reserve,
discounts to the loan portfolio and changes in the net value
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<PAGE> 27
of other assets. As such, it is not the best approach to use when valuing a
going concern, because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
prices and yields (which is often of limited accuracy because readily available
data is often lacking), it still results in a liquidation value for the
concern. Furthermore, since this method does not take into account the values
attributable to the going concern such as the interrelationship among the
company's assets and liabilities, customer relations, market presence, image
and reputation, and staff expertise and depth, little weight is given by
Sheshunoff to the net asset value method of valuation.
Market value is generally defined as the price, established on an
"arms-length" basis at which knowledgeable, unrelated buyers and sellers would
agree. The market value is frequently used to determine the price of a
minority block of stock when both the quantity and the quality of the
"comparable" data are deemed sufficient. However, the relative thinness of the
specific market for the stock of the banking company being appraised may result
in the need to review alternative markets for comparative pricing purposes.
The "hypothetical" market value for a small bank with a thin market for its
stock is normally determined by comparison to the average price to earnings,
price to equity and dividend yield of local or regional publicly-traded bank
issues, adjusting for significant difference in financial performance criteria
and for any lack of marketability or liquidity. The market value in connection
with the evaluation of control of a bank is determined by the previous sales of
banks in the state or region. In valuing a business enterprise, when
sufficient comparable trade data is available, the market value deserves
greater weighting than the net asset value and similar emphasis as the
investment value as discussed below.
Sheshunoff maintains substantial files concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
Louisiana banking organizations from January 1, 1994 through November 30, 1994,
and banking organizations in the Southwest region of the United States in the
first half of 1994 and over the past five (5) years. The database provides
comparable pricing and financial performance data for banking organizations
sold or acquired. Organized by different peer groups, the data present
averages of financial performance and purchase price levels, thereby
facilitating a valid comparative purchase price analysis. In analyzing the
transaction value of CNB, Sheshunoff has considered the market approach and has
evaluated price to equity and price to earnings multiples of Louisiana banking
organizations.
Sheshunoff calculated an "Adjusted Book Value" of $136.69 per share of
CNB Common Stock based on CNB's October 31, 1994 equity (adjusted for the
exercise of 2,905 stock options at an exercise price of approximately $109,000)
and the average price to equity multiple for Louisiana banking organizations
sold from January 1, 1994 through November 30, 1994. Sheshunoff calculated an
"Adjusted Earnings Value" of $103.38 per share of CNB Common Stock based on
CNB's estimated 1994 earnings and the average price to earnings multiple for
Louisiana banking organizations sold from January 1, 1994 through November 30,
1994. The financial performance characteristics of the state banking
organizations vary, sometimes substantially, from those of CNB. When the
variance is significant for relevant performance factors, adjustments to the
price multiples are appropriate when comparing them to the transaction value.
The investment value is sometimes referred to as the income value or
earnings value. One investment value method frequently used estimates the
present value of an enterprise's future earnings or cash flow. Another popular
investment value method is to determine the level of current annual benefits
(earnings, cash flow, dividends, etc.), and then capitalize one or more of the
benefit types using an appropriate capitalization rate such as an earnings or
dividend yield. Yet another method of calculating investment value is a cash
flow analysis of the ability of a banking company to service acquisition debt
obligations (at a certain price level) while providing sufficient earnings for
reasonable dividends and capital adequacy requirements. In connection with the
cash flow analysis, the return on investment that would accrue to a prospective
buyer at the transaction value is calculated.
The investment or earnings value of any banking organization's stock is
an estimate of the present value of the future benefits, usually earnings, cash
flow or dividends, which will accrue to the stock. An earnings value is
calculated using an annual future earnings stream over a period of time of not
less than ten (10) years and the residual value of the earnings stream after
ten (10) years, assuming no earnings growth, and an appropriate capitalization
rate (the net present value discount rate). Sheshunoff's computations were
based on an analysis of the banking industry, the economic and competitive
situations in CNB's market area, and CNB's and its subsidiary bank's current
financial condition and historical levels of growth and earnings. Using a net
present value discount rate of ten percent (10%), an acceptable discount rate
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considering the risk-return relationship most investors would demand for an
investment of this type as of the valuation date, the "Net Present Value of
Future Earnings," equaled $87.14 per share.
The cash flow method assumes the formation of a bank holding company
with maximum leverage according to Federal Reserve System guidelines and
analyzes the ability of the bank to retire holding company acquisition debt
within a reasonable period of time while maintaining adequate capital. Using
this method, Sheshunoff arrived at a value of $95.00 per share.
Return on investment analysis (ROI) also assumes the formation of a bank
holding company using maximum regulatory leverage and analyzes the ten (10)
year ROI of a 33.33% equity investment at the transaction value of $107.40 per
share for CNB compared to a liquidation book value in the year 2004, and a sale
at ten (10) times projected earnings in the year 2004. This ROI analysis
provides a benchmark for assessing the validity of the fair market value of a
majority block of stock. The ROI analysis is one approach to valuing a going
concern, and is directly impacted by the earnings stream, dividend payout
levels and levels of debt, if any. Other financial and nonfinancial factors
indirectly affect the ROI; however, these factors more directly influence the
level of ROI an investor would demand from an investment in a majority block of
stock of a specific bank at a certain point in time. The ROI assuming
liquidation at book value in 2004 is 2.27%, and the ROI assuming sale at ten
(10) times earnings in 2004 is 8.90%.
Furthermore, a price level indicator, the equity index, may be used to
confirm the validity of the transaction value. The equity index adjusts the
price to equity multiple in order to facilitate a truer price level comparison
with comparable banking organizations, regardless of the differing levels of
equity capital. The equity index is derived by multiplying the price to equity
multiple by the equity-to-assets ratio. In this instance, a transaction value
of $107.40 per share results in an equity index of 20.38. The price equity
index for banking organizations sold in Louisiana from January 1, 1994 through
November 30, 1994 equaled 20.01.
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to- transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net
present value analysis. In Sheshunoff's experience with majority block
community bank stock valuations, it has determined that a relationship does
exist between the net present value of an "average" community banking
organization and the transaction value of a majority block of the banking
organization's stock. The net present value-to-transaction value ratio equals
81.14% for CNB, which falls within the expected range. There are many other
factors to consider, when valuing a going concern, which do not directly impact
the earnings stream and the net present value but which do exert a degree of
influence over the fair market value of a going concern. These factors
include, but are not limited to, the general condition of the industry, the
economic and competitive situations in the market area and the expertise of the
management of the organization being valued.
When the net asset value, market value and investment value methods are
subjectively weighed, using the appraiser's experience and judgment, it is
Sheshunoff's opinion that the proposed transaction is fair.
Sheshunoff considered this transaction as a merger rather than a
purchase. Consideration was given to the levels of book value and earnings per
share appreciation or dilution percentages between the merger partners over the
next three (3) to five (5) years after consummation. To justify the fairness
of the transaction for CNB shareholders, it is important to project, based upon
realistic projections of future performance, a positive impact for CNB
shareholders. Sheshunoff projected that CNB shareholders will have a higher
level of earnings per share, equity per share and dividends per share after the
Merger with Deposit Guaranty than they would on a stand-alone basis.
Neither CNB nor Deposit Guaranty imposed any limitations upon the scope
of the investigation to be performed by Sheshunoff in formulating its opinions.
In rendering its opinions, Sheshunoff did not independently verify the asset
quality and financial condition of CNB or Deposit Guaranty, but instead relied
upon the data provided by or on behalf of CNB and Deposit Guaranty to be true
and accurate in all material respects.
CERTAIN LIMITATIONS. In arriving at its fairness opinions, Sheshunoff
considered the analyses outlined above and other factors and analyses.
Sheshunoff did not rely on any single analysis but based its conclusions on a
combination of factors derived from all of the analytical procedures employed.
The preparation of a fairness opinion is a complex process
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<PAGE> 29
and is not necessarily susceptible to partial analysis or summary description.
The summary set forth above does not purport to be a complete description of
Sheshunoff's analyses. Sheshunoff believes that the summary set forth above
and Sheshunoff's analyses must be considered as a whole and that selecting
portions of its analyses, without considering all of its analyses, would create
an incomplete view of the process underlying Sheshunoff's opinions.
The analyses performed by Sheshunoff are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the value of businesses do not purport to be appraisals or necessarily reflect
the prices at which businesses actually may be sold. Furthermore, Sheshunoff
may have given various analyses more or less weight than other analyses and may
have deemed various assumptions more or less probable than other assumptions,
so that the ranges of valuations resulting from any particular analysis
described above should not be taken to be Sheshunoff's view of the actual value
of either CNB or Deposit Guaranty. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis. In performing its
analyses, Sheshunoff made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of CNB or Deposit Guaranty.
COMPENSATION. For its services as independent financial analyst in
connection with the Merger, including the rendering of its opinions referred to
above, CNB has paid or will pay Sheshunoff aggregate fees of approximately
$71,000. CNB also agreed to reimburse Sheshunoff for reasonable out-of-pocket
expenses. The fees received by Sheshunoff in connection with its services to
CNB were not dependent or contingent upon the occurrence or lack thereof of any
transaction.
Prior to being retained for this assignment, Sheshunoff has provided
professional services and products to both CNB and Deposit Guaranty.
Sheshunoff has advised CNB that the revenues derived from such services and
products are insignificant when compared to the firm's total gross revenues.
Neither Sheshunoff nor any of its officers or employees has any interest in the
Common Stock of CNB or Deposit Guaranty.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
INDEMNIFICATION. The Merger Agreement provides that Deposit Guaranty
and CNC shall, and shall cause Citizens National and its successors and assigns
to, indemnify the present and former directors, officers, employees and agents
of CNB and Citizens National against all claims to which they, or any of them,
become subject, arising out of actions or omissions occurring at or prior to
the effective time of the Merger, including the transactions contemplated by
the Merger Agreement, to the full extent permitted by Louisiana law or by CNB's
Articles of Incorporation and Bylaws. Deposit Guaranty and CNC also will
reimburse each such indemnified party for legal or other expenses incurred in
connection with investigating or defending such claims. Deposit Guaranty and
CNC have agreed to use best efforts to maintain CNB's existing directors' and
officers' liability insurance policies (or a policy providing at least
comparable coverage) for a period of five (5) years after the effective time of
the Merger.
OWNERSHIP OF DEPOSIT GUARANTY STOCK. As of the Record Date, directors
and executive officers of CNB and their affiliates owned no shares of Deposit
Guaranty Common Stock.
EMPLOYEE BENEFITS. The Merger Agreement provides that, after the
effective time of the Merger, Deposit Guaranty will, subject to compliance with
applicable legal and regulatory requirements, provide coverage for all
employees of CNB and Citizens National under Deposit Guaranty's benefit plans
for which they are eligible or would be eligible if such employees were
employees of Deposit Guaranty. For purposes of participation and vesting (but
not accrual of benefits) under such employee benefit plans, the service of
employees of CNB and Citizens National before the Merger will be treated as
service with members of Deposit Guaranty's consolidated group participating in
such employee benefit plans. CNC or Deposit Guaranty also will honor, and
cause Citizens National and its successors and assigns to honor, all
employment, severance, consulting, and other compensation contracts maintained
by CNB before the Merger.
CHANGE OF CONTROL ARRANGEMENTS. CNB is a party to Amended and Restated
Employment Agreements with each of its four (4) executive officers, namely Phil
K. Livingston, Mayson H. Foster, John W. Gautier and Robert A. Maurin III (the
"Employment Agreements"). Each Employment Agreement has a current term of five
(5) years beginning on
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<PAGE> 30
December 12, 1993. Under each Employment Agreement, if the executive officer's
employment with CNB or Citizens National is terminated following a change in
control without "Cause" (as defined in the Employment Agreement) or by the
executive officer for "Good Reason" (also as defined in the Employment
Agreement), then the executive officer will be entitled to receive certain
severance payments and benefits. For purposes of the Employment Agreements,
"Cause" generally will exist only if the executive officer dies or is disabled
for a continuous period of 180 days, or if he commits or is charged with a
felony or any crime involving moral turpitude, or certain other criminal or
unethical activities. Each Employment Agreement defines "Good Reason" to
include generally a reduction in salary, a reduction in employment
responsibilities, a change of the executive officer's place of work to a
location more than seventy-five (75) miles from Hammond, Louisiana, the failure
to maintain employee plans or benefits, the failure of a successor to CNB or
Citizens National to assume the Employment Agreement, or the refusal to permit
the employee to engage in activities not directly related to the business of
CNB or Citizens National in which he engaged before the change in control.
The Merger will constitute a change in control for purposes of the
Employment Agreements. If an executive officer who is a party to an Employment
Agreement is discharged after the Merger without Cause, or if he terminates his
own employment for Good Reason, he will be entitled to receive, in addition and
without prejudice to any other rights he may have, including the right to bring
a claim for damages, the following severance benefits:
(i) An amount equal to three (3) times his average gross salary
during the five (5) years immediately preceding the
termination of employment; and
(ii) The continued benefit for three (3) years of all employee
benefit plans and programs in which he was entitled to
participate immediately before the termination of his
employment, provided such continued participation is possible
or, if such continued participation is not possible, then
other benefits substantially similar to those he otherwise
would have been entitled to receive under such plans and
programs.
Instead of receiving full payment of such severance benefits, the executive
officer may elect within three (3) days after his employment is terminated to
receive at the expense of CNB, for a period of up to ten (10) years following
the date his employment is terminated, medical and life insurance benefits
substantially similar to those provided to him on the date of termination. If
the executive officer makes this election, the present value of such medical
and life insurance benefits will be deducted from the amount to be paid to the
executive officer under items (i) and (ii) above.
Deposit Guaranty has agreed in the Merger Agreement to assume CNB's
obligations under these Employment Agreements.
REGISTRATION RIGHTS. In the Merger Agreement, Deposit Guaranty has
agreed to grant registration rights to certain shareholders of CNB and the
affiliates of such shareholders, all of whom hold either individually or
together with their respective affiliates 10,000 or more shares of CNB's Common
Stock. The shareholders being granted registration rights will have the right,
for a period of three (3) years after the effective date of the Merger, to
require Deposit Guaranty at its expense to file a registration statement under
the Securities Act of 1933 to register the shares of Deposit Guaranty Common
Stock that are received by such persons in the Merger or that are issued in
respect of such shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or reorganization. The purpose of the registration rights is to
facilitate, if necessary, sales of relatively large blocks of shares of Deposit
Guaranty Common Stock (in any event, not less than 30,000 such shares at any
one time) by allowing such shares to be sold in a registered offering through
an underwriter when it might be impracticable to sell that amount of shares in
an ordinary transaction through a broker or market maker.
The shareholders who will be granted registration rights are divided
into two (2) groups, Group 1 and Group 2, as follows:
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<TABLE>
<CAPTION>
Registration Rights Group No. 1 Registration Rights Group No. 2
------------------------------- -------------------------------
<S> <C>
Leon Ford, III Durham Pontiac, Inc.
Leon Ford, IV R. P. Durham Retirement Trust
Virginia F. Ford Mercedes B. Durham IRA
Leon Ford, III, Usufructuary, Leon Ford III Scott Durham
and Virginia Fortenberry Ford Trust No. 1, Scott Durham IRA
Naked Owner Brent Durham
Helen Mable Ford Trust No. 1 Rick Durham
Leon Ford III and Virginia F. Ford Amy Durham
Trust No. 2 Blake Durham
Leon Ford III and Virginia F. Ford Mercedes Danielle Durham
Trust No. 3 Sidney S. Rosenblum, Trustee
Helen F. Dufreche, custodian under the Sidney S. Rosenblum IRA
La. Transfer to Minors Act, for Hans Schneider
Christopher Ford Dufreche John Frederick Schneider
Helen Ford Dufreche Judy Schneider
Allen B. Pierson, Jr.
Juanita S. Pierson
Byard Edwards
Mrs. Byard Edwards
Ponchatoula Lumber Co.
</TABLE>
Members of Group 1 will have the right to demand only one (1) registration of
their shares, and members of Group 2 will have the right to demand up to two
(2) registrations of their shares. In addition, members of each Group will
have certain "piggy-back" registration rights that will permit them, for a
period of ten (10) years after the effective time of the Merger, subject to
certain conditions, to have their shares included in certain registered public
offerings undertaken by Deposit Guaranty.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal federal income tax
consequences of the Merger is based on provisions of the Internal Revenue Code
of 1986 (the "Code"), the regulations thereunder, judicial authority, and
administrative rulings and practice as of the date hereof. Deposit Guaranty
and CNB have received an opinion of counsel to Deposit Guaranty to the effect
that the Merger will be treated, for federal income tax purposes, as a tax-free
reorganization under Section 368(a) of the Code.
Any CNB shareholder who, pursuant to the Merger, exchanges all of the
CNB Common Stock that such holder owns solely for Deposit Guaranty Common Stock
will not recognize any gain or loss upon such exchange. The aggregate tax
basis of Deposit Guaranty Common Stock received by such a holder in exchange
for CNB Common Stock will equal such holder's tax basis in the CNB Common Stock
surrendered. If such shares of CNB Common Stock are held as capital assets at
the Effective Time, the holding period of the Deposit Guaranty Common Stock
received will include the holding period of the CNB Common Stock surrendered
therefor. CNB shareholders should consult their tax advisors as to the
determination of their tax basis and holding period in any one share of Deposit
Guaranty Common Stock, as several methods of determination may be available.
1. CASH IN LIEU OF FRACTIONAL SHARES
To avoid the expense and inconvenience to Deposit Guaranty of issuing
fractional shares, no fractional shares of Deposit Guaranty Common Stock will
be issued pursuant to the Merger. Any CNB shareholder who receives cash
pursuant to the Merger in lieu of a fractional share interest will be treated
as having received such fractional share pursuant to the Merger, and then as
having exchanged such fractional share for cash in a redemption by Deposit
Guaranty subject to Section 302(a) of the Code, provided that such deemed
redemption is not "substantially disproportionate" with respect to such CNB
shareholder or is "not essentially equivalent to a dividend." If the Deposit
Guaranty Common Stock represents a capital asset in the hands of the
shareholder, then the shareholder will generally recognize capital gain or loss
on such a deemed redemption of the fractional share in an amount determined by
the difference between the amount of cash received for such fractional share
and the shareholder's tax basis in the fractional share.
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2. DISSENTERS' SHARES
CNB shareholders who exercise appraisal rights will be treated as
having received the fair value of the CNB Common Stock, as determined in the
appraisal rights proceeding, in redemption of the CNB Common Stock subject to
the proceeding. Such deemed redemption will be subject to Section 302(a) of
the Code, if such deemed redemption is "substantially disproportionate" with
respect to the CNB shareholder who exercises appraisal rights or is "not
essentially equivalent to a dividend", with the result that a holder who
exercises appraisal rights will recognize gain or loss equal to the difference
between the amount realized and such holder's tax basis in the CNB Common Stock
subject to the proceeding. Any such gain or loss recognized on such redemption
will be treated as capital gain or loss if the CNB Common Stock with respect to
which appraisal rights were exercised were held as capital assets. Each CNB
shareholder who contemplates exercising appraisal rights should consult a tax
advisor as to the possibility that all or a portion of the payment received
pursuant to the appraisal proceeding will be treated as dividend income.
3. BACKUP WITHHOLDING
Unless an exemption applies under the applicable law and regulations,
the Exchange Agent will be required to withhold thirty-one percent (31%) of any
cash payments to which a stockholder or other payee is entitled pursuant to the
Merger unless the stockholder or other payee provides its taxpayer
identification number (social security number or employer identification
number) and certifies that such number is correct. Each stockholder and, if
applicable, each other payee should complete and sign the substitute Form W-9
included as part of the transmittal letter that accompanies the election form,
so as to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is established in a
manner satisfactory to Deposit Guaranty and the Exchange Agent.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH CNB SHAREHOLDER. CNB SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of the
shareholders of CNB and the Merger is approved by required regulatory
authorities and the other conditions to the Merger are satisfied or waived
(where permissible), the Merger will be consummated and become effective at the
time a short form merger agreement or certificate of merger (the "Certificate
of Merger") is filed with the Secretary of State of Louisiana, or as of such
later date in time to which Deposit Guaranty and CNB agree, which may be
specified in the short form merger agreement or the Certificate of Merger. It
is expected that the Effective Time will occur in mid-1995; however, there can
be no assurance that the conditions to the Merger will be satisfied or waived
so that the Merger can be consummated. See "The Merger -- Conditions" and "The
Merger -- Amendment and Termination."
EXCHANGE OF CNB CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent
will mail to each holder of record of certificates of CNB Common Stock (the
"Certificates"), a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Certificates which, immediately prior
to the Effective Time, represented outstanding shares of CNB Common Stock in
exchange for Certificates representing shares of Deposit Guaranty Common Stock
(the "Deposit Guaranty Certificates"). Shareholders of CNB are requested not
to surrender their CNB Certificates for exchange until such letter of
transmittal and instructions are received. Upon surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with a duly executed
letter of transmittal, the holder of such CNB Certificate shall be entitled to
receive in exchange therefor a Deposit Guaranty Certificate representing the
number of shares
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of Deposit Guaranty Common Stock to which such holder of CNB Common Stock shall
have become entitled pursuant to the Merger Agreement, and the CNB Certificate
so surrendered shall forthwith be cancelled. Lost CNB Certificates shall be
treated in accordance with the existing procedures of CNB.
No dividends or other distributions with respect to Deposit Guaranty
Common Stock and payable to the holders of record thereof after the Effective
Time shall be paid to the holder of any unsurrendered CNB Certificate until the
holder thereof shall surrender such CNB Certificate. Subject to the effect, if
any, of applicable law, after the subsequent surrender and exchange of any CNB
Certificate, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable in respect of shares of Deposit Guaranty Common
Stock represented by such CNB Certificate.
If any Deposit Guaranty Certificate representing shares of Deposit
Guaranty Common Stock is to be issued in a name other than that in which the
CNB Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance of the new Deposit Guaranty Certificate representing
Deposit Guaranty Common Stock that the CNB Certificate so surrendered shall be
properly endorsed (or accompanied by any appropriate instrument of transfer)
and otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a Deposit Guaranty Certificate
representing shares of Deposit Guaranty Common Stock in any name other than
that of the registered holder of the CNB Certificate surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
After the Effective Time, there will be no transfers on the stock
transfer books of CNB of the shares of CNB Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, CNB
Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be cancelled and exchanged for Deposit Guaranty
Certificates representing shares of Deposit Guaranty Common Stock pursuant to
the terms of the Merger Agreement.
NO FRACTIONAL SHARES
No Deposit Guaranty Certificates or scrip representing fractional
shares of Deposit Guaranty Common Stock will be issued upon the surrender for
exchange of CNB Certificates, no dividend or distribution with respect to
Deposit Guaranty Common Stock shall be payable on or with respect to any
fractional share of Deposit Guaranty Common Stock, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of Deposit Guaranty. In lieu of any such fractional share,
Deposit Guaranty shall pay to each former CNB shareholder who otherwise would
be entitled to receive a fractional share of Deposit Guaranty Common Stock an
amount in cash equal to such fraction times the Average Market Price.
CONDITIONS
The respective obligations of each party under the Merger Agreement
are subject, among other conditions, to (1) approval of the Merger Agreement by
the affirmative vote of the holders of at least two-thirds of the total voting
power of CNB Common Stock and if required, the requisite vote of holders of CNC
and Deposit Guaranty, (2) the absence of any order, decree or injunction of a
court or agency of competent jurisdiction enjoining or prohibiting consummation
of the Merger, (3) receipt of an opinion of Watkins Ludlam & Stennis
substantially to the effect that the transactions contemplated by the Merger
Agreement will be treated for federal income tax purposes as a tax-free
reorganization under Section 368 of the Code, and (4) the receipt of all
necessary regulatory approvals.
The obligations of Deposit Guaranty and its subsidiaries under the
Merger Agreement are conditioned, among other conditions, on (1) receipt of an
opinion from Stone, Pigman, Walther, Wittmann & Hutchinson, counsel to CNB
primarily regarding certain corporate matters and (2) the absence of any
material adverse change from September 30, 1994 to the Effective Time in the
financial condition, results of operations, business, or prospects of the
consolidated group of CNB.
The obligations of CNB are conditioned, among other conditions, on (1)
receipt of an opinion of Watkins Ludlam & Stennis, counsel to Deposit
Guaranty, primarily regarding certain corporate matters, and (2) the absence of
any material
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adverse change from September 30, 1994 to the Effective Time in the financial
condition, results of operations, business, or prospects of the consolidated
group of Deposit Guaranty.
AMENDMENT AND TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time (a) by mutual written consent; (b) by the Board of Directors of
either CNB or Deposit Guaranty in the event of a material breach by the other
of any representation or warranty in the Merger Agreement, if the facts
constituting such breach reflect a material adverse change in the financial
condition, results of operations, business or prospects of the consolidated
group, taken as a whole, of the breaching party or of any material agreement in
the Merger Agreement, which in either case, cannot be cured within sixty (60)
days; (c) by the Board of Directors of either CNB or Deposit Guaranty in the
event any consent or approval of any regulatory authority required for
consummation of the Merger and the other related transactions shall have been
denied by final nonappealable action of such authority, the shareholders of CNB
fail to vote their approval of the Merger Agreement as required by the
Louisiana BCL at the shareholders' meeting; (d) by the Board of Directors of
either CNB or Deposit Guaranty in the event that the Merger shall not have
consummated by September 30, 1995, if the failure to consummate the Merger on
or before such date is not caused by any breach of the Merger Agreement by the
party electing to terminate; (e) by the Board of Directors of either CNB or
Deposit Guaranty in the event that any of the conditions to the obligations of
such party to consummate the Merger cannot be satisfied or fulfilled by
September 30, 1995, absent a waiver of the condition; or (f) by the Board of
Directors of CNB, if CNB has not received a fairness opinion letter from
Sheshunoff, dated within five (5) days of the Effective Time.
COVENANTS
Both CNB and Deposit Guaranty covenant to continue to provide to the
other party full access during all reasonable times to its books and records
and to furnish financial and operating data and other information of any kind
respecting its business upon request, to cooperate with the other party and use
its best efforts to procure all necessary consents and approvals and complete
all necessary filings, satisfy all requirements prescribed by law for
consummation of the Merger, to use its best efforts to preserve the possession
and control of all of its assets and the good will of its customers, to notify
the other of any material changes in its financial condition, results of
operations, business or prospects, to conduct its business only in the ordinary
course and not dispose of any material portion of its assets, place any
mortgage, pledge, lien, or other encumbrance on any material portion of its
assets, cause any breach of any material agreements which would have a material
adverse affect on the financial condition, violate any law, which would have a
material adverse effect on the financial condition results of operations,
business or prospects of its consolidated group, or fail to pay any taxes due,
to make any loans which material and adversely vary from their respective
current written loan policies. In addition CNB agrees that it will not
declare, set aside increase or pay any dividend, or declare or make any
distribution on or directly or indirectly purchase any shares of its capital
stock or authorize the issuance of or issue any additional shares of its
capital stock or any securities convertible into capital stock, except pursuant
to existing obligations under stock option and employee benefit plans,
provided that the above prohibitions shall not prohibit (i) the declaration and
payment of dividends or distributions from any member of CNB's consolidated
group to any other member of its consolidated group, or (ii) the declaration
and payment by CNB (to the extent it otherwise is legally permitted) of cash
dividends on the issued and outstanding shares of CNB Common Stock (A) for 1994
in the aggregate amount of $2.20 per share, and (B) for each fiscal year (or
portion thereof) after 1994 occurring prior to the Effective Time at a rate of
up to $ .1333 per share times the number of complete calendar months elapsed
prior to the Effective Time during the fiscal year for which the dividend is
being paid, provided that if the Effective Time occurs at a time during a
calendar quarter that is before Deposit Guaranty's record date for the payment
of Deposit Guaranty's regular quarterly dividend for that quarter, no such
dividend otherwise permitted to be paid by CNB shall be paid for that quarter.
In addition CNB agrees not to amend its Articles of Incorporation or Bylaws;
enter into or modify any agreement so as to require the payment, conditionally
or otherwise, of any salary, bonus, extra compensation, pension or severance
payment to any of its present or former directors, officers or employees,
except such agreements as are terminable at will without any penalty or other
payment; or increase by more than seven percent (7%) the compensation
(including salaries, fees, bonuses, profit sharing, incentive, pension,
retirement or other similar payments) of any such person, or increase by more
than ten percent (10%) the annual compensation of any such person whose annual
compensation is, or after such increase would be, in excess of $50,000; or
enter into any new line of business.
EMPLOYEE BENEFITS
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From and after the Effective Time, Deposit Guaranty will, subject to
compliance with applicable legal and regulatory requirements, provide coverage
for all CNB and Citizens National employees under all Deposit Guaranty benefit
plans for which they are eligible or would be eligible if such employees where
employees of Deposit Guaranty, as soon as practicable after the Effective
Time. For purposes of participation and vesting (but not accrual of benefits)
under such employee benefit plans, the service of the employees of CNB and
members of its consolidated group prior to the Effective Time shall be treated
as service with members of Deposit Guaranty's consolidated group participating
in such employee benefit plans. CNC or Deposit Guaranty shall honor, and shall
cause Citizens National and its successors and assigns to honor, in accordance
with their terms all employment, severance, consulting, and other compensation
contracts between CNB and members of its consolidated group and any current or
former director, officer or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under the CNB Employee Benefit Plans.
RESALES OF DEPOSIT GUARANTY COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
Deposit Guaranty Common Stock to be issued to shareholders of CNB in
connection with the Merger will be freely transferable under the Securities
Act, except for shares issued to any affiliate (as such term is defined by Rule
145 of the Securities Act) of CNB (the "CNB Affiliates"). It is a condition to
Deposit Guaranty's obligation to consummate the Merger that, at or prior to the
Effective Time, each person who may be deemed to be a CNB Affiliate shall have
executed and delivered to Deposit Guaranty an agreement (an "Affiliate's
Letter") providing that such CNB Affiliate will not sell, transfer or otherwise
dispose of any Deposit Guaranty Common Stock obtained as a result of the Merger
in violation of the Securities Act and the rules and regulations of the
Commission thereunder. See "The Merger -- Conditions."
ACCOUNTING TREATMENT
The Merger, if consummated as proposed, will qualify as a pooling of
interests for accounting and financial reporting purposes. Accordingly,
under generally accepted accounting principles, the assets and liabilities of
CNB will be combined with those of Deposit Guaranty and carried forward at book
values. In addition, the statements of operations of CNB will be combined with
the statements of operations of Deposit Guaranty on a retroactive basis. The
obligations of CNB and Deposit Guaranty to consummate the Merger are
conditioned, among other matters, upon neither the Securities and Exchange
Commission nor Deposit Guaranty's independent auditors concluding that the
Merger will not qualify for pooling of interests accounting treatment under
generally accepted accounting principles.
EXPENSES AND FEES
All legal and other costs and expenses incurred in connection with the
Merger and the transactions contemplated thereby will be paid by the party
incurring such costs and expenses.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board
under Section 3 of the Bank Holding Company Act of 1956, as amended. Federal
Reserve Board approval was obtained on March 8, 1995.
APPRAISAL RIGHTS
Under Section 131 of the Louisiana BCL (a copy of which is attached
hereto as Exhibit C), any holder of record of shares of CNB Common Stock, who
files a written objection to the Merger prior to or at the Meeting at which the
vote on the Merger is taken, and who votes against the Merger, may demand in
writing that CNB pay to such shareholder the fair cash value of such shares
("Appraisal Rights"). HOWEVER, INTERESTED PARTIES SHOULD NOTE THAT, IF THE
MERGER IS APPROVED BY EIGHTY PERCENT (80%) OR MORE OF THE OUTSTANDING SHARES OF
CNB COMMON STOCK, SECTION 131 OF THE LOUISIANA BCL PROVIDES THAT NO SUCH
SHAREHOLDER WILL HAVE APPRAISAL RIGHTS. A person who is a beneficial owner,
but not a registered owner, of shares of CNB Common Stock who wishes to
exercise the rights of a dissenting shareholder under the Louisiana BCL cannot
do so in his own name but must cause the registered owner thereof to take all
required action to comply on his behalf with the procedures under Section 131
of the Louisiana BCL.
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Any shareholder of record contemplating making a demand for appraisal
is urged to review carefully the provisions of Section 131 of the Louisiana
BCL, particularly the procedural steps required to perfect Appraisal Rights
thereunder. APPRAISAL RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF
SECTION 131 ARE NOT FULLY SATISFIED.
Set forth below is a summary of the procedures relating to the
exercise of Appraisal Rights. The following summary does not purport to be a
complete statement of the provisions of Section 131 of the Louisiana BCL and is
qualified in its entirety by reference to Exhibit C hereto and to any
amendments to such sections as may be adopted after the date of this Proxy
Statement/Prospectus.
FILING WRITTEN OBJECTION AND VOTE AGAINST THE MERGER
Before the shareholders' vote is taken on the proposal to approve the
Merger, a shareholder of record who intends to exercise Appraisal Rights (a
"Dissenter") must deliver to CNB a written objection to the proposed Merger and
vote the shares of CNB Common Stock held by such Dissenter (the "Shares")
against the proposed Merger. Such written objection may be sent to CNB at 201
NW Railroad Ave., Hammond, Louisiana 70401-3249, telephone number (504)
542-2265. The return of a proxy card by a Dissenter with instructions to vote
the Shares represented thereby against the Merger (or abstaining from voting)
is not sufficient to satisfy the requirement of delivering written objection to
CNB. The submission of a signed blank proxy card will serve to waive Appraisal
Rights.
NOTICE BY CNB
Promptly after the Effective Time (unless the Merger is approved by
eighty percent (80%) or more of the outstanding shares of CNB Common Stock),
CNB will notify each Dissenter who has purported to comply with the provisions
of Section 131 of the Louisiana BCL that the Merger has become effective. The
giving of such notice shall not be deemed to create any rights in the Dissenter
receiving the same to demand payment for such Dissenter's Shares. The notice
shall be sent by registered mail, addressed to the Dissenter at such
Dissenter's last address on CNB's records immediately prior to the Effective
Time.
WRITTEN DEMAND
Within twenty (20) days after the mailing of notice by CNB, any
Dissenter must file with CNB a demand in writing (the "Demand") for the fair
cash value of such Dissenter's Shares as of the day prior to the Meeting,
stating the amount demanded and a post office address to which CNB may reply.
Simultaneously with the filing of the Demand, the Dissenter shall also deposit
the certificate(s) representing the Dissenter's Shares (duly endorsed and
transferred to CNB upon the sole condition that the certificate(s) will be
delivered to CNB upon payment of the value of the Shares in accordance with
Section 131 of the Louisiana BCL) in escrow with a chartered bank or trust
company located in Tangipahoa Parish, Louisiana (the "Escrow Bank"). Along
with the Demand, the Dissenter shall deliver to CNB a written acknowledgment of
the Escrow Bank that it holds such certificate(s), endorsed as specified above.
A Dissenter who fails to satisfy any of the foregoing conditions within the
proper time periods will conclusively be presumed to have acquiesced in the
Merger and will lose his Appraisal Rights. Such written demand may be sent to
CNB at 201 NW Railroad Ave., Hammond, Louisiana 70401-3249, telephone number
(504) 542-2265. If CNB does not disagree with the Dissenter's Demand, CNB
shall pay to such Dissenter the value so demanded by him for his Shares.
APPRAISAL
If CNB does not agree to the amount demanded by the Dissenter, or does
not agree that any payment is due, it will, within twenty (20) days after
receipt of such Demand and acknowledgment, notify such Dissenter in writing (1)
of its disagreement with the Dissenter as to whether any payment is due or as
to any disagreement with the amount demanded by the Dissenter and (2) state in
the letter the value CNB will agree to pay if any payment should be held to be
due (the "Notice of Disagreement").
Within sixty (60) days after the receipt of the Notice of Disagreement
by CNB, but not thereafter, any Dissenter who has complied with the required
conditions of Section 131 of the Louisiana BCL may file suit against CNB in
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Tangipahoa Parish, Louisiana (the "Louisiana District Court") demanding a
determination of the fair cash value of his Shares, or within such sixty-day
period but not thereafter, file suit or intervene as a plaintiff in any other
such suit filed against CNB by another Dissenter for a judicial determination
of the fair cash value of such other Dissenter's Shares. If a Dissenter fails
to bring or to intervene in such a suit within the applicable sixty-day period,
the Dissenter will be deemed to have consented to accept either CNB's statement
that no payment is due or, if CNB does not contend that no payment is due, to
accept the value of his Shares specified by CNB in its Notice of Disagreement.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Louisiana District Court will summarily determine which
Dissenters, if any, are entitled to payment and will determine the fair cash
value of the Shares owned by such Dissenters.
Dissenters considering exercising Appraisal Rights should bear in mind
that the fair cash value of their Shares determined under Section 131 of the
Louisiana BCL could be more than, the same as or less than the consideration
they would otherwise receive pursuant to the Merger Agreement if they do not
seek appraisal of their Shares, and that opinions of financial advisors as to
fairness are not opinions as to fair cash value under Section 131 of the
Louisiana BCL.
Any Dissenter who has duly filed a Demand in compliance with Section
131 of the Louisiana BCL will, after filing the Demand, cease to have any of
the rights of a shareholder, except those rights (e.g., the conditional right
to receive the fair cash value of Shares held, the conditional right to
withdraw Demand, etc.) generally provided to Dissenters under Section 131 of
the Louisiana BCL.
At any time prior to CNB giving its Notice of Disagreement, any
Dissenter shall have the right to withdraw his or her Demand and to accept the
terms offered in the Merger; after this period, the Dissenter may withdraw his
or her Demand only with the consent of CNB. If a Demand is withdrawn, or the
Louisiana District Court determines that the Dissenter is not entitled to
payment for his Shares, or the Dissenter otherwise loses his Appraisal Rights,
a Dissenter shall only be entitled to receive the consideration offered
pursuant to the Merger Agreement.
When the fair cash value of the Dissenter's Shares is agreed upon
between the Dissenter and CNB, or CNB has become liable for the value demanded
by the Dissenter because of its failure to give Notice of Disagreement, or the
Dissenter has become bound to accept the value which CNB agrees is due because
of his failure to bring suit within sixty (60) days after receipt of the Notice
of Disagreement, CNB may, at its option, pay to the Escrow Bank the amount
which the Dissenter is entitled to receive for his Shares, and CNB shall be
entitled to receive such Shares from the Escrow Bank. Any action by the
Dissenter to recover such value must be brought within five (5) years from the
date the value was agreed upon, or the liability of CNB became fixed.
PAYMENT AND COSTS
If upon the filing of any such suit or intervention CNB deposits with
the Louisiana District Court the amount, if any, which it specified in its
Notice of Disagreement, and if in that notice CNB offered to pay such amount to
the Dissenter on Demand, then the costs (not including legal fees) of the suit
or intervention will be taxed against the Dissenter if the amount finally
awarded to the Dissenter, exclusive of interest and costs, is equal to or less
than the amount so deposited; otherwise, the costs (not including legal fees)
will be assessed against CNB.
ANY CNB SHAREHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS SHOULD
CAREFULLY REVIEW THE LOUISIANA BCL AND IS URGED TO CONSULT SUCH SHAREHOLDER'S
LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
COMPARISON OF THE RIGHTS OF HOLDERS OF
CNB COMMON STOCK AND DEPOSIT GUARANTY COMMON STOCK
CNB is incorporated in the State of Louisiana and Deposit Guaranty is
incorporated in the State of Mississippi. Shareholders of CNB, whose rights as
shareholders are currently governed by Louisiana law and by CNB's Articles of
Incorporation (the "CNB Articles") and Bylaws, will, upon consummation of the
Merger, become shareholders of Deposit
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Guaranty and their rights as such will be governed by Mississippi law and by
Deposit Guaranty's Articles of Incorporation (the "Deposit Guaranty Articles")
and Bylaws.
Certain significant differences between the rights of shareholders of
CNB and shareholders of Deposit Guaranty are set forth below. This summary is
not intended to be relied upon as an exhaustive list or a detailed description
of the provisions discussed and is qualified in its entirety by the Louisiana
BCL and the Mississippi Business Corporation Act (the "Mississippi BCA") and by
the Articles of Incorporation and Bylaws of CNB and Deposit Guaranty,
respectively, to which CNB shareholders are referred.
AUTHORIZED SHARES OF CAPITAL STOCK; DIVIDEND RIGHTS
CNB. The CNB Articles authorize the issuance of 1,000,000 shares of
CNB Common Stock. As of the date of this Proxy Statement/Prospectus, 398,652
shares were issued, of which 361,684 were outstanding and 37,089 were held in
treasury. Under the Louisiana BCL, the CNB Board may issue additional
authorized shares of CNB Common Stock without further action of the CNB
shareholders. The Louisiana BCL provides that shareholders will have only such
preemptive rights to purchase any unissued shares or any option or warrant for
the purchase thereof as may be provided in the articles of incorporation. The
CNB Articles provide that, upon the issuance of shares of stock of CNB having
voting rights, each shareholder has a preemptive right to subscribe, at such
price and upon such terms as may be fixed by the CNB Board of Directors, for
such proportion of the shares to be issued as the number of shares held by the
shareholder bears to the total number of the then outstanding shares having
voting rights. However, shareholders do not have any preemptive right to
subscribe for shares which are (a) issued for consideration other than cash,
(b) issued to satisfy conversion or option rights, (c) treasury shares, or (d)
issued pursuant to any incentive or benefit plan for all or any of the
officers, directors and employees of CNB or Citizens National.
DEPOSIT GUARANTY. The Deposit Guaranty Articles authorize the
issuance of 50,000,000 shares of Deposit Guaranty Common Stock and 10,000,000
shares of Class A Voting Preferred Stock and 10,000,000 shares of Class B
Non-Voting Preferred Stock (together, "Deposit Guaranty Preferred Stock"). The
Board of Directors of Deposit Guaranty is authorized to provide for the
issuance of Deposit Guaranty Preferred Stock from time to time in series and,
as to each series, to fix the number of shares in such series and the voting,
dividend, redemption, liquidation, retirement and conversion provisions
applicable to the shares of such series. As of the date of this Proxy
Statement/Prospectus, no shares of Deposit Guaranty Preferred Stock were issued
and outstanding.
During the time that any series of Deposit Guaranty Preferred Stock is
outstanding, no dividends may be declared or paid on Deposit Guaranty Common
Stock, unless dividends on all outstanding shares of Deposit Guaranty Preferred
Stock for the current and all past dividend periods have been declared and paid
or provision made for payment thereof. Dividends with respect to Deposit
Guaranty Preferred Stock are required to be cumulative.
VOTING RIGHTS
CNB. CNB has one authorized class of stock and, under CNB's Bylaws,
each outstanding share of CNB stock is entitled to one (1) vote on each matter
submitted to a vote, except to the extent that the voting rights of the shares
of any class are limited or denied by the laws of Louisiana. The Louisiana BCL
states that the articles of incorporation may provide for cumulative voting.
The CNB Articles provide for cumulative voting in the election of directors
and, therefore, in the election of directors each shareholder of CNB is
entitled to multiply the number of votes to which he or she may otherwise be
entitled by the number of directors to be elected and may cast all such votes
for one (1) candidate or distribute the votes among any two or more candidates.
DEPOSIT GUARANTY. Pursuant to the Mississippi BCA and Deposit
Guaranty's Bylaws, each outstanding share of Deposit Guaranty stock is entitled
to one (1) vote on each matter submitted to a vote. However, in connection
with the election of directors, holders of Deposit Guaranty Common Stock have
cumulative voting rights. Pursuant to the Deposit Guaranty Bylaws, every
shareholder entitled to vote in the election of directors shall have the right
to vote, in person or by proxy, the number of shares owned by him for as many
persons as there are directors to be elected, or to cumulate his votes
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by giving one (1) candidate the number of votes equal to the number of
directors to be elected multiplied by the number of his shares, or by
distributing such votes on the same principle among any number of candidates.
APPRAISAL RIGHTS
CNB. The Louisiana BCL provides appraisal rights to shareholders in
connection with mergers and consolidations and the sale, lease or exchange of
all of the corporation's assets, if such are approved by less than eighty
percent (80%) of a corporation's total voting power. Appraisal rights are not
available under the Louisiana BCL in the case of: (1) a sale pursuant to a
court order; (2) a sale for cash requiring distribution of all or substantially
all of the net proceeds to shareholders in accordance with their respective
interests within one (1) year of the date of the sale; and (3) shareholders
holding shares of any class of stock which, at the record date fixed to
determine shareholders entitled to receive notice of and to vote at the meeting
of shareholders at which a merger or consolidation was acted on, were listed on
a national securities exchange unless the shares of such shareholders were not
converted by the merger or consolidation solely into shares of the surviving or
new corporation.
DEPOSIT GUARANTY. The Mississippi BCA provides appraisal rights to
shareholders in any of the following corporate actions: (1) a merger if
shareholder approval is required or if the corporation is a subsidiary that
merges with its parent; (2) a plan of share exchange if the corporation is
being acquired and the shareholder is entitled to vote; and (3) a sale or
exchange of all or substantially all of the property of the corporation that is
not in the usual and regular course of business, but not including a court
ordered sale or sale pursuant to a plan where the shareholders will receive the
proceeds within one (1) year after the date of sale.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
DEPOSIT GUARANTY. Deposit Guaranty's Articles and Bylaws do not
contain any provision limiting the personal liability of Deposit Guaranty's
directors and officers for monetary damages resulting from breach of fiduciary
duty.
CNB. CNB's Articles provide that no director or officer of CNB shall
be liable to CNB or its shareholders for monetary damages for breach of
fiduciary duty, except for liability for (a) breach of the director's or
officer's duty of loyalty to the corporation or its shareholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payment of dividends, distribution of
assets, or purchase or redemption of CNB shares, or (d) any transaction from
which the director or officer derived an improper personal benefit.
INDEMNIFICATION
CNB. The CNB Bylaws provide that CNB shall indemnify its officers and
directors, may indemnify the employees and agents of CNB, and may procure
insurance on behalf of the officers, directors, employees, and agents of CNB,
to the full extent permitted by Section 83 the Louisiana BCL.
DEPOSIT GUARANTY. Under its Articles of Incorporation, Deposit
Guaranty is required to indemnify any person who was or is a party or is
threatened to be made a party to a civil, criminal, administrative or
investigative action (other than an action by or on behalf of Deposit Guaranty)
because he is or was an officer, director, employee or agent of Deposit
Guaranty, or is or was at the request of Deposit Guaranty serving as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred. In case of an action by or on behalf of
Deposit Guaranty, Deposit Guaranty is required to provide indemnity for
expenses (including attorneys' fees) actually and reasonably incurred in
connection with such action if such person is not adjudged to be liable for
negligence or misconduct in the performance of his duty or if a court
determines that despite the negligence or misconduct, in view of all the
circumstances, indemnity for expenses is proper.
Indemnification may be made in specific cases only if a determination
is made by either a disinterested quorum of the Board of Directors, independent
legal counsel, the shareholders of Deposit Guaranty or a court of competent
jurisdiction that the person seeking indemnification acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of Deposit Guaranty, and, with respect to criminal actions, the person had no
reasonable
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cause to believe his conduct was unlawful. Indemnification is not extended to
suits instituted by the person seeking indemnification, unless the Board of
Directors approves otherwise.
Deposit Guaranty may pay expenses incurred in advance of the final
disposition of an action, if the Board of Directors approves and if the person
seeking indemnification undertakes (or someone undertakes on his behalf) to
repay Deposit Guaranty if it is ultimately determined that he is not entitled
to indemnification.
SUPERMAJORITY VOTING REQUIREMENTS; BUSINESS COMBINATIONS; CONTROL SHARES
CNB. The Louisiana BCL generally requires the affirmative vote of at
least two-thirds of the voting power present, or such larger or smaller vote,
but not less than a majority, of the voting power present or the total voting
power as the articles of incorporation may prescribe to effect (i) any merger
or consolidation with or into any other corporation or (ii) any sale or lease
of any substantial part of a corporation's assets. The CNB Articles provide
that, except as is otherwise made mandatory by law, an agreement of merger or
consolidation of CNB, the sale of all or substantially all of the assets of
CNB, or the dissolution of CNB may be authorized by the affirmative vote of
two-thirds of the total voting power of CNB.
Sections 12:132-134 of the Louisiana BCL (the "Fair Price Law") place
restrictions on certain "business combinations" (defined to include, generally,
mergers, consolidations, share exchanges, sales and leases of assets, issuances
of securities, and similar transactions) by certain Louisiana corporations
(including CNB) with an "interested shareholder" (defined to include,
generally, the beneficial owner of ten percent (10%) or more of the voting
power of the then outstanding voting stock). The Fair Price Law generally does
not apply if the shareholders receive in the business combination consideration
for their shares determined under a set of complex provisions, the effect of
which can be to discourage certain acquisitions of stock of a corporation that
is subject to the fair price provisions. A corporation is entitled under
certain circumstances to elect not to be subject to the Fair Price Law
respecting business combinations. If such election is not made, and if the
Fair Price Law otherwise applies, a business combination with an interested
shareholder generally is prohibited unless the business combination is
recommended by the board of directors and approved by the affirmative vote of
at least each of the following: (i) eighty percent (80%) of the votes entitled
to be cast by outstanding shares of voting stock voting together as a single
voting group, and (ii) two-thirds of the votes entitled to be cast by holders
of voting stock, other than voting stock held by the interested shareholder who
is a party to the business combination, voting together as a single voting
group. By resolution of its Board, CNB has elected not to have the Fair Price
Law apply to the proposed Merger.
Under Sections 12:135 through 140.2 of the Louisiana BCL (the "Control
Shares Law"), a person who acquires shares in certain Louisiana corporations
(including CNB) and, as a result, increases such person's voting power in the
corporation to within any of three (3) ranges of voting power, acquires the
voting rights with respect to such shares only to the extent granted by a
majority of the pre-existing, disinterested shareholders of the corporation.
The three (3) applicable ranges of voting power are: (i) more than one-fifth,
but less than one-third; (ii) one-third or more, but less than a majority of
all voting power; and (iii) a majority or more of all voting power. Certain
acquisitions of shares are exempted from the provisions of the Control Shares
Law, including acquisitions pursuant to a merger, consolidation or share
exchange agreement to which the issuing corporation is a party. Since Deposit
Guaranty's acquisition of CNB Common Stock is to be made pursuant to a merger
and CNB and Deposit Guaranty are parties to the Merger Agreement with respect
thereto, the Control Shares Law does not apply to the Merger.
DEPOSIT GUARANTY. Deposit Guaranty's Articles require that any
Business Combination (as defined below) involving Deposit Guaranty or a
subsidiary of Deposit Guaranty and an Interested Shareholder (as defined below)
or any affiliate or associate of an Interested Shareholder or any person that
following such transaction would be an affiliate or associate of an Interested
Shareholder be approved by the affirmative vote of at least eighty percent
(80%) of the votes entitled to be cast by the holders of all the then
outstanding shares of voting stock of Deposit Guaranty, excluding shares held
by the Interested Shareholder, unless the transaction is approved by a majority
of the Continuing Directors (as defined below) or unless certain fair price and
procedural requirements are satisfied.
An "Interested Shareholder" is defined to include any person (other
than Deposit Guaranty, certain Deposit Guaranty subsidiaries, employee benefit
plans of Deposit Guaranty and the trustees of such plans) who (a) is or has
announced a plan to become the beneficial owner of ten percent (10%) or more of
the voting stock of Deposit Guaranty, or
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(b) is an affiliate or associate of Deposit Guaranty who has, within the past
two (2) years, been the beneficial owner of ten percent (10%) or more of
Deposit Guaranty's voting stock. A person is the "beneficial owner" of voting
stock which such person, directly or indirectly, owns or has the right to
acquire or vote.
A "Business Combination" includes the following: (a) a merger or
consolidation of Deposit Guaranty or any subsidiary with an Interested
Shareholder; (b) any sale, disposition or other arrangement (including
investments, loans, advances, guarantees, extensions of credit, creation of
security interests and joint ventures) with or for the benefit of an Interested
Shareholder involving assets or securities having a fair market value (or
involving aggregate commitments) of $10,000,000 or more or constituting more
than five percent (5%) of the book value of the total assets (in the case of
transactions involving assets or commitments other than capital stock) or five
percent (5%) of the shareholders' equity (in the case of transactions in
capital stock) of the entity in question, as reflected in the most recent
fiscal year-end consolidated balance sheet of such entity existing at the time
the shareholders of Deposit Guaranty would be required to approve or authorize
such transaction; (c) the adoption of any plan or proposal for the liquidation
or dissolution of Deposit Guaranty or for any amendment to Deposit Guaranty's
Bylaws; or (d) any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect, directly or
indirectly, of increasing an Interested Shareholder's proportionate share of
the outstanding capital stock of Deposit Guaranty or a subsidiary.
"Continuing Director" means: (i) any member of the Deposit Guaranty
Board of Directors who is not affiliated with an Interested Shareholder and who
either (a) was a Deposit Guaranty director prior to the time the Interested
Shareholder became an Interested Shareholder, or (b) was a Deposit Guaranty
director on April 30, 1986 and has been a Deposit Guaranty director
continuously since; and (ii) any successor of a Continuing Director who is not
affiliated with an Interested Shareholder and who was recommended or elected to
succeed the Continuing Director by a majority of the Continuing Directors.
REMOVAL OF DIRECTORS
CNB. CNB's Bylaws provide that CNB shareholders may remove a director
upon the affirmative vote of shareholders holding a majority of the total
voting power at any special meeting called for that purpose, even though the
director's term has not expired. If a director has been elected by the
exercise of the privilege of cumulative voting, then such director cannot be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted in his favor at an election of the entire Board of
Directors.
DEPOSIT GUARANTY. Deposit Guaranty's Articles provide that Deposit
Guaranty shareholders may remove a director with or without cause, but only at
a meeting expressly called for that purpose and upon the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of all shares
of stock entitled to vote generally in the election of directors, and in the
event that less than the entire Board is to be removed, not one of the
directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the class
of directors of which he is a part.
VACANCIES IN THE BOARD OF DIRECTORS
CNB. Under CNB's Bylaws, any vacancy occurring in the CNB Board of
Directors (including any vacancy) resulting from an increase in the authorized
number of directors may be filled by a majority vote of the remaining directors
even though such remaining directors constitute less than a quorum, provided
that the shareholders shall have the right at a special meeting called for that
purpose prior to such action by the Board, to fill the vacancy.
DEPOSIT GUARANTY. Under Deposit Guaranty's Bylaws, any vacancy,
including one occurring as a result of an increase in the number of directors,
may be filled only by the shareholders.
AMENDMENT OF THE ARTICLES OF INCORPORATION OR BYLAWS
CNB. The Louisiana BCL generally provides that a Louisiana
corporation's articles of incorporation may be amended by the affirmative vote
of at least two-thirds of the voting power present, or by such larger or
smaller percentage
30
<PAGE> 42
of the voting power present, but not less than a majority, as the articles of
incorporation require. The CNB Articles provide that any amendment or repeal
of Article VII of the CNB Articles regarding the limitation of liability and
indemnification of directors, and any amendment increasing the number of
authorized shares or creating a new class of capital stock must be approved by
the affirmative vote of two-thirds of the total voting power of CNB. All other
provisions of the CNB Articles may be amended by the affirmative vote of a
majority of the total voting power of the corporation. The CNB Bylaws provide
that the CNB Board may amend or repeal the CNB Bylaws, and the CNB shareholders
may amend or repeal any Bylaws at any annual or special meeting, provided that
notice of the proposed amendment or repeal was contained in the notice of such
meeting.
DEPOSIT GUARANTY. Under the Mississippi BCA, the board of directors
has the power to amend or repeal the bylaws of a Mississippi corporation such
as Deposit Guaranty, unless such power is expressly reserved for the
shareholders. Deposit Guaranty's Articles provide that an amendment to the
Bylaws relating to composition of the Board of Directors and removal of
directors must be approved by the affirmative vote of at least eighty percent
(80%) of the shareholders (the same proportion required in order to effect the
removal of a director), excluding (except for purposes of determining whether a
quorum is present) those shares beneficially owned by any Interested
Shareholder. The affirmative vote of at least eighty percent (80%) of the
shareholders is also required to amend the provisions of the Articles of
Incorporation requiring a supermajority approval of Business Combinations.
Amendments to the Articles of Incorporation that result in Dissenters' rights
require the affirmative vote of a majority of the outstanding shares entitled
to vote on the amendment. Otherwise, the Articles of Incorporation may be
amended by a majority vote of the shareholders present at a meeting where a
quorum is present.
SPECIAL MEETINGS OF SHAREHOLDERS
CNB. Under CNB's Bylaws, special meetings of the shareholders, for
any purpose or purposes, may be called by the President or the Board of
Directors, or, upon the written request of any two directors or of any
shareholder or shareholders holding in the aggregate not less than one-fifth of
the total voting power of CNB's voting stock, the Secretary also must call a
special meeting.
DEPOSIT GUARANTY. Under Deposit Guaranty's Bylaws, special meetings
of the shareholders, for any purpose or purposes, may be called by the Chairman
of the Board, the President or the Board of Directors. Upon the written
request of shareholders holding in the aggregate not less than ten percent
(10%) of the total voting power entitled to vote on an issue, the Secretary
must call a special meeting.
SHAREHOLDER PROPOSALS AND NOMINATIONS
CNB. Neither the Louisiana BCL, nor CNB's Articles, or Bylaws set
forth any provisions expressly forbidding or permitting a shareholder to submit
a proposal for consideration at a shareholders' meeting. The CNB Bylaws
provide that any shareholder entitled to vote in the election of directors may
nominate any person for election as a director, provided the nomination is made
in writing, delivered or mailed by first-class United States mail, postage
prepaid, to the Secretary of the corporation and received not less than thirty
(30) days or more than sixty (60) days before the anniversary date of the
immediately preceding annual meeting; provided that, if the meeting is called
for a date more than fifty (50) days before such anniversary, notice by the
shareholder instead must be received not later than the close of business on
the 10th business day following the day notice of the meeting was mailed or
publicly disclosed.
DEPOSIT GUARANTY. Deposit Guaranty's Bylaws provide procedures that
must be followed to properly bring a proposal before a shareholders meeting or
to nominate candidates for election as directors. At least sixty (60) days
prior notice to the Secretary of Deposit Guaranty is required if a shareholder
intends to nominate an individual for election to the Board of Directors or
propose any shareholder action. These Bylaw provisions also require
information to be supplied about both the shareholder making such nomination or
proposal and the person nominated.
INFORMATION CONCERNING CNB
31
<PAGE> 43
CNB, a business corporation organized under the laws of Louisiana, was
incorporated on January 10, 1983, to acquire all of the stock of Citizens
National pursuant to a reorganization that was consummated as of July 12, 1983.
From that date to the present, Citizens National has been CNB's principal
subsidiary. As of December 31, 1994, CNB had total assets of approximately
$189.9 million, total deposits of approximately $167.3 million, total loans of
approximately $84.8 million and shareholders' equity of approximately $21
million. CNB's executive offices are located at 201 NW Railroad Ave., Hammond,
Louisiana 70401-3249, telephone number (504) 542-2265. Citizens National Bank,
a national banking association, is a full service commercial bank offering
consumer and commercial banking services primarily in Tangipahoa Parish,
Louisiana. It operates a main office at 201 NW Railroad Ave., Hammond,
Louisiana, has two full service branch offices in Hammond, Louisiana and one
full service branch in Amite, Louisiana, and one full service branch in
Ponchatoula, Louisiana. Major services provided by Citizens National include
consumer financing, commercial lending, credit card services, savings and
checking accounts for individuals, businesses and public bodies and the
offering of certificates of deposit and individual retirement accounts. All
deposit accounts are insured by the FDIC to the maximum legal limits. Credit
services offered by Citizens National include secured and unsecured commercial
loans, Small Business Administration loans, agricultural loans, real estate
loans and consumer loans.
Citizens National's deposits represent a cross-section of the area's
economy and there is no material concentration of deposits from any single
customer or group of customers. No significant portion of Citizens National's
loans is concentrated within a single industry or group of related industries.
There are no material seasonal factors that would have any adverse effect on
Citizens National. Citizens National does not rely on foreign sources of funds
or income.
MARKET PRICES OF AND DIVIDENDS ON CNB COMMON STOCK
CNB Common Stock is not traded on any established securities market.
As of February 9, 1995, there were 483 holders of record of CNB Common Stock.
The following table sets forth, for the indicated periods, the high and low
sales prices for CNB Common Stock (other than transactions involving the
exercise of employee stock options), the number of transactions in each such
period, the aggregate number of shares involved in such transactions, and the
cash dividends declared per share of CNB Common Stock. The prices indicated
for CNB Common Stock are based on actual transactions in CNB Common Stock of
which CNB management is aware, including purchases by CNB's ESOP; however, no
assurance can be given that the indicated prices represent the actual market
value of CNB Common Stock or that all transactions in CNB Common Stock have
come to the attention of CNB's management.
<TABLE>
<CAPTION>
Price Range Cash
----------- Total No. of Dividends
Total No. of Shares Declared
Period High Low Transactions Sold Per Share
------ ---- --- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
1993
First Quarter $64 $55 6 1,224
Second Quarter $60 $56 14 1,981 $ .80
Third Quarter $60 $60 5 1,984
Fourth Quarter $58 $58 2 210 $ .80
1994
First Quarter $72 $42 12 1,705 $ .60
Second Quarter $73 $71 4 174 $ .80
Third Quarter $72 $62 2 37
Fourth Quarter * * * * $ .80
1995
First Quarter * * * *
</TABLE>
* No known transactions
32
<PAGE> 44
The price of CNB Common Stock in the last known transaction (other
than transactions involving the exercise of employee stock options or the
repurchase of shares by CNB's ESOP), which occurred on August 15, 1994, was
$72.00 and involved a sale of 27 shares. This sale is the last known
transaction in CNB Common Stock (other than exercises of employee stock options
and the repurchase of shares by CNB's ESOP) prior to the public announcement of
the proposed Merger.
The holders of CNB Common Stock are entitled to receive dividends when
and if declared by the CNB Board out of funds that are legally available
therefor. CNB has paid regular semi-annual dividends for many years. If the
merger were not consummated, it would be the intention of the CNB Board to
continue declaring semi-annual cash dividends. However, there can be no
assurance that CNB's dividend policy would remain unchanged. For CNB, retained
earnings is the primary source of additional capital and the level of cash
dividends paid is determined only after a careful review of capital needs to
support asset growth. Also, CNB is a legal entity separate and distinct from
its subsidiary, Citizens National, and CNB's revenues depend substantially on
the payment of dividends from Citizens National. Accordingly, the declaration
and payment of dividends in the future would depend on business conditions,
operating results, and capital and reserve requirements affecting Citizens
National, as well as the judgment of the Board of Directors and other factors.
STOCK OWNERSHIP OF MANAGEMENT OF CNB
The following table indicates the beneficial ownership as of February
1, 1995 unless otherwise indicated below, of CNB's Common Stock by each
director, the CEO and the four (4) most highly compensated executive officers
other than the CEO, and by all directors and officers of CNB as a group.
<TABLE>
<CAPTION>
Class of Amount and Nature of Percent of
Name Securities Beneficial Ownership Class
---- ---------- -------------------- -------
<S> <C> <C> <C>
Richard P. Durham Common Stock 19,193(1) 5.31%
Joseph E. Ebrecht Common Stock 8,627 2.39%
Leon Ford III Common Stock 33,320(2) 9.21%
Bobby S. Helms Common Stock 5,495 1.52%
Robert L. Jackson Common Stock 2,648 0.73%
Richard A. Kent, Jr. Common Stock 5,911(3) 1.63%
Phil K. Livingston Common Stock 9,983(4) 2.62%
Sidney S. Rosenblum Common Stock 15,936(5) 4.41%
Hans Schneider Common Stock 10,292(6) 2.85%
Louis B. Wiginton Common Stock 5,809 1.61%
Mayson H. Foster Common Stock 6,251(7) 1.73%
John W. Gautier Common Stock 9,352(8) 2.59%
Robert A. Maurin III Common Stock 8,262(9) 2.28%
All Directors and Executive
Officers as a group (13 persons) Common Stock 141,079(10) 39.06%
</TABLE>
(1) Includes 830 shares owned by Mr. Durham's wife; 959 shares owned by
Mr. Durham's minor children; 7,656 shares owned by Durham
Pontiac-Cadillac, Inc., of which Mr. Durham is President and
controlling shareholder;
33
<PAGE> 45
9,391 shares held by a third party for the R. P. Durham Retirement
Trust; and 357 shares held by a third party in Mrs. Durham's IRA.
(2) Includes 7,117 shares owned by the Leon and Virginia Ford Trust #1;
510 shares owned by the Leon and Virginia Ford Trust #2; 510 shares
owned by the Leon and Virginia Ford Trust #3; 6,296 shares of which
Mr. Ford is usufructuary and his son is naked owner; and 6,296 shares
of which Mr. Ford is usufructuary and his daughter is naked owner.
Mr. Ford is trustee on all trusts.
(3) Includes 1,771 shares owned by Kent Bus Sales and Service, Inc., of
which Mr. Kent is President and controlling shareholder.
(4) Includes 1,177 shares owned by Mr. Livingston held by a third party
for an IRA; 3,482 shares allocated to Mr. Livingston under Citizens
National's ESOP and related trusts over which voting power is shared
with the trustee.
(5) Includes 11,283 shares owned by the Sidney and Andree Rosenblum Trust
of which Mr. Rosenblum is trustee; 4,103 shares owned by Mr. Rosenblum
held by a third party for an IRA; and 550 shares owned by Mrs.
Rosenblum held by a third party for an IRA.
(6) Includes 3,758 shares owned by Mr. Schneider's wife.
(7) Includes 1,985 shares allocated to Mr. Foster under Citizens
National's ESOP.
(8) Includes 1,825 shares allocated to Mr. Gautier under Citizens
National's ESOP.
(9) Includes 1,883 shares allocated to Mr. Maurin under Citizens
National's ESOP.
(10) Includes 9,150 shares held by Citizens National's ESOP, all of which
have been allocated to the accounts of certain of the officers and
directors of the company. Mr. Livingston and other members of
Citizens National's senior management committee, who are officers of
CNB, serve as trustees for the ESOP.
PRINCIPAL SHAREHOLDERS OF CNB
The following table presents the persons who, to the knowledge of CNB,
beneficially owned more than five percent (5%) of the outstanding voting shares
of CNB as of February 1, 1995. Except as otherwise noted, beneficial ownership
consists of sole voting and investment power.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name and Address of Class of Beneficial of
Beneficial Owner Securities Ownership Class
---------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Citizens National Bank Employee Common Stock 34,735 9.60%
Stock Ownership Plan
P. O. Box 2188
Hammond, LA 70404
Leon Ford III Common Stock 33,320* 9.21%
P. O. Box 1536
Hammond, LA 70404
Richard P. Durham Common Stock 19,193* 5.31%
P. O. Box 338
Hammond, LA 70404
</TABLE>
*See beneficial holdings under Security Holdings of Directors and Executive
Officers.
34
<PAGE> 46
SELECTED FINANCIAL DATA
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands Except Per Share Information)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION INFORMATION:
(December 31)
Investment Securities $85,448 $89,868 $87,524 $69,143 $42,771
Loans 84,778 80,084 80,745 87,204 87,558
Allowance for Possible
Loan Losses 1,613 1,712 1,764 1,852 1,701
Total Resources 189,864 192,619 199,236 182,980 160,815
Demand Deposits 28,751 26,218 25,657 22,946 23,184
Savings Deposits 65,844 71,680 69,519 55,318 40,189
Time Deposits 72,659 74,439 86,719 89,047 83,565
Total Deposits 167,254 172,337 181,895 167,311 146,938
Total Shareholders' Equity 21,043 19,159 15,996 13,602 12,568
- -------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION:
(For the Year Ended December 31)
Total Interest Income $13,149 $13,952 $15,067 $15,215 $14,583
Total Interest Expense 4,858 5,337 6,938 8,608 8,682
------------------------------------------------------------
Net Interest Income 8,291 8,615 8,129 6,607 5,901
Provision for Possible
Loan Losses 0 0 0 634 1,311
Total Other Operating Income 1,982 1,976 1,927 1,798 1,697
Total Other Operating Expenses 6,758 6,146 6,226 6,026 5,866
Net Income 2,596 3,302 2,711 1,391 363
- -------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION:*
Shares Outstanding 361,684 349,273 309,266 278,326 276,333
Net Income $7.14 $9.42 $8.05 $4.15 $1.07
Cash Dividends 2.20 1.45 1.32 1.32 1.32
Shareholders' Equity
(December 31) 58.18 54.85 51.72 48.88 45.48
</TABLE>
*Adjusted for Stock Dividends
35
<PAGE> 47
CITIZENS NATIONAL BANCSHARES, INC. (CNB) AND SUBSIDIARY (CITIZENS NATIONAL)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION)
RESULTS OF OPERATIONS
OVERVIEW. Citizens National Bancshares, Inc. and its subsidiary,
Citizens National (collectively, the Company) reported consolidated net income
of $2,596 for the year ended December 31, 1994, compared to $3,302 during the
year ended December 31, 1993 and $2,711 during the year ended December 31,
1992. Net income per share for these periods was $7.14, $9.42 and $8.05,
respectively. The decline in earnings for the year ended December 31, 1994
was principally attributable to a reduction in net interest income, and to
expenses incurred by the Company during 1994 in connection with the proposed
Merger with Deposit Guaranty. Continued improvement in loan quality and a low
level of net charge-offs resulted in zero provision for loan losses for 1994,
1993, and 1992. Net income for 1993 included $172 ($.49 per share) of income
related to the adoption of a new accounting standard for income taxes.
On December 2, 1994, the Company and Deposit Guaranty entered into an
Agreement and Plan of Merger. See "The Merger."
The following table sets forth a summary of the Company's consolidated
results of operations for each of the three years ended December 31, 1994.
CONSOLIDATED SUMMARY OF OPERATIONS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------
1994 1993 1992
---------------------------------------------------
<S> <C> <C> <C>
Interest Income $13,149 $13,952 $15,067
Interest Expense 4,858 5,337 6,938
---------------------------------------------------
Net interest income 8,291 8,615 8,129
Provision for Possible Loan Losses --- --- ---
---------------------------------------------------
Net interest income after provision 8,291 8,615 8,129
Non-interest income 1,982 1,976 1,927
Non-interest expense 6,758 6,146 6,226
---------------------------------------------------
Income before income taxes and 3,515 4,445 3,830
cumulative effect of accounting change
Income Taxes (919) (1,315) (1,119)
---------------------------------------------------
Income before cumulative effect of 2,596 3,130 2,711
accounting change
Cumulative effect of accounting change --- 172 ---
---------------------------------------------------
Net Income $2,596 $3,302 $2,711
===================================================
</TABLE>
36
<PAGE> 48
<TABLE>
<S> <C> <C> <C>
Earnings Per Common Share:
Weighted average number of shares 363,360 350,634 336,981
outstanding
Income before cumulative effect of $7.14 $8.93 $8.05
accounting change =================================================
Cumulative effect of accounting change --- 0.49 ---
-------------------------------------------------
Net Income per share 7.14 9.42 8.05
Dividends per share 2.20 1.45 1.32
Ratios:
Net Income as a percent of average 1.38% 1.70% 1.35%
assets
Net Income as a percent of average 14.47% 19.79% 17.40%
equity
Average equity as a percent of 9.51% 8.59% 7.74%
average total assets
Dividend payout ratio 30.81% 15.39% 16.40%
</TABLE>
NET INTEREST INCOME
The principal component of the Company's net earnings is net interest
income, which is the difference between interest and fees earned on
interest-earning assets and interest paid on deposits and borrowed funds. Net
interest income, when expressed as a percentage of total average
interest-earning assets, is referred to as net interest margin. The Company's
net interest margin decreased to 4.70% in 1994 from 4.73% in 1993. The net
interest margin was 4.30% in 1992. Net interest income for 1994 decreased to
$8,291 from $8,615 recorded in 1993, a decrease of 4.0%. Net interest income
grew 5.98% in 1993 from the 1992 amount of $8,129. The decline in 1994 was
primarily the result of increases in interest expense paid on interest bearing
deposits. Net interest income in 1994 was favorably impacted by the Company's
increase in real estate construction, commercial and consumer loans. This
lending activity resulted in increased average loan volume of 6.78% in 1994.
Loan fee income increased as a result, which favorably impacted the Company's
net interest income. Total loan fee income included in interest income during
1994, 1993 and 1992 was $2,836, $1,535 and $823, respectively. With the
anticipated increase in commercial and residential mortgage lending rates, the
Company does not expect this loan volume to continue at the pace experienced in
1994.
Average earning assets were $176,294 for the year ended December 31,
1994, $182,258 for 1993 and $188,995 for 1992. Earning assets declined in 1994
due to a continued decline in savings and interest bearing time deposits, which
reduced the resources available to the company. Economic activity remained
generally good throughout 1994, increasing the demand for loans. As a result,
funds provided by reductions in the level of Federal Funds Sold were used to
fund loan growth and purchase investment securities.
The Company's net interest income is affected by the change in the
amount and mix of interest-earning assets and interest-bearing liabilities, and
by changes in yields earned on assets and rates paid on deposits and other
borrowed funds. The funds management policies of the Company and the
competitive pricing of both loan and deposit instruments continues to provide
the Company with stable net interest margins. Management will continue to
closely monitor the rate environment in which the Company operates, as well as
the repricing structure of rate sensitive assets, in order to attempt to
maintain the continued profitability of the Company. The table on the
following two pages sets forth certain information concerning average
interest-earning assets and interest-bearing liabilities, the yields and rates
thereon for the years presented.
37
<PAGE> 49
SUMMARY AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
Interest and Average
Yield/Rates Interest Interest Average
Average Income/ Average Average Income/ Yield
Taxable Equivalent Basis Balance Expense Yield Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets:
Time Certificates of $150 $6 4.00% $0 $0 0.00%
Deposit
U.S. Treasury Securities 35,528 2,211 6.22% 31,381 2,136 6.81%
Federal Agencies 32,542 2,522 7.75% 42,850 2,993 6.98%
State and Municipal 15,704 764 4.87% 13,948 671 4.81%
Obligations(1)
Other Securities 30 2 6.67% 210 6 2.86%
------------------- -------------------
Total Investment 83,954 5,505 6.56% 88,389 5,806 6.57%
Securities (3)
Federal funds sold and 7,519 428 5.69% 14,445 614 4.25%
securities purchased
under resale agreements
Loans (net)(1)(2) 84,821 7,216 8.51% 79,424 7,532 9.48%
------------------- -------------------
Total earning assets 176,294 13,149 7.46% 182,258 13,952 7.66%
Non-earning assets:
Allowance for possible (1,633) (1,712)
loan losses
Cash and due from 7,592 6,993
banks
Premises and equipment 3,549 3,441
Other real estate 530 951
Other assets 2,421 2,311
-------- --------
Total average assets $188,753 $194,242
======== ========
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------
Interest and Average
Yield/Rates Interest Average
Average Income/ Yield
Taxable Equivalent Basis Balance Expense Rate
- ---------------------------------------------------------------------
<S> <C>
ASSETS:
Earning Assets:
Time Certificates of $0 $0 0.00%
Deposit
U.S. Treasury Securities 39,987 3,256 8.14%
Federal Agencies 36,726 2,066 5.63%
State and Municipal 9,614 399 4.15%
Obligations(1)
Other Securities 282 14 4.96%
-------------------
Total Investment 86,609 5,735 6.62%
Securities (3)
Federal funds sold and 20,865 784 3.76%
securities purchased
under resale agreements
Loans (net)(1)(2) 81,521 8,548 10.49%
-------------------
Total earning assets 188,995 15,067 7.97%
Non-earning assets:
Allowance for possible (1,830)
loan losses
Cash and due from 6,778
banks
Premises and equipment 3,475
Other real estate 1,459
Other assets 2,478
--------
Total average assets $201,355
========
</TABLE>
(1) Determined utilizing tax free rate of instruments.
(2) Net of unearned income and including non-accrual loans.
(3) Amounts computed based on historical cost without giving effect to
the market valuation for securities classified as available for
sale.
38
<PAGE> 50
SUMMARY AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND
INTEREST RATES
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------------------------------------------------------------
Interest and Average
Yield/Rates Interest Average Interest Average Interest Average
Average Income/ Yield Average Income/ Yield Average Income/ Yield
Taxable Equivalent Basis Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Money market deposits $22,080 490 2.22% 24,784 616 2.49% 21,498 686 3.19%
NOW deposits 20,775 641 3.09% 24,287 721 2.97% 32,424 957 2.95%
Savings deposits 25,221 750 2.97% 26,019 715 2.75% 24,554 861 3.51%
Certificates of deposit 13,831 576 4.16% 13,223 573 4.33% 13,946 667 4.78%
$100,000 or more
Other time deposits 59,468 2,401 4.04% 61,646 2,712 4.40% 73,676 3,767 5.11%
--------------------- ---------------------- -------------------
Total interest bearing 141,375 4,858 3.44% 149,959 5,337 3.56% 166,098 6,938 4.18%
liabilities
Non-interest bearing 28,125 26,252 17,950
deposits
Other liabilities 1,310 1,347 1,725
--------- ---------- ----------
Total liabilities 170,810 177,558 185,773
Shareholders' equity 17,943 16,684 15,582
--------- ---------- ----------
Total liabilities and
shareholders' equity $188,753 $194,242 $201,355
========= ========== ==========
Net interest income (FTE) and
Margin $8,291 4.70% $8,615 4.73% $8,129 4.30%
================== =================== ====================
Net earning assets and
spread $34,919 3.07% $32,299 4.10% $22,897 3.79%
========= =================== ================= =======
</TABLE>
39
<PAGE> 51
The following table sets forth changes in interest income and interest expense
for each major category of interest-earning assets and interest-bearing
liabilities and the amount of change attributable to volume change and rate
change for the period indicated. The change in interest income due to both
volume change and rate change has been allocated to volume change and rate
change on a pro rata basis.
RATE VOLUME ANALYSIS
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
1994/1993 1993/1992
--------------------------------------------------------------------------
Change Attributable Total Change Attributable Total
to Increase to Increase
------------------- ------------------
Rate Volume (Decrease) Rate Volume (Decrease)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investment securities ($8) ($293) ($301) ($45) $116 $71
Federal funds sold and securities 167 (353) (186) 93 (263) (170)
purchased under resale agreements
Loans (805) 489 (316) (802) (214) (1,016)
----------------------------------------------------------------------------
Total interest income (646) (157) (803) (754) (361) (1,115)
INTEREST BEARING LIABILITIES:
Money market, NOW and savings deposits 22 (193) (171) (354) (98) (452)
Certificates of deposit $100,000 or more (22) 25 3 (60) (34) (94)
Other time deposits (217) (94) (311) (485) (570) (1,055)
----------------------------------------------------------------------------
Total interest expense (217) (262) (479) (899) (702) (1,601)
----------------------------------------------------------------------------
NET INTEREST INCOME ($429) $105 ($324) $145 $341 $486
====== ===== ====== ===== ==== ====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is the periodic charge to earnings for
potential losses in the loan portfolio. The amounts provided for loan losses
are determined by management after evaluations of the loan portfolio. This
evaluation process requires that management apply various judgments,
assumptions and estimates concerning the impact certain factors may have on
amounts provided. Factors considered by management in its evaluation process
include known and inherent losses in the loan portfolio, the current economic
environment, the composition of and risk in the loan portfolio, prior loss
experience and underlying collateral values. While management considers the
amounts provided through December 31, 1994 to be adequate, subsequent changes
in these factors and related assumptions may warrant significant adjustments in
amounts provided, based on conditions prevailing at the time. In addition,
various regulatory agencies, as an integral part of the examination process,
review the Company's allowance for loan losses. Such agencies may require the
Company to make additions to the allowance based on their judgments of
information available to them at the time of their examination.
There was no provision for loan losses for the years ended December
31, 1994, 1993 and 1992. Improving economic conditions which has led to lower
nonperforming loans has resulted in no provision for loan losses being
necessary, in the judgment of management, to maintain an adequate level of
reserves for potential losses on loans. Management continues to closely
monitor its Allowance for Possible Loan Losses and will make provisions as
management deems necessary.
40
<PAGE> 52
NON-INTEREST INCOME
Growth in other operating income is of great importance to the
Company. The Company continues to develop and enhance existing products and to
create new products to increase fee income as trends in the financial services
industry and the economic environment continue to put pressure on the Company's
ability to increase its net interest income.
During 1994, Service Charges on Deposit Accounts increased $113, or
7.1%, over 1993, compared to an increase of $71, or 4.7% for 1993 over 1992.
No significant changes in the fee structure used to price these services were
made during the current year, however, management closely monitors the
profitability of deposit accounts and the pricing of competitor institutions to
attempt to maintain the profitability of deposit operations. The revenue
increase during 1994 was primarily due to a continued increase in NSF fees on
deposit accounts and increased transaction volumes on personal and business
deposit accounts. Other Service Charges, Commissions and Fees decreased by
$89, or 33.1% during 1994, after increasing $132, or 96.4% from 1992 to 1993.
The decrease in 1994 is the result of decreases in commissions earned on the
sale of mutual funds, while the increase from 1992 to 1993 is the result of
increased commission earned from the sale of mutual funds. Other income
decreased by $25, or 8.8%, from 1993 to 1994 compared to a decrease of $16, or
11.8% from 1992 to 1993. The decrease in 1994 and 1993 in other income is a
result of declines in miscellaneous income and miscellaneous service charges.
NON-INTEREST EXPENSE
The following table sets forth information by category of non-interest
expense for Citizens National Bancshares, Inc. and Subsidiary for the years
indicated.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Salaries, Wages and Employee Benefits $3,852 $3,324 $3,099
Occupancy Expenses, Net 476 507 508
Equipment Expense 392 358 352
Professional Fees 565 290 287
Insurance 497 542 500
Expenses and Other Real Estate including (Gains)/Loss on Sales (233) (60) 363
Other Expenses 1,209 1,185 1,117
---------------------------------
Total $6,758 $6,146 $6,226
=================================
</TABLE>
Non-interest expense for the year ended December 31, 1994 increased
$612 or 9.96% over 1993 which, in turn, reflected an $80 or 1.3% decrease from
1992. The primary factor in the increase from 1993 to 1994 was an 15.89%
increase in personnel expenses, which reflects increases in salaries due to
merit increases, bonus payments to employees and expenses related to a new
severance plan implemented in 1994. The significant increase in Professional
Fees was the result of expenses incurred as a result of the engagement by the
Company of legal and other professionals in connection with the proposed merger
with Deposit Guaranty. The decrease in non-interest expense between 1992 and
1993 was due primarily to writedowns of other real estate taken in 1992 offset
by increases in Salaries, Wages and Employee Benefits.
41
<PAGE> 53
INCOME TAXES
Income tax expense was $919 in 1994, compared to $1,315 in 1993 and
$1,119 in 1992. The decrease in tax expense from 1993 to 1994 was primarily due
to a decrease in pre-tax income. The Company's effective tax rate was 26.9%
for 1994, and 28.9% for 1993, and 29.2% for 1992. These effective rates are
much lower than the statutory income tax rates, primarily due to tax exempt
interest income received on certain loans and debt securities. The decrease in
the effective tax rate for 1994 is primarily a result of increased levels of
tax-exempt income from state and municipal securities.
The Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standard ("SFAS") No. 109 as of January 1, 1993. This
statement significantly changed the method by which companies account for
deferred income taxes for financial statement purposes. The emphasis in
accounting for deferred income taxes changed from an income statement approach
to a balance sheet approach, thereby ensuring the proper accrual of the
appropriate asset or liability for deferred taxes. The cumulative effect of
the adoption of the Statement was a benefit of $172 which is separately
disclosed in the Income Statement as a Cumulative Effect of Change in
Accounting Principle for the year ended December 1993.
FINANCIAL POSITION
At December 31, 1994, total resources were approximately $189,864, as
compared to $192,619 and $199,236 at December 31, 1993 and 1992 respectively.
Average total resources for these years was approximately $188,753 for 1994 and
$194,242 for 1993 and $201,355 for 1992. The decrease from 1993 to 1994 was
attributable primarily to decreases in Savings, Interest Bearing Demand and
Time Deposits, as the Company's customers look for other investment
alternatives. The decrease from 1992 to 1993 was primarily a result of
decreases in time deposits, which is a result of customers investments into
alternative deposit products.
INVESTMENT SECURITIES
At December 31, 1994, the Company's investment securities portfolio
aggregated $85,448, a decrease of $4,420 and $1,372, respectively, from the
$89,868 reported at December 31, 1993 and $87,524 reported at December 31,
1992.
The following table sets forth the composition of the Company's
investment portfolio at the end of each period presented.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Available Held to Maturity
for Sale
--------- --------------------------------
1994 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. Treasury $30,813 $6,114 $32,873 $39,977
U.S. Government Agencies 0 32,218 41,863 33,988
State and municipal 0 15,702 13,947 10,702
Other Securities 601 0 1,185 2,857
------- --------------------------------
Total $31,414 $54,034 $89,868 $87,524
======= ================================
</TABLE>
42
<PAGE> 54
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" by reclassifying $26,759 of
securities to the available for sale portfolio. Under this standard,
securities are classified into one of three classifications: held to maturity,
available for sale, or trading. Held to maturity securities are those debt
securities which the Company has the positive intent and ability to hold to
maturity. These criteria are not considered satisfied when a security would be
available to be sold in response to significant interest rate changes which
were not anticipated in the Company's asset and liability management
strategies, changes in the types of products offered by the Company, changes in
its deposit structure, or potential liquidity needs. Citizens National has no
trading securities, which are defined as securities bought and held principally
for the purpose of selling them in the near term. Securities not meeting the
criteria for classification as held to maturity or trading are classified as
securities available for sale. The available for sale securities are recorded
at market value with the net unrealized gain or loss reflected in shareholders'
equity, net of the related tax effect.
At year end, the held to maturity securities portfolio had a net
unrealized loss of $2,162 with gross gains of $74 and gross losses of $2,236.
As of December 31, 1994, the available for sale securities portfolio had a net
unrealized loss of $704, comprised of $709 in unrealized losses and $5 in
unrealized gains. Gross realized gains of $7 were realized on available for
sale investment sales during 1994. There were no sales from the available for
sale portfolio during 1993. Gross realized gains of $108 were realized on
investment sales during 1992. There are no securities whose book value, other
than securities of the U.S. Government and related agencies, exceeded ten
percent (10%) of shareholders' equity.
The following table presents selected contractual maturity data for
the investment securities in the Company's portfolio at December 31, 1994.
<TABLE>
<CAPTION>
Available for Sale: One Year One to Five to Over Ten
------------------- Or Less Five Years Ten Years Years
--------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury:
Amount $14,153 $17,065 $0 $0
Yield 5.17% 6.28% 0.00% 0.00%
Other Securities:
Amount $300 $426 $174 $0
Yield 6.00% 8.52% 6.00% 0.00%
--------------------------------------------------
$14,453 $17,491 $174 $0
==================================================
Held to Maturity
----------------
U.S. Treasury:
Amount $0 $6,114 $0 $0
Yield 0.00% 6.21% 0.00% 0.00%
U.S. Agencies:
Amount $1,528 $24,689 $6,000 $0
Yield 6.52% 6.34% 6.69% 0.00%
State and Municipals:
Amount $0 $6,148 $9,555 $0
Yield 0.00% 4.89% 5.07% 0.00%
$1,528 $36,951 $15,555 $0
==================================================
</TABLE>
See Note A, B and M to the Company's Consolidated Financial Statements
appearing elsewhere in this Proxy Statement for information concerning the
amortized cost and estimated fair values of the Company's investment
securities at December 31, 1994.
43
<PAGE> 55
LOANS
The Company engages in real estate lending through real estate
construction and mortgage loans, and commercial and consumer lending. The
lending activities of the Company are guided by the basic lending policy
established by its Board of Directors. Each loan is evaluated based on, among
other things, character and leverage capacity of the borrower, capital and
investment in a particular property, if applicable, cash flow, collateral,
market conditions for the borrower's business or project and prevailing
economic trends and conditions.
The following table sets forth the type and amount of loans
outstanding as of the date indicated:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and Industrial $6,316 $6,063 $3,246 $4,245 $5,267
Real estate - Construction 34,567 32,933 34,344 37,851 43,163
Real estate - Mortgage 28,510 28,172 28,952 31,671 25,485
Consumer 14,683 12,467 13,409 13,366 13,580
Other Loans 766 525 892 211 83
--------------------------------------------------------------
Total Loans 84,842 80,160 80,843 87,344 87,578
Unearned Income (64) (76) (98) (140) (20)
--------------------------------------------------------------
Total Loans (Net) $84,778 $80,084 $80,745 $87,204 $87,558
==============================================================
</TABLE>
The Company's loan portfolio contains a concentration of loans which
are collateralized by residential and commercial real estate. A concentration
is defined as amounts loaned to a multiple number of borrowers engaged in
similar activities, which would cause them to be similarly impacted by economic
or other conditions, where the amount exceeds ten percent (10%) of total loans.
At December 31, 1994, the Bank had approximately $63,077 of loans outstanding
to borrowers whose primary underlying collateral is residential and commercial
real estate. This amount represents approximately 74.3% of the Company's total
outstanding loans on such date. Management recognizes that these borrowers
could be adversely affected by changes in interest rates and property values.
However, management believes that these loans are sufficiently collateralized
to protect the Company from any potential losses. The Company closely monitors
the quality of all resources to ensure that risk of loss, both credit and
interest rate risk, is held to a minimum. Credit risk is inherent in the
Company's loan portfolio. In an effort to minimize credit risk, the Company
utilizes an extensive credit administration network, including specific lending
authorities for each loan officer, a system of loan committees to review and
approve loans, and an internal loan review and evaluation system. This network
assists in the early identification of problem or potential problem credits and
assists in determining the adequacy of the allowance for possible loan losses.
Average loans have increased during the past year from $79,422 in 1993
to $84,821 in 1994, after declining from $81,521 in 1992 to $79,422 in 1993.
The increase during the most recently completed year was a result of increased
loan demand in the market served by the Company as the local economy
strengthened and single-family residential construction remained strong. The
Company's loan to deposit ratio was 50.7% , 46.5% and 44.4% at December 31,
1994, 1993 and 1992 respectively.
44
<PAGE> 56
The following table provides information concerning loan portfolio
maturity as of December 31, 1994. Loan portfolio maturity by type of loan as
presented in the table above is not readily available.
<TABLE>
<S> <C>
Loans Maturing Within:
One year $47,074
After one but within five years 37,423
After five years 281
-------
Total $84,778
=======
Variable interest rate loans $6,006
Fixed interest rate loans 78,772
-------
Total $84,778
=======
</TABLE>
NON-PERFORMING ASSETS. Management classifies loans as non-performing
when they are either on non-accrual, accruing and past due ninety (90) days or
more, or a troubled debt restructuring. Loans are automatically placed on
non-accrual when principal or interest is past due ninety (90) days or more,
unless the loan is both well secured and in the process of being collected.
Additionally, loans are placed on non-accrual when collection of all principal
or interest is deemed unlikely. Loans totaling $808 were classified as
non-performing at year-end 1994, compared to $1,403 for 1993 and $1,520 for
1992. If these loans had performed in accordance with their original terms,
interest income for 1994, 1993 and 1992 would have increased by approximately
$77, $116 and $227, respectively. There was no income recognized on nonaccrual
loans in 1994, 1993 or 1992. The following table summarizes the risk element
in the loan portfolio and real estate and other assets acquired through
foreclosures.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $808 $1,403 $1,520 $3,482 $3,957
Real estate acquired through 697 1,084 1,773 2,475 5,383
foreclosure
Other assets acquired through 0 0 0 0 0
repossession
</TABLE>
Management is not aware of any loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention and excluded from
the above table which: (1) represents or results from trends or uncertainties
that will materially impact future operating results, liquidity or capital
reserves, or (2) represents material credits about which management is aware of
any information which causes doubts as to the ability of such borrowers to
comply with the loan repayment terms.
45
<PAGE> 57
ALLOWANCE FOR LOAN LOSSES. A certain degree of risk is inherent in
the extension of credit. Management has credit policies in place to monitor
and attempt to control the level of loan losses and nonperforming loans. One
product of the Company's credit risk management is the maintenance of the
allowance for loan losses at a level considered by management to be adequate to
absorb estimated known and inherent losses in the existing portfolio, including
commitments and standby letters of credit. The allowance for loan losses is
established through charges to operations in the form of provisions for loan
losses.
The allowance is based upon a regular review of current economic
conditions, which might affect a borrower's ability to pay, underlying
collateral values, risk in and the composition of the loan portfolio, prior
loss experience and industry averages. Loans that are deemed to be
uncollectible are charged-off and deducted from the allowance. The provision
for loan losses and recoveries on loans previously charged-off are added to the
allowance.
The following table sets forth the Company's loan loss experience and
certain information relating to its allowance for loan losses as of the dates
and for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,712 $1,764 $1,852 $1,701 $1,257
Provision charged to expense 0 0 0 634 1,311
Charge-offs:
Real Estate 63 108 235 486 742
Consumer 91 34 59 94 156
Commercial and all other 3 38 7 17 69
----------------------------------------------------
Total Charge-offs 157 180 301 597 967
----------------------------------------------------
Recoveries:
Real Estate 14 87 173 70 41
Consumer 43 33 28 42 43
Commercial and all other 1 8 12 2 16
----------------------------------------------------
Total Recoveries 58 128 213 114 100
----------------------------------------------------
Net loan charge-offs (recoveries) 99 52 88 483 867
----------------------------------------------------
Balance at end of year $1,613 $1,712 $1,764 $1,852 $1,701
====================================================
Ratios:
Net loan charge-offs as a % of 0.12% 0.07% 0.11% 0.54% 0.96%
average loans
Recoveries as a % of charge-offs 36.94 71.11 70.76 80.90 10.34
Allowance for possible loan losses
as a % of year-end loans and leases 1.95 2.14 2.17 2.08 1.88
</TABLE>
Management believes that the allowance for loan losses at December 31,
1994 was adequate to absorb the known and inherent risks in the loan portfolio
at that time. However, no assurance can be given that future changes in
46
<PAGE> 58
economic conditions that might adversely affect the Company's principal market
area, borrowers or collateral values, and other circumstances will not result
in increased losses in the Company's loan portfolio in the future.
The Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which is effective January
1, 1995. This statement establishes standards, including the use of discounted
cash flow techniques, for measuring the impairment of a loan when it is
probable that the contractual terms will not be met. As of December 31, 1994,
the Company had loans totalling approximately $808, which met the definition
of an impaired loan under this new standard. The effect of adopting this new
standard will not have a material impact on the Company's' financial position
or results of operation.
Although the Company does not normally allocate the allowance for loan
losses to specific loan categories, an allocation has been made for purposes of
this discussion as set forth below. The following table sets forth the
approximate dollar amount of the allowance allocable to the stated loan
categories, and the percent of total loans in each such category for the
periods presented.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and $74 8.30% $98 8.20% $69 5.10% $93 5.10% $79 6.10%
Industrial
Real Estate 658 74.40% 907 76.20% 1,061 78.30% 1,447 79.60% 1,019 78.80%
Consumer 153 17.30% 185 15.60% 225 16.60% 278 15.30% 195 15.10%
Unallocated 728 522 409 34 408
---------------------------------------------------------------------------------------------------
Total $1,613 100.00% $1,712 100.00% $1,764 100.00% $1,852 100.00% $1,701 100.00%
===================================================================================================
</TABLE>
The allocation of the allowance for loan losses should not be
interpreted as an indication of future credit trends or that losses will occur
in these amounts or proportions. Furthermore, the portion allocated to each
loan category is not the total amount available for future losses that might
occur within such categories, since even on the above basis there is a
substantial unallocated portion of the allowance, and the total allowance is a
general allowance applicable to the entire portfolio.
DEPOSITS
Deposits are the primary source of funding for the Company's earning
assets. Total deposits at the end of 1994, 1993 and 1992 were approximately
$167,254, $172,337 and $181,895, respectively. Average deposits for the years
ending December 31, 1994, 1993 and 1992 are outlined in the following table.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Deposits:
$28,125 16.59% $26,252 14.90% $17,950 9.75%
Noninterest-
bearing
demand
deposits
</TABLE>
47
<PAGE> 59
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NOW 20,775 12.26% 24,287 13.78% 32,424 17.62%
account
deposits
Money 22,080 13.03% 24,784 14.06% 21,498 11.68%
market
investment
deposits
Savings 25,221 14.88% 26,019 14.77% 24,554 13.34%
Deposits
Other 59,468 35.08% 61,646 34.98% 73,676 40.03%
consumer
time
deposits
----------------------------------------------------------------------------------------
Total Core 155,669 91.84% 162,988 92.50% 170,102 92.42%
Deposits
Time 13,831 8.16% 13,223 7.50% 13,946 7.58%
deposits of
$100,000 and
over
----------------------------------------------------------------------------------------
TOTAL $169,500 100.00% $176,211 100.00% $184,048 100.00%
AVERAGE
DEPOSITS
========================================================================================
</TABLE>
Time certificates of deposit of $100 or more, which were approximately
$13,730 at December 31, 1994 and $12,973 at December 31, 1993, had remaining
maturities as follows as of December 31:
REMAINING MATURITY
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
Three months or less $4,000 $2,751 $4,847
Over three through twelve months 3,100 4,934 5,089
Over one year through five years 6,630 4,785 3,722
Over five years 0 503 0
---------------------------------------
Total $13,730 $12,973 $13,658
=======================================
</TABLE>
INTEREST RATE SENSITIVITY
Interest rate risk is the potential impact of changes in interest
rates on net interest income and results from disparities in repricing
opportunities of assets and liabilities over a period of time. Management
estimates the effects of changing interest rates and various balance sheet
strategies on the level of net interest income. Management may alter the mix
of floating- and fixed-rate assets and liabilities, change pricing schedules,
and adjust maturities through sales and purchases of securities available for
sale as a means of limiting interest rate risk.
48
<PAGE> 60
The accompanying table reflects cumulative gap to total assets as a
negative 27.27% within the three (3) month period. A negative gap implies that
earnings would increase in a falling interest rate environment and decrease in
a rising interest rate environment. However, the degree of interest rate
sensitivity is not equal for all types of assets and liabilities. The
Company's experience has indicated that the repricing of interest-bearing
demand, savings and money market accounts does not move with the same magnitude
as general market rates. Additionally, these deposit categories, along with
non-interest demand, have historically been stable sources of funds to the
Company, which indicates a much longer implicit maturity than their contractual
availability. Therefore, an increase in market rates would not result in an
immediate repricing of all assets and liabilities simultaneously, thereby
reducing the negative impact on net interest income of an increase in rates.
INTEREST RATE SENSITIVITY AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
Non-
0-3 4-6 7-12 After One Interest
Months Months Months Year Bearing TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans $17,056 $10,946 $19,072 $37,704 $0 $84,778
Less: Allowance for Loan Losses (1,613) (1,613)
Investments 8,978 3,011 3,992 70,171 0 86,152
Less: Market Valuation (704) (704)
Interest-Bearing Deposits with 300 0 0 0 0 300
Banks
Federal Funds 5,982 0 0 0 0 5,982
Other Non-Interest Bearing Assets 0 0 0 0 14,969 14,969
-----------------------------------------------------------------------
TOTAL ASSETS $32,316 $13,957 $23,064 $107,875 $12,652 $189,864
=======================================================================
SOURCES OF FUNDS:
Savings and NOW Accounts $48,097 $0 $0 $0 $0 $48,097
Money Market Accounts 17,748 0 0 0 0 17,748
CD's over $100,000 4,000 1,416 1,684 6,630 0 13,730
Other Time Deposits 14,251 14,851 11,044 18,783 0 58,929
Other Liabilities 0 0 0 0 30,317 30,317
Shareholders' Equity 0 0 0 0 21,043 21,043
-----------------------------------------------------------------------
TOTAL SOURCE OF FUNDS $84,096 $16,267 $12,728 $25,413 $51,360 $189,864
=======================================================================
Repricing Gap ($51,780) ($2,310) $10,336 $82,462 ($38,708)
Cumulative Repricing Gap (51,780) (54,090) (43,754) 38,708 0
Cumulative Repricing Gap/Total
Assets (27.27%) (28.49%) (23.04%) 20.39%
LIQUIDITY
</TABLE>
49
<PAGE> 61
The Company seeks to manage its liquidity position to attempt to
ensure that sufficient funds are available to meet customers' needs for
borrowing and deposit withdrawals. Liquidity is derived from both the asset
and liability sides of the balance sheet. Asset liquidity arises from the
ability to convert assets to cash and self-liquidation or maturity of assets.
Liquid asset balances include cash, interest-bearing deposits with financial
institutions, short-term investments and federal funds sold. Liability
liquidity arises from a diversity of funding sources as well as from the
ability of the Company to attract deposits of varying maturities. If the
Company were limited to only one source of funding or all its deposits had the
same maturity, its liquidity position would be adversely impacted.
The Company's funding source is primarily its deposit base which is
comprised of interest-bearing and noninterest-bearing accounts. The Company's
non-interest bearing demand deposits are, by their very nature, subject to
withdrawal upon demand. Declines in one form of funding source require the
Company to obtain funds from another source. If the Company were to
experience a decline in noninterest-bearing demand deposits and was to have a
significant increase in loan volume without a commensurate increase in such
deposits, it would utilize alternative sources of funds, probably at higher
cost, to maintain its liquidity and to meet its loan funding needs. This would
place downward pressure on the Company's net interest margin and might have a
negative impact on the Company's liquidity position.
Bank's liquidity expressed as a percentage of net liquid assets to net
liabilities was 34.16%, 39.12% and 40.84% at December 31, 1994, 1993 and 1992
respectively.
CAPITAL ADEQUACY
At December 31, 1994, the Company's total shareholders' equity was
$21,043, an increase of 9.83% from $19,159 at December 31, 1993. Book value
per common share is presented in the table below.
<TABLE>
<CAPTION>
December 31,
------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Shares outstanding 361,684 349,273 309,266
Shareholders' equity $21,043 $19,159 $15,996
Book value per common share 58.18 54.85 51.72
</TABLE>
Adequate levels of capital are necessary over time to sustain growth
and absorb losses. In the case of banks and bank holding companies, capital
levels must also meet minimum regulatory requirements. Regulatory guidelines
designed to measure capital adequacy in terms of risk-weighted assets became
effective at the end of 1990 with compliance required by the end of 1992 to
reach regulatory minimum of 4% Tier I and 8% total risk-based capital. Tier I
Capital consists of Common Stock, Surplus, and Undivided Profits. Tier II
Capital consists of the Allowance for Loan Losses. However, Tier II Capital
cannot exceed 1.25% of gross risk-weighted assets. Each tier is then divided
by risk-weighted assets. The four categories of risk weightings are intended
to reflect the creditworthiness of each asset and off-balance sheet exposure.
In conjunction with the risk-based capital guidelines, the regulators have
issued capital leverage guidelines. The minimum for all banks is 3% with
higher minimums dependent upon the condition of the individual bank. The
Company's capital ratios exceeded the regulatory minimums as indicated in the
capital table below:
50
<PAGE> 62
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
----------------------------
<S> <C> <C>
Capital
Tier I $18,159 $16,972
Tier II 1,179 1,169
----------------------------
Total Capital $19,338 $18,141
============================
Risk-weighted assets 93,916 92,962
</TABLE>
<TABLE>
<CAPTION>
Ratios: Regulatory
Minimum
-------
<S> <C> <C> <C>
Tier I capital to risk-weighted assets 19.34% 18.26% 4.00%
Tier II capital to risk-weighted assets 1.26% 1.26% N/A
Total capital to risk-weighted 20.59% 19.51% 8.00%
assets
Leverage Ratio 9.59% 8.70% 3.00%
</TABLE>
The payment of dividends by a national bank is regulated by the Comptroller
of Currency. At December 31, 1994, the amount of undivided profits which could
be paid to Citizens National Bancshares, Inc. without prior approval is
approximately $4,418.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial assets and liabilities as of
December 31, 1994 is disclosed in the Note M of the Notes to The Consolidated
Financial Statements for the years ended December 31, 1994 and 1993. Fair
values were determined based on market quotes, where available, or were
calculated using discounted cash flows, if no market quotes were available.
The differences between fair values and book values were primarily caused by
differences between contractual and market interest rates at year-end.
Fluctuations in fair value will occur as interest rates change. Since
the Company manages the repricing of its assets and liabilities, changes in
fair values are not expected to have a material impact on the Company's
financial condition, results of operations, liquidity or capital resources.
NEW ACCOUNTING STANDARDS
In December 1990, the Financial Accounting Standards Board issued SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Statement, which is effective for fiscal years beginning after
December 15, 1994 for the Company, requires the accrual of the expected costs
of postretirement benefits during the years that an eligible employee renders
service to the employer. The Company had not adopted the new standard as of
December 31, 1994. However, as of December 31, 1994, the Company had no
postretirement benefit obligation.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The Statement which was effective January 1, 1994,
requires that employers accrue a liability for employees' compensation which is
attributable to employees' services already rendered, if payment of
compensation is probable, benefits have vested to the employee and the amount
51
<PAGE> 63
can be reasonably estimated. During 1994, the Board of Directors of CNB
approved the Merger Agreement with Deposit Guaranty. In anticipation of the
Merger, the Board of Directors also approved a severance plan for certain
employees which may be affected due to the merger. Additionally, in order to
ensure the efficient and profitable operation of the Bank until the merger
date, a "stay-put" bonus plan was approved by the Board of Directors. This
plan calls for the payment of various amounts to certain employees who maintain
their employment with the Company until the effective date of the Merger or
termination date, whichever comes first. The estimated amount that will be
paid under the plans will approximate $420 if the plan of merger is consummated
before April 30, 1995. The Company accrued, as of December 31, 1994, the
amount of benefits payable for service rendered through December 31, 1994.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financing Accounting Standards No. 119, "Discussion about
Derivative Financial Instruments and Face Value of Financial Instruments."
This new standard was adopted by the Company on December 31, 1994. The only
effect to the Company's financial statements as a result of adoption was a
change to the presentation of fair value of financial instruments. See Note M
of the Notes to Consolidated Financial Statements. As of December 31, 1994,
the Company did not have any financial instruments as defined by this new
standard.
LEGAL OPINION
The validity of the shares of Deposit Guaranty Common Stock offered
hereby will be passed upon for Deposit Guaranty by Watkins Ludlam & Stennis of
Jackson, Mississippi.
EXPERTS
The consolidated financial statements of Deposit Guaranty as of
December 31, 1994, 1993, and 1992, and for each of the years in the three-year
period ended December 31, 1994, have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, also incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31,
1994, consolidated financial statements refers to a change in the method of
accounting for debt securities.
The consolidated financial statements of CNB as of December 31, 1994
and 1993, and for each of the years in the three-year period ended December 31,
1994, have been audited by Arthur Andersen LLP, as indicated in their reports
with respect thereto and have been included herein and in the registration
statement in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of
Directors of CNB knows of no matters which will be presented for consideration
at the Meeting other than as set forth in the Notice of such meeting attached
to this Proxy Statement/Prospectus. However, if any other matters shall come
before the Meeting or any adjournment or postponement thereof and be voted upon
the enclosed proxy shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
52
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
CITIZENS NATIONAL BANCSHARES, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statement of Financial Position at December 31, 1994 and 1993 54
Consolidated Statement of Income for each of the Years in the Three Year
Period Ended December 31, 1994 55
Consolidated Statement of Changes in Shareholders' Equity for each of the
Years in the Three Year Period Ended December 31, 1994 57
Consolidated Statement of Cash Flows for each of the Years in the
Three Year Period Ended December 31, 1994 58
Notes to Consolidated Financial Statements for each of the Years in the
Three Year Period Ended December 31, 1994 60
Report of Independent Public Accountants 75
</TABLE>
53
<PAGE> 65
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESOURCES:
Cash and Due from Banks (Note F) $7,755 $5,338
Time Deposits with Other Banks 300 0
Investment Securities (Notes A, B & M)
Held to Maturity, Market Value of $51,872 and $93,039, respectively 54,034 89,868
Available for Sale at Market Value 31,414 0
Federal Funds Sold 5,982 11,906
Loans (Notes A, C, K & M) 84,778 80,084
Less: Allowance for Loan Losses (Notes A & D) (1,613) (1,712)
- -------------------------------------------------------------------------------------------------------------
Net Loans 83,165 78,372
- -------------------------------------------------------------------------------------------------------------
Bank Premises and Equipment (Notes A & E) 3,523 3,446
Other Real Estate Owned by the Bank (Notes A & C) 697 1,084
Other Assets (Note I) 2,994 2,605
- -------------------------------------------------------------------------------------------------------------
TOTAL RESOURCES 189,864 192,619
=============================================================================================================
LIABILITIES:
Deposits:
Noninterest-bearing Deposits 28,751 26,218
Interest-bearing Deposits 138,503 146,119
- -------------------------------------------------------------------------------------------------------------
Total Deposits 167,254 172,337
- -------------------------------------------------------------------------------------------------------------
Other Liabilities (Note A) 1,567 1,123
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 168,821 173,460
- -------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES H & L)
SHAREHOLDERS' EQUITY:
Common Stock, $10 par value, 1,000,000 shares authorized,
398,773 shares and 398,652 shares issued at December 31, 1994
and 1993, respectively (Notes A & G) 3,987 3,987
Capital Surplus 10,494 10,422
Undivided Profits 8,505 6,705
Unrealized Loss on Available for Sale Securities (464) 0
- -------------------------------------------------------------------------------------------------------------
Total 22,522 21,114
LESS: Common Stock in Treasury, 37,089 shares and 49,379
shares at December 31, 1994 and 1993, respectively, at cost (1,479) (1,955)
- -------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 21,043 19,159
=============================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $189,864 $192,619
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
54
<PAGE> 66
CONSOLIDATED STATEMENT OF INCOME
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands Except Per Share Information)
<TABLE>
<CAPTION>
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans (Notes A & C) $7,216 $7,532 $8,548
Interest on Time Deposits with Other Banks 6 0 0
Interest and Dividends on Securities (Notes A & B):
Interest and Dividends on Taxable Securities 4,735 5,135 5,336
Interest on Tax-Exempt Securities 764 671 399
Interest on Federal Funds Sold 428 614 784
- -------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 13,149 13,952 15,067
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits:
Savings and Interest Bearing Demand 1,881 2,052 2,504
Time 2,977 3,285 4,427
Interest on Federal Funds Purchased, Securities Sold Under
Agreement to Repurchase and Other Borrowed Funds 0 0 7
- -------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 4,858 5,337 6,938
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 8,291 8,615 8,129
Provision for Possible Loan Losses (Notes A & D) 0 0 0
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,291 8,615 8,129
- -------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Service Charges on Deposit Accounts 1,701 1,588 1,517
Other Service Charges, Commissions and Fees 180 269 137
Gain on Sales of Securities (Note A) 7 0 108
Other Income 94 119 165
- -------------------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING INCOME 1,982 1,976 1,927
- -------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries, Wages and Employee Benefits (Note G) 3,852 3,324 3,099
Occupancy Expense, Net (Notes A, E & H) 476 507 508
Equipment Expense (Notes A, E & H) 392 358 352
Professional Fees 565 290 287
Insurance 497 542 500
Expenses of Other Real Estate including (Gains)/Loss on Sales (233) (60) 363
Other Expenses 1,209 1,185 1,117
- -------------------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING EXPENSES 6,758 6,146 6,226
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES & CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 3,515 4,445 3,830
Provision for Federal Income Taxes (Notes A & I) (919) (1,315) (1,119)
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 2,596 3,130 2,711
Cumulative Effect of Change in Accounting Principle (Note I) 0 172 0
- -------------------------------------------------------------------------------------------------------------
NET INCOME $2,596 $3,302 $2,711
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
55
<PAGE> 67
CONSOLIDATED STATEMENT OF INCOME
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands Except Per Share Information)
<TABLE>
<S> <C> <C> <C>
SHARE INFORMATION (Note J):
Weighted Average Number of Shares Outstanding 363,360 350,634 336,981
Net Income Per Share Before Cumulative Effect of Change in
Accounting Principle $7.14 $8.93 $8.05
Cumulative Effect of Change in Accounting Principle 0.00 0.49 0.00
- -------------------------------------------------------------------------------------------------------------
Net Income Per Share $7.14 $9.42 $8.05
=============================================================================================================
Dividends Per Share $2.20 $1.45 $1.32
=============================================================================================================
</TABLE>
56
<PAGE> 68
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Years Ended December 31, 1994
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCK Un-
------------ realized
Loss
Undi- Trea- on
Shares vided sury Securi-
Issued Amount Surplus Profits Stock ties Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 324,592 $3,246 $7,099 $5,478 ($2,221) $0 $13,602
Net Income - 1992 2,711 2,711
Cash Dividends (467) (467)
Contribution of Treasury Stock
to Employee Stock Ownership 19 71 90
Plan
Stock Dividend (Note A) 32,593 326 1,467 (1,793) 0
Exercise of Stock Options
(Note G) 1,337 13 47 60
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 358,522 3,585 8,632 5,929 (2,150) 0 15,996
Net Income - 1993 3,302 3,302
Cash Dividends (532) (532)
Contribution of Treasury Stock
to Employee Stock Ownership 28 67 95
Plan
Stock Dividend (Note A) 36,241 362 1,631 (1,993) 0
Exercise of Stock Options 3,889 40 121 161
Exercise of Stock Options from
Treasury Stock (Note G) (11) 127 116
Tax Benefit of Stock Options 21 21
Repayment of Recovered
Unclaimed Dividends (1) (1)
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 398,652 3,987 10,422 6,705 (1,956) 0 19,158
Unrealized gain on securities
on January 1, 1994 648 648
Net Income - 1994 2,596 2,596
Cash Dividends (796) (796)
Exercise of Stock Options 121 3 3
Exercise of Stock Options from
Treasury Stock (Note G) (42) 501 459
Tax Benefit of Stock Options 111 111
Purchase of Treasury Stock (24) (24)
Change in Unrealized Loss on
Securities (1,112) (1,112)
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 398,773 $3,987 $10,494 $8,505 ($1,479) ($464) $21,043
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
57
<PAGE> 69
CONSOLIDATED STATEMENT OF CASH FLOWS
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Interest Received $13,362 $14,297 $15,168
Service Charges and Commissions Received 2,023 2,197 1,468
Interest Paid (4,917) (5,608) (7,342)
Cash Paid to Suppliers and Employees (6,302) (5,766) (5,730)
Income Taxes (Paid) (1,210) (1,072) (1,070)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,956 4,048 2,494
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds From Sales of Investment Securities 0 20,627 27,495
Proceeds From Maturities of Investment Securities - Held to 10,760 0 0
Maturity
Proceeds From Maturities of Investment Securities Available for 19,520 0 0
Sale
Purchase of Investment Securities - Held to Maturity (4,919) (23,188) (45,905)
Purchase of Investment Securities Available for Sale (21,292) 0 0
Purchase of Time Certificate of Deposit (300) 0 0
Net Decrease in Loans and Other Real Estate Financed (4,824) 973 6,478
Proceeds from the Sale of Property, Plant and Equipment 0 3 364
Capital Expenditures (598) (375) (547)
Proceeds From the Sale of Other Real Estate 971 814 1,355
Foreclosures and Investments in Other Real Estate (40) (443) (1,148)
- -------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (722) (1,589) (11,908)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand, Savings, and Interest
Bearing Demand Deposits (3,303) 2,722 16,912
Net Decrease in Time Deposits (1,780) (12,280) (2,328)
Proceeds From the Issuance of Common Stock 4 161 60
Proceeds From Recovery of Unclaimed Dividends 0 (1) 0
Sale of Treasury Stock 434 116 0
Dividends Paid (796) (532) (467)
- -------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,441) (9,814) 14,177
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH (3,207) (7,355) 4,763
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,244 24,599 19,836
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $14,037 $17,244 $24,599
=============================================================================================================
</TABLE>
58
<PAGE> 70
<TABLE>
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash Provided by Operations:
Net Income $2,596 $3,302 $2,711
Expenses Not Requiring Cash Outlays in the Current Period:
Depreciation 400 398 361
Provision for Possible Loan Losses 0 0 0
Employee Stock Ownership Contribution from Treasury Stock 0 95 90
Discount Accretion and Premium Amortization 34 217 138
(Gain) Loss of Sales or Writedowns of:
Investment Securities (7) 0 (108)
Equipment and Other Real Estate (233) (60) 363
Increase (Decrease) in Taxes Payable (26) 26 0
Decrease in Interest Payable (59) (255) (404)
Increase (Decrease) in Other Accrued Liabilities 529 7 (318)
(Increase) Decrease in Taxes Receivable (376) 25 49
Increase in Capital Surplus From Tax Effect of Exercising Stock 111 21 0
Options
(Increase) Decrease in Interest Receivable 172 128 (37)
(Increase) Decrease in Other Receivables (185) 144 (351)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $2,956 $4,048 $2,494
=============================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
59
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS NATIONAL BANCSHARES, INC. AND SUBSIDIARY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The accounting principles
and policies followed by Citizens National Bancshares, Inc. and its subsidiary
conform with generally accepted accounting principles. The significant
principles and policies are summarized as follows:
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Citizens National Bancshares, Inc. (the Company) and
its wholly-owned subsidiary, Citizens National Bank (the Bank). All material
intercompany accounts and transactions have been eliminated.
FAIR VALUES OF FINANCIAL INSTRUMENTS. FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
A more detailed discussion relating to the Fair Values of Financial Instruments
of the Company are presented in Note M of the Financial Statements.
CASH AND CASH EQUIVALENTS. For purposes of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid deposits in
other financial institutions and federal funds sold with a maturity of three
months or less at the time of acquisition to be cash equivalent. For these
short-term instruments, their carrying amount is a reasonable estimate of fair
value.
INVESTMENT SECURITIES. Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting
for Certain Investments in Debt and Equity Securities" which requires the
classification of securities as trading, available for sale or held to
maturity. Management determines the classifications of its securities when
they are purchased based on the anticipated needs of the Company.
Securities for which management has the intent and ability to hold
until maturity are classified as held to maturity. These securities are stated
at cost, adjusted for amortization of premiums and accretion of discounts using
either the interest method or the straight-line method, which produces
approximately the same result.
Securities which may be sold in response to changes in interest rates,
liquidity needs or asset/liability management strategies are classified as
available for sale. These securities are reflected at market value, and net
unrealized gains or losses are shown as a separate component of stockholders'
equity, net of the tax effect if such losses were actually realized. Realized
gains or losses, using the specific identification method, are recognized at
the time of sale or call of a security and are shown as a separate component of
other income in the consolidated statements of income.
LOANS. Loans are stated at the amount of the loan disbursed to the
borrower which is net of unearned income. The fair value of loans as disclosed
in Note M is estimated by discounting the future cash flows using a discount
rate that reflects the effects of interest rate changes and changes in credit
risk since the time the loans were originated.
Interest on loans is taken into income as earned and is based on the
principal amount outstanding, except for the interest on discounted consumer
loans which is based upon the sum-of-the-months' digits method, which
approximated the interest method. When interest payments on a loan are
doubtful, it is the Bank's policy to cease the accrual of interest and to
recognize income on the cash basis when payment of principal is not doubtful.
60
<PAGE> 72
DEPOSITS. The deposit liabilities of the bank reflect the principal
balance held by the Company on behalf of its customers. The fair value of
demand deposits, savings and interest-bearing demand deposits is the amount
reported in the financial statements. The fair value of fixed-maturity time
deposits is estimated using estimated settlement rates at December 31, 1994. A
more detailed presentation of the estimated fair value of deposits is presented
in Note M.
ALLOWANCE FOR LOAN LOSSES. The Bank utilizes the "reserve method" of
accounting for loan losses. All loan losses are charged against the allowance
for loan losses, recoveries are added to it, and the loan loss provision is
added to the allowance with a corresponding charge to earnings. The provision
is determined by management in light of past loan loss experience and
evaluation of potential loss in the current loan portfolio and current economic
trends. The allowance for loan losses is based on estimates, and ultimate
losses may vary from current estimates. These estimates are reviewed quarterly
and, as adjustments become necessary, are reported in earnings in the periods
in which they become known. An analysis of this account is provided in Note D.
BANK PREMISES AND EQUIPMENT. Bank premises and equipment are stated
at cost less accumulated depreciation. Depreciation is computed and charged to
Occupancy Expense and Equipment Expense using both straight-line and declining
balance methods. The cost and related accumulated depreciation of any asset is
removed from the accounts upon retirement, and any resulting gain or loss is
reflected in current operating income. Expenditures for maintenance and repair
are charged against earnings as incurred; cost of major additions and
improvements are capitalized.
OTHER REAL ESTATE. Real estate and other assets acquired through
foreclosure are stated at the lower of the loan balance or fair value of the
asset less estimated disposal cost. Upon foreclosure, any excess of the loan
balance over the fair value is charged to the Allowance for Loan Losses.
Subsequent impairments of value are charged to earnings when they become known.
INCOME TAXES. For financial reporting purposes, the income tax
effects of transactions are recognized in the same fiscal periods as the
related items of income and expense, regardless of when they are recognized for
income tax reporting purposes.
PRIOR YEAR RECLASSIFICATIONS. Certain prior period figures have been
reclassified to conform with current year presentation.
STOCK DIVIDEND. The 10% stock dividend declared November 18, 1993 was
recorded at the estimated fair market value of the shares issued.
61
<PAGE> 73
B. INVESTMENT SECURITIES
The carrying value and estimated market value of investment securities
are as follows:
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------------------------------------
Unre- Unrea-
Book alized Market Book lized Market
Value Gains Losses Value Value Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held To Maturity
U.S. Treasury Obligations $6,114 $0 $302 $5,812 $32,873 $902 $15 $33,760
U.S. Agency Obligations 32,218 42 1,445 30,815 41,863 1,440 48 43,255
Obligations of State and
Political Subdivisions 15,702 32 489 15,245 13,947 847 --- 14,794
Other Debt Securities 0 --- --- 0 1,185 45 --- 1,230
- -------------------------------------------------------------------------------------------------------------
TOTAL HELD TO
MATURITY $54,034 $74 $2,236 $51,872 $89,868 $3,234 $63 $93,039
=============================================================================================================
Available for Sale
U.S. Treasury Obligations $31,518 $3 $708 $30,813 $0 --- --- $0
Other Debt Securities 600 2 1 601 0 --- --- 0
- -------------------------------------------------------------------------------------------------------------
TOTAL AVAILABLE
FOR SALE $32,118 $5 $709 $31,414 $0 $0 $0 $0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
During 1994, the Bank realized gross gains of $7 on sale of available for sale
securities. There were no sales of investment securities during 1993. During
1992, the Bank realized gains of $108.
The carrying value and estimated market value of securities at December 31,
1994, 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.
Mortgage-backed securities are classified based upon their scheduled maturity
date. The Bank's mortgage-backed securities have contractual maturities
ranging from 3 to 4 years; based on current prepayment assumptions, the
estimated average remaining life of the mortgage-backed securities was
approximately 3.6 years at December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------------------------------------
Book
Value Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Held to Maturity:
Due in one year or less $1,528 $1,517
Due after one year through five years 36,951 35,507
Due after five years through ten years 15,555 14,848
</TABLE>
62
<PAGE> 74
<TABLE>
<S> <C> <C>
Due after ten years 0 0
- -------------------------------------------------------------------------------------------------------------
Total Held to Maturity $54,034 $51,872
=============================================================================================================
Available for Sale:
Due in one year or less $14,453 $14,402
Due after one year through five years 17,491 16,838
Due after five years through ten years 174 174
Due after ten years 0 0
- -------------------------------------------------------------------------------------------------------------
Total Available for Sale $32,118 $31,414
=============================================================================================================
</TABLE>
The book value of securities pledged to secure public deposits and for
other purposes required by law amounted to $20,095 at December 31, 1994, and
$17,004 at December 31, 1993.
C. LOANS & OTHER REAL ESTATE
Loans consist of the following categories:
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and Industrial $6,316 $6,063
Real Estate - Commercial 34,567 32,933
Real Estate - Residential 28,510 28,172
Consumer - Loans 14,683 12,467
Other Loans 766 525
Less: Unearned Income (64) (76)
- -------------------------------------------------------------------------------------------------------------
TOTAL $84,778 $80,084
=============================================================================================================
</TABLE>
Other Real Estate consists of the following categories:
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------
SOLD AND FINANCED
OWNED BY THE BANK BY THE BANK
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $419 $833 $141 $127
Residential 110 114 27 10
- -------------------------------------------------------------------------------------------------------------
TOTAL $529 $947 $168 $137
=============================================================================================================
</TABLE>
Non-performing assets consist of the following:
63
<PAGE> 75
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $808 $1,403
Other Real Estate Owned 697 1,084
- ----------------------------------------------------------------------------------------------------------
TOTAL $1,505 $2,487
==========================================================================================================
Loans past due 90 days or more and not on a nonaccrual basis 1 0
==========================================================================================================
Non-performing assets as a percent of Loans, net of unearned income, 1.78% 3.11%
and Other Real Estate
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The reduction in earnings associated with loans on a nonaccrual basis
was $77, $116, and $227 for the years ended December 31, 1994, 1993, and 1992,
respectively. No income was recognized on nonaccrual loans in 1994, 1993 or
1992.
Most of the Company's business activity is with customers located
within Tangipahoa Parish and the immediate surrounding area. As of December
31, 1994, there were no significant loans issued to borrowers located or
conducting business activities outside of this geographic region.
As of December 31, 1994, the Bank had 14 customers to whom loans
exceeded $500. At December 31, 1994, these loans totaled $10,343.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a
Loan," which is effective January 1, 1995. This statement establishes
standards, including the use of discounted cash flow techniques, for measuring
the impairment of a loan when it is probable that the contractual terms will
not be met. As of December 31, 1994, the Company had loans totalling
approximately $808, which met the definition of an impaired loan under this
new standard. The Company believes the effect of adopting this new standard
will not have a material impact on the Company's financial position or results
of operation.
D. ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the Company's allowance for loan
losses:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning of Period $1,712 $1,764 $1,852
Provision Charged Against Current Earnings 0 0 0
Recoveries on Previously Charged-Off Loans 58 128 213
- ----------------------------------------------------------------------------------------------------------
Balance Available for Charge-Offs 1,770 1,892 2,065
Loans Charged Off (157) (180) (301)
- ----------------------------------------------------------------------------------------------------------
Balance, End of Period $1,613 $1,712 $1,764
==========================================================================================================
</TABLE>
64
<PAGE> 76
E. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are shown net of accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Estimated December 31,
- --------------------------------------------------------------------------------------------------
Useful Lives 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land -- $604 $600
Buildings 25-40 years 4,211 4,037
Leasehold Improvements 10-20 years 146 205
Furniture and Fixtures 8-10 years 1,203 1,027
Equipment 5-10 years 2,084 1,969
Vaults and Safes 10-20 years 344 344
Automobiles 3 years 50 50
- --------------------------------------------------------------------------------------------------
Total 8,642 8,232
Less: Accumulated Depreciation (5,119) (4,786)
- --------------------------------------------------------------------------------------------------
Net Book Value $3,523 $3,446
==================================================================================================
</TABLE>
Provision for depreciation included in operating expenses were $400
for 1994, $398 for 1993, and $360 for 1992.
F. BALANCES WITH THE FEDERAL RESERVE BANK
The Bank is required to keep balances with the Federal Reserve Bank.
These balances are non-interest bearing and represent reserves on deposit
accounts. The average balance for the Bank for 1994 was $501.
G. EMPLOYEE BENEFITS
The Company currently maintains a qualified and a non-qualified stock
option plan. Under the Company's qualified stock option plan, authorized
shares of Common Stock have been reserved for granting options to the Company's
officers. Under the non-qualified plan, certain executive officers have been
granted stock options. Should the number of options under the non-qualified
plan exceed the number of shares available under the qualified plan, these
executive officers have the right to exercise their options from Treasury
Stock.
The option price is established at the estimated fair market value of
the shares at the date the options are granted. Subsequent adjustments are
made when stock dividends are declared. Options become exercisable 25%
annually beginning one year after the date of grant.
During the last three years, activity under the option plans was as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Option Price
- ----------------------------------------------------------------------------------------------------------
Shares Per Share Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding December 31, 1991 19,690 $42.73 - 45.45 $875
Terminated or Expired During 1992 (1,540) 45.45 (70)
Granted During 1992 3,450 40.91 141
</TABLE>
65
<PAGE> 77
<TABLE>
<S> <C> <C> <C>
Exercised During 1992 (1,337) 45.45 (61)
Adjustment for 10% Stock Dividend 2,019 38.84 - 41.32 14
- ------------------------------------------------------------------------------------------------------------
Options Outstanding December 31, 1992 22,282 38.84 - 41.32 899
Exercised During 1993 (6,799) 38.84 - 41.32 (277)
Forfeited/Expired During 1993 (469) 35.31 - 40.91 (19)
Adjustment for 10% Stock Dividend 1,496 35.31 - 37.56 0
- ------------------------------------------------------------------------------------------------------------
Options Outstanding December 31, 1993 16,510 35.31 - 37.56 603
Exercised During 1994 (12,758) 35.31 - 37.56 (464)
- ------------------------------------------------------------------------------------------------------------
Options Outstanding December 31, 1994 3,752 $37.19 $139
============================================================================================================
</TABLE>
During 1994, 960 shares became exercisable at the option price of
$37.19 per share. As of December 31, 1994, 27,661 options had been exercised
and options for 226 shares of common stock are unissued and available for
grant.
The Company has a contributory 401K plan covering all eligible
officers and employees who elect to participate. Company matching
contributions to the plan charged against earnings were $71 in 1994, $68 in
1993, and $67 in 1992.
The Company also has an Employee Stock Ownership Plan (ESOP) which
covers all eligible employees. The provision charged against earnings, which
is determined annually by the Board of Directors, was $95 in 1994, $95 in 1993,
and $90 in 1992. At December 31, 1994, 3,978 shares of authorized Common
Stock were reserved for the purpose of this plan.
In December 1990, the Financial Accounting Standards Board issued SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Statement, which is effective for fiscal years beginning after
December 15, 1994 for the Company, requires the accrual of the expected costs
of postretirement benefits during the years that an eligible employee renders
service to the employer. The Company had not adopted the new standard as of
December 31, 1994. However, as of December 31, 1994, the Company had no
postretirement benefit obligation.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The Statement, which was effective January 1, 1994,
requires that employers accrue a liability for employees' compensation which is
attributable to employees' services already rendered, if payment of
compensation is probable, benefits have vested to the employee and the amount
can be reasonably estimated. During 1994, the Board of Directors of CNB approved
the Merger Agreement with Deposit Guaranty. See Note N. In anticipation of
the Merger, the Board of Directors also approved a severance plan for certain
employees which may be affected due to the Merger. Additionally, in order to
ensure the efficient and profitable operation of the Bank until the Merger
date, a "stay-put" bonus plan was approved by the Board of Directors. This
plan calls for the payment of various amounts to certain employees who maintain
their employment with the Company until the effective date of the Merger or
termination date, whichever comes first. The estimated amount that will be
paid under the plans will aproximate $420 if the plan of Merger is consummated
before April 30, 1995. The Company accrued, as of December 31, 1994, the amount
of benefits payable for service rendered through December 31, 1994. Four of
the Company's executive officers each have an employment agreement which
provides for a payment of three years' salary plus other defined benefits if
the officer is terminated following a change of control of the Company. The
Merger with Deposit Guaranty will constitute a change in control for purposes
of these agreements. No amounts have been accrued under the terms of these
agreements as of December 31, 1994.
H. LEASE OF BANK PREMISES
66
<PAGE> 78
The Bank leases the land and buildings in which it transacts banking
operations at two branch locations and an operations center. These leases are
noncancelable and have primary terms which expire at various times from 1993 to
2003, with renewal options for additional periods of up to 19 years. Lease
payments on these obligations of $91 for 1994, $107 for 1993, and $111 for 1992
are included in Occupancy Expense. The Bank also leases equipment. These
rentals have been charged to equipment expense in the accompanying financial
statements.
Terms of these leases call for minimum annual rental payments as
follows:
<TABLE>
<S> <C> <C> <C>
1995 ........................................$56 1997 ................................. $56
1996 ........................................ 56 1998 - thereafter .................... 497
</TABLE>
The rentals under some of these leases are subject to adjustment due
to changes in the Consumer Price Index.
67
<PAGE> 79
I. FEDERAL INCOME TAXES
The Provision for Federal Income Taxes in the Consolidated Statement
of Income is composed of the following.
<TABLE>
<CAPTION>
=============================================================================================================
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Provision $564 $1,053 $1,163
Deferred Provision (Benefit) 244 241 (44)
Tax Benefit of Stock Options 111 21 ---
- -------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX PROVISION $919 $1,315 $1,119
=============================================================================================================
</TABLE>
The Company's ratio of the provision for income taxes to income before
income taxes was different from the federal statutory tax rate for the
following reasons:
<TABLE>
<CAPTION>
================================================================================================================
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount of Tax Expense at Statutory
Rate $1,125 34.0% $1,502 34.0% $1,303 34.0%
Reductions in taxes resulting from:
Tax-Exempt Income (287) (8.4%) (215) (4.7%) (115) (3.0%)
Other, Net 81 2.4% 28 0.6% (68) (1.8%)
- ----------------------------------------------------------------------------------------------------------------
TOTAL $919 26.9% $1,315 28.9% $1,120 29.2%
================================================================================================================
</TABLE>
Deferred income taxes receivable of $36 and $67 at December 31, 1994
and 1993 are included in Other Assets in 1994 and 1993, in the Consolidated
Statement of Financial Position and represent the cumulative effects of
temporary differences. These differences include discount accretion and
differences between financial and tax depreciation, loan loss provision, and,
other items as outlined in the table below.
<TABLE>
<CAPTION>
TAX EFFECT OF
TEMPORARY DIFFERENCES
------------------------
1994 1993
------------------------
<S> <C> <C>
Deferred tax assets:
Allowance For Loan Losses $365 $394
Unrealized Loss on Investment Securities 213
Unrealized Loss on Other Real Estate 18 112
Nonaccrual Loans 7 31
------------------------
Total deferred tax assets 603 537
Deferred tax liabilities:
Discount accretion 156 51
Property, plant and equipment 411 419
------------------------
Total deferred tax liabilities 567 470
------------------------
Net deferred tax asset $36 $67
========================
</TABLE>
68
<PAGE> 80
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". The net
effect of adopting this new accounting pronouncement was to increase income by
$172 in 1993. This item is separately disclosed in the Consolidated Statement
of Income as a cumulative effect of change in accounting principle.
J. EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. Common stock equivalents represent dilutive stock options assumed to be
exercised. The effect of the 10% stock dividend declared on November 18, 1993
has been included in this computation.
K. RELATED PARTY TRANSACTIONS
Directors and executive officers of the Bank, members of their
immediate families, and entities in which they or members of their immediate
families have principal ownership interests were customers of, and had other
transactions with the Bank in the ordinary course of business during 1994 and
1993. All loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time from comparable transactions with other persons. The
following table is an analysis of the activity of loans made to such borrowers
during 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-----------------------------
<S> <C> <C>
Balance, January 1, $1,818 $1,958
Loan Reductions (1,725) (1,777)
New Loans 961 1,637
-----------------------------
Balance, December 31, $1,054 $1,818
=============================
</TABLE>
L. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Citizens National Bank is a party to
letters of credit which are not recorded in the consolidated financial
statements.
Letters of credit obligate the Bank to pay third parties if the Bank's
customers fail to perform under the agreement with those third parties.
Letters of credit are subject to credit review, collateral requirements and
debt covenants similar to those in loan agreements. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loans to customers. Letters of credit issued and not drawn against
totaled $432 and $764 at December 31, 1994 and 1993, respectively.
Additionally, in the normal course of business, there were various
other commitments and contingent liabilities which are not reflected in the
financial statements. Loan commitments are single-purpose commitments to lend
which will be funded and reduced according to specified repayment schedules.
Most of these commitments have maturities of less than one year. Loan
commitments outstanding were approximately $9,164 at December 31, 1994. Lines
of credit are commitments to lend up to a specified amount for a period not to
exceed one year. Amounts outstanding under lines of credit fluctuate because
they are generally used to finance short-term, seasonal working capital needs
of the borrower. Total unfunded lines of credit outstanding as of December 31,
1994 were approximately $2,652. The Bank uses the same credit policies in
making commitments and issuing standby letters of credit as it does for
on-balance-sheet instruments. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterpart. Collateral held varies but may include
certificates of deposit, accounts receivable, inventory, property,
69
<PAGE> 81
plant and equipment, and income-producing properties. There are no commitments
which present an unusual risk to the Bank, and no material losses are
anticipated as a result of these transactions.
M. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Because no market exists for a significant portion of the
financial instruments, fair value estimates are based on judgment regarding
future expected loss experience, current economic conditions, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions significantly affect the estimates and as
such, the derived fair value may not be indicative of the value negotiated in
an actual sale and may not be comparable for the Company versus other financial
institutions.
Fair value estimates, methods, and assumptions are set forth below:
CASH AND SHORT-TERM INVESTMENTS. The carrying amount is a reasonable
estimate of fair value for cash, interest-bearing bank balances, federal funds
sold and time deposits at other banks.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES. Fair values
for securities available for sale and investment securities are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS. The fair values of loans were calculated by discounting the
scheduled principal and interest payments to maturity using estimates as of
December 31, 1994 and 1993 rates.
DEPOSITS. The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits and savings accounts, is equal to the
amount payable on demand at December 31, 1993 which is also their carrying
amount. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar maturities.
OFF-BALANCE SHEET ACTIVITIES. The fair value of commitments to extend
credit and all types of letters of credit were established using the fees
currently charged to enter into similar agreements.
The estimated fair values of the Company's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $14,037 $14,037 $17,244 $17,244
Securities available for sale 31,414 31,414 0 0
Securities held to maturity 54,034 51,872 89,868 93,039
Loans, net of unearned income and the 83,165 80,043 78,372 81,018
allowance for loan losses
FINANCIAL LIABILITIES:
Deposits 167,254 165,797 172,337 172,922
</TABLE>
70
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C>
OTHER FINANCIAL INSTRUMENTS:
Letters of Credit 0 4 0 8
Commitments to extend credit 0 117 0 27
</TABLE>
N. MERGER PLAN
On December 2, 1994, the Company and Deposit Guaranty entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the
Company would merge with and into a subsidiary of Deposit Guaranty and each
outstanding share of Company common stock would be converted into the number of
shares of Deposit Guaranty common stock that equals the average exchange rate
as determined on the closing date. The exchange rate is based on the average
market price of Deposit Guaranty common stock twenty days prior to the closing
date with the number of shares of Deposit Guaranty common stock of 1,393,442 to
1,491,228 divided by the total number of Company common shares outstanding on
closing date. The Merger is subject, among other things, to shareholder
approval and is expected to be completed in the second quarter of 1995.
O. PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following financial statements are for Citizens National
Bancshares, Inc. only:
UNCONSOLIDATED STATEMENT OF FINANCIAL POSITION
CITIZENS NATIONAL BANCSHARES, INC.
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of December 31,
----------------------
1994 1993
----------------------
<S> <C> <C>
RESOURCES:
Cash $1,329 $602
Investment Securities:
Held to Maturity 0 1,503
Available for Sale 1,911 0
----------------------
Total Investments 1,911 1,503
----------------------
Investment in Subsidiary Bank, at Equity 18,163 17,054
Other Assets 55 0
----------------------
TOTAL RESOURCES $21,458 $19,159
======================
LIABILITIES:
TOTAL LIABILITIES $0 $0
----------------------
SHAREHOLDERS' EQUITY:
Common Stock, $10 par value, 1,000,000 shares authorized, 398,773 shares 3,987 3,987
and 398,652 shares issued at December 31, 1994 and 1993, respectively
Capital Surplus 10,494 10,422
Undivided Profits 8,505 6,705
Unrealized Loss on Available for Sale Securities (49) 0
----------------------
</TABLE>
71
<PAGE> 83
<TABLE>
<S> <C> <C>
Total 22,937 21,114
-----------------------
LESS: Common Stock in Treasury, 37,089 shares and 49,379 shares at (1,479) (1,955)
December 31, 1994 and 1993, respectively, at cost
TOTAL SHAREHOLDERS' EQUITY 21,458 19,159
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $21,458 $19,159
=======================
</TABLE>
UNCONSOLIDATED STATEMENT OF INCOME
CITIZENS NATIONAL BANCSHARES, INC.
(Dollars in Thousands Except Per Share Information)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
Dividends From Subsidiary $1,500 $2,277 $668
Interest on Savings Deposits 15 8 0
Interest and Dividends on Securities:
U.S. Treasury and Agency Obligations 121 3 0
Obligations of States and Political Subdivisions 0 0 0
Corporate Securities 0 0 0
Other Income 0 0 0
Interest Expense 0 0 (5)
Employee Stock Ownership Plan Contribution 0 (95) (90)
Other Operating Expenses (39) (16) (1)
---------------------------------------
Income Before Equity in Undistributed Earnings of 1,597 2,177 572
Subsidiary
Undistributed Earnings (Loss) of Subsidiary 999 1,125 2,139
---------------------------------------
NET INCOME $2,596 $3,302 $2,711
=======================================
NET INCOME PER SHARE $7.14 $9.42 $8.05
=======================================
</TABLE>
72
<PAGE> 84
UNCONSOLIDATED STATEMENT OF CASH FLOWS
CITIZENS NATIONAL BANCSHARES, INC.
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------
1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Dividends From Subsidiary $1,500 $2,277 $668
Interest Income 15 8
Income From Investment Securities 95 3 0
Interest Paid (5)
Fees Paid (39) (16) (1)
---------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,571 2,272 662
---------------------------------------
Cash Flows From Investing Activities:
Proceeds From Maturities of Investment Securities 1,500 0 0
Principal Payments on Notes Payable (200)
Purchase of Investment Securities (1,986) (1,503) 0
---------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (486) (1,503) (200)
---------------------------------------
Cash Flows From Financing Activities:
Proceeds From the Issuance of Common Stock 4 161 60
Proceeds From Recovery of Unclaimed Dividends 0 (1) 0
(Purchase) Sale of Treasury Stock 434 116 0
Dividends Paid (796) (532) (467)
---------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (358) (256) (407)
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH 727 513 55
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 602 89 34
---------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,329 $602 $89
=======================================
Reconciliation of Net Income to Net Cash Provided by
Operations:
Net Income $2,596 $3,302 $2,711
Employee Stock Ownership Contribution from Treasury 0 95 90
Stock
(Increase) In Interest Receivable (29)
Discount Accretion and Premium Amortization 3 0 0
Undistributed (Earnings) of Subsidiary (999) (1,125) (2,139)
---------------------------------------
Net Cash Provided by Operating Activities $1,571 $2,272 $662
=======================================
</TABLE>
73
<PAGE> 85
P. SUBSIDIARY UNDIVIDED PROFITS AND DIVIDENDS
The payment of dividends by a national bank is regulated by the
Comptroller of the Currency. At December 31, 1994, the amount of undivided
profits of the Bank which could be paid to Citizens National Bancshares, Inc.
without prior approval is approximately $4,418 plus an amount equal to the 1995
earnings of the Bank.
74
<PAGE> 86
REPORT OF ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Citizens National Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial position
of Citizens National Bancshares, Inc. (a Louisiana corporation) and subsidiary
as of December 31, 1994 and 1993, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Citizens National
Bancshares, Inc. and subsidiary as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note A, effective January 1, 1994, the Company changed its
method of accounting for investment securities and as discussed in Note I,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
Arthur Andersen LLP
New Orleans, Louisiana
January 20, 1995
75
<PAGE> 87
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
DEPOSIT GUARANTY CORP.,
COMMERCIAL NATIONAL CORPORATION
AND
CITIZENS NATIONAL BANCSHARES, INC.
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
CONVERSION OF CNB SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1.1 Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1.2 Average Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Transmittal Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3
CLOSING AND EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Representations and Warranties of Constituent Corporations . . . . . . . . . . . 4
4.1.1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1.2 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1.3 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1.5 Adequacy of Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1.6 Adequacy of Loan Loss Reserves . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1.7 Examination Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . 5
4.1.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1.10 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1.11 Litigation and Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 7
4.1.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1.14 Finders' Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1.15 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1.17 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1.18 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Additional Representations and Warranties of CNB . . . . . . . . . . . . . . . . 10
4.2.1 CNB Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.2 CNB Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.3 CNB Federal Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2.4 CNB Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 89
<TABLE>
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4.2.5 CNB Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Additional Representations and Warranties of CNC and the Company . . . . . . . . 11
4.3.1 Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3.2 CNC Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3.3 The Company SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3.4 Company Federal Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3.5 Legality of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3.6 CNC and Company Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5
COVENANTS AND CONDUCT OF THE COMPANY, CNC AND CNB . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Covenants of Both Constituent Corporations . . . . . . . . . . . . . . . . . . . 13
5.1.1 Investigations; Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.2 Cooperation and Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.3 Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.4 Notification of Material Changes . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.5 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.6 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.7 Loan Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Additional Negative Covenants of CNB . . . . . . . . . . . . . . . . . . . . . . 14
5.3 CNB Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 CNC Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Prohibited Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Restriction on Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Issuance of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . 16
5.11 Indemnification and Liability Insurance . . . . . . . . . . . . . . . . . . . . 17
5.12 CNB Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Undertaking to File Reports and Cooperate in Rule 144 Transactions . . . . . . . 17
5.14 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 6
CONDITIONS TO CLOSING AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Conditions to Obligations of Each Constituent Corporation . . . . . . . . . . . 18
6.1.1 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1.2 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1.3 Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1.4 Statutory Requirements and Regulatory Approval . . . . . . . . . . . . . . . . . 18
6.1.5 No Restraining Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1.6 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Conditions to Obligations of CNB . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.4 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.5 Fairness Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.6 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2.7 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Conditions to Obligations of CNC and the Company . . . . . . . . . . . . . . . . 19
6.3.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 90
<TABLE>
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6.3.3 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3.4 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3.6 Dissenters' Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 7
TERMINATION AND SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1.1 Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1.2 Material Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1.3 Failure to Obtain Necessary Consents . . . . . . . . . . . . . . . . . . . . . . 20
7.1.4 Expiration of Time Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1.5 Failure of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1.6 Failure to Obtain Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Defenses Preserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 8
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.5 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.6 Integrated Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.9 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 91
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit No. Description Tab No.
- ----------- ----------- -------
<S> <C> <C>
Exhibit 1 Form of Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exhibit 4.1.8-A Schedule of Certain Changes or Events Affecting CNB . . . . . . . . . . . . . . 2
Exhibit 4.1.9-A Schedule re Taxes - CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exhibit 4.1.11 Schedule of Litigation - the Company . . . . . . . . . . . . . . . . . . . . . . 4
Exhibit 4.1.12 Schedule of Employee Benefit Plans and Contracts of CNB . . . . . . . . . . . . . 5
Exhibit 4.2.1 Schedule of Stock Options and Other Rights
Affecting CNB Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Exhibit 4.2.5 Schedule of CNB Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Exhibit 5.14-A Persons Receiving Registration Rights . . . . . . . . . . . . . . . . . . . . . . 8
Exhibit 5.14-B Form of Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . 9
Exhibit 6.2.6 Form of Opinion of CNB's Counsel . . . . . . . . . . . . . . . . . . . . . . . . 10
Exhibit 6.3.5 Form of Opinion of Company and CNC's Counsel . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 92
AGREEMENT AND PLAN OF MERGER
BETWEEN
DEPOSIT GUARANTY CORP.,
COMMERCIAL NATIONAL CORPORATION
AND
CITIZENS NATIONAL BANCSHARES, INC.
This Agreement and Plan of Merger (the "Agreement") is made as of
December 2, 1994, between Deposit Guaranty Corp. ("the Company"), a
Mississippi corporation, Commercial National Corporation ("CNC"), a Louisiana
corporation, and Citizens National Bancshares, Inc. ("CNB"), a Louisiana
corporation.
RECITALS
The Company and CNB are both bank holding companies within the meaning
of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company
Act"). The Company's "consolidated group" consists of the Company and its
subsidiaries, which include, CNC, a second tier bank holding company, Deposit
Guaranty National Bank, a national bank ("DGNB"), and Commercial National
Bank, a national bank ("Commercial National"). CNB's "consolidated group"
consists of CNB and its subsidiary, Citizens National Bank, a national banking
association ("Bank"). The boards of directors of the Company, CNC, and CNB
(the Company, CNC, and CNB being hereinafter sometimes collectively referred
to as the "Constituent Corporations") have determined that it is desirable and
in the best interests of their respective corporations and shareholders that
CNB merge into the CNC (the "Merger") on the terms and subject to the
conditions set forth in this Agreement and the merger agreement in the form
attached as Exhibit 1 (the "Merger Agreement"). At the effective time of the
Merger, the outstanding shares of common stock, par value $10.00 per share, of
CNB (the "CNB Common Stock") will (except as provided herein) be converted into
shares of common stock, no par value per share, of the Company (the "Company
Common Stock"), on the terms and subject to the conditions provided in this
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the Constituent Corporations agree
as follows:
ARTICLE 1
THE MERGER
1.1 MERGER. Subject to the conditions set forth herein, the Company,
CNC, and CNB will enter into the Merger Agreement. When the Merger Agreement
has been approved by a resolution of their boards of directors, approved by the
shareholders of CNB and, if required, by the shareholders of CNC, certified,
executed and acknowledged, and when such executed, certified and acknowledged
Merger Agreement or, in lieu thereof, a certificate of merger executed by the
president or other authorized officer of CNC, thereunto duly authorized (the
"Certificate of Merger"), containing the information required under subsection
112F of the Louisiana Business Corporation Law ("LBCL"), is filed with and
recorded by the Secretary of State of Louisiana in accordance with the
provisions of Section 112 of the LBCL, CNB will merge into CNC and the separate
existence of CNB will cease.
1.2 EFFECTIVE TIME. The Merger Agreement or Certificate of Merger
shall be filed with the Secretary of State of Louisiana for recordation
immediately following (or concurrently with) the Closing (as hereinafter
defined), and the Merger shall be effective as of the date and time of such
filing or, subject to the provisions of Sections 112 and 114 of the LBCL, as of
such later date and time to which the Constituent Corporations hereafter agree
(the "Effective Time").
1.3 SURVIVING CORPORATION. CNC shall be the surviving corporation in
the Merger. Each share of CNC Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time. CNC, as the surviving corporation, shall be liable for all
liabilities and obligations of CNB as if CNC
<PAGE> 93
itself had incurred such liabilities. The Articles of Incorporation of CNC in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the surviving corporation after the Effective Time until
otherwise amended or repealed. The Bylaws of CNC in effect immediately prior to
the Effective Time shall be the Bylaws of the surviving corporation after the
Effective Time until otherwise amended or repealed. The directors of CNC in
office immediately prior to the Effective time, together with such additional
persons as may thereafter be elected, shall serve as the directors of the
surviving corporation from and after the Effective Time in accordance with the
Bylaws of the surviving corporation. The officers of CNC in office immediately
prior to the Effective time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the surviving corporation
from and after the Effective Time in accordance with the Bylaws of the
surviving corporation.
ARTICLE 2
CONVERSION OF CNB SHARES
2.1 CONVERSION. Subject to the provisions of this Article 2, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, the shares of CNB Common Stock shall be converted as
follows:
2.1.1 EXCHANGE RATIO. Except for shares as to which dissenters'
rights have been perfected and not withdrawn or otherwise forfeited under
Section 131 of the LBCL and shares of CNB Common Stock held by CNB or any
member of its consolidated group (other than in a fiduciary capacity), which
shall by reason of the Merger be cancelled, and subject to the provisions of
Section 2.2 relating to fractional shares, at the Effective Time by reason of
the Merger, each issued and outstanding share of CNB Common Stock shall be
converted into and become that number of shares of Company Common Stock
determined by multiplying the number of CNB shares by the Exchange Ratio as
determined in this Section 2.1 or 2.1.1. The Exchange Ratio shall be
determined as follows:
(a) In the event the Average Market Price of Company Common Stock is
greater than or equal to $30.50 per share, the Exchange Ratio shall equal
1,393,442 divided by the total number of shares of CNB Common Stock issued and
outstanding immediately prior to the Effective Time;
(b) In the event the Average Market Price of Company Common Stock
is less than or equal to $28.50 per share, the Exchange Ratio shall equal
1,491,228 divided by the total number of shares of CNB Common Stock issued and
outstanding immediately prior to the Effective Time; or
(c) In the event the Average Market Price of Company Common Stock
is greater than $28.50 per share, but less than $30.50 per share, the
Exchange Ratio shall be determined by dividing 42,500,000 by the Average
Market Price, and then dividing the product by the total number of shares of
CNB Common Stock issued and outstanding immediately prior to the Effective
Time.
2.1.2 AVERAGE MARKET PRICE. The "Average Market Price" of the Company
Common Stock shall be the average of the closing per share trading prices of
Company Common Stock (adjusted for any stock split or similar transaction) on
the twenty (20) trading days preceding the trading day immediately prior to the
Effective Time, as reported in the Wall Street Journal's National Market Issues
Transactions listing (corrected for typographical errors).
2.2 FRACTIONAL SHARES. In lieu of the issuance of fractional shares
of Company Common Stock, each shareholder of CNB, upon surrender of his or her
certificate that immediately prior to the Effective Time represented CNB Common
Stock, other than shares as to which dissenters' rights have been perfected and
not withdrawn or otherwise forfeited under Section 131 of the LBCL and shares
of CNB Common Stock held by CNB or any member of its consolidated group (other
than in a fiduciary capacity), which shall by reason of the merger be
cancelled, shall receive a cash payment (without interest) equal to the fair
market value at the Effective Time of any fraction of a share of Company Common
Stock to which such holder would be entitled but for this provision. For
purposes of calculating such payment, the fair market value of a fraction of a
share of Company Common Stock at the Effective Time shall be such fraction
multiplied by the Average Market Price.
2
<PAGE> 94
2.3 ANTI-DILUTION. In the event the Company changes the number of
shares of Company Common Stock issued and outstanding prior to the Effective
Time, or if such shares are changed into or exchanged for a different number or
kind of securities, in any such case as a result of any stock split, stock
dividend or other similar change in the Company's capitalization, and the
record date therefor is before the Effective Time, the Exchange Ratio, the
number and kind of securities issuable to the holders of CNB Common Stock in
the Merger, and the cash payable in lieu of fractional shares under Section
2.2, shall be adjusted appropriately.
2.4 EXCHANGE OF CERTIFICATES. After the Effective Time, each holder
of an outstanding certificate or certificates theretofore representing a share
or shares of CNB Common Stock, other than shares as to which dissenters' rights
have been perfected and not withdrawn or otherwise forfeited under Section 131
of the LBCL and shares of CNB Common Stock held by CNB or any member of its
consolidated group (other than in a fiduciary capacity), which shall by reason
of the Merger be cancelled, upon surrender thereof to the exchange agent
selected by the Company (the "Exchange Agent"), or upon compliance by the
holder or holders thereof with the procedures of the Exchange Agent with
respect to lost, stolen or destroyed certificates, shall be entitled to receive
in exchange therefor any payment due in lieu of fractional shares and a
certificate or certificates representing the number of whole shares of Company
Common Stock into which such holder's shares of CNB Common Stock were
converted. Until so surrendered, each outstanding CNB stock certificate shall
be deemed for all purposes, other than as provided below with respect to the
payment of dividends or other distributions (if any) in respect of Company
Common Stock, to represent the number of whole shares of Company Common Stock
into which such holder's CNB Common Stock shall have been converted. The
Company may, at its option, refuse to pay any dividend or other distribution to
holders of unsurrendered CNB stock certificates until surrendered; provided,
however, that upon the surrender and exchange of any CNB stock certificates
there shall be paid, to the extent not previously paid, to the record holders
of the Company stock certificates issued in exchange therefor the amount,
without interest, of accumulated dividends and distributions, if any, which
have become payable with respect to the number of whole shares of Company
Common Stock into which the shares of CNB Common Stock theretofore represented
by such certificates shall have been exchanged.
2.5 TRANSMITTAL MATERIALS. As promptly as practicable after the
Effective Time, the Company shall send or cause to be sent to each former
shareholder of record of CNB at the Effective Time, excluding the holders, if
any, of shares as to which dissenters' rights have been perfected and not
withdrawn or otherwise forfeited under Section 131 of the LBCL, transmittal
materials for use in exchanging certificates of CNB Common Stock for
certificates of Company Common Stock.
ARTICLE 3
CLOSING AND EFFECTIVE TIME
3.1 CLOSING. A closing of the transactions contemplated hereby (the
"Closing") will take place at the offices of the Company, One Deposit Guaranty
Plaza, 210 East Capitol Street, Jackson, Mississippi , at 10:00 a.m., Central
Standard time, on a mutually agreeable date as soon as practicable following
satisfaction of the conditions set forth in Article 6, or, if no date has been
agreed to, on any date specified by one Constituent Corporation to the other
upon ten (10) days notice following satisfaction of such conditions. If all
conditions to Closing set forth in Article 6 are satisfied or waived by the
Constituent Corporation entitled to grant such waiver, at the Closing (a) the
Company, CNC, and CNB shall each provide to the other such proof or indication
of satisfaction of the conditions set forth in Article 6 that the Constituent
Corporation whose obligations are conditioned upon such satisfaction may
reasonably request, (b) the certificates, letters and opinions required by
Article 6 shall be delivered, (c) the appropriate officers of CNB, the Company
and CNC shall execute, deliver and acknowledge the Merger Agreement and (d) the
Constituent Corporations shall take such further action as is required to
consummate the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF CONSTITUENT CORPORATIONS. Each
Constituent Corporation represents and warrants to the other Constituent
Corporations as follows:
3
<PAGE> 95
4.1.1 RECITALS. The facts set forth in the Recitals to this Agreement
with respect to its consolidated group are true, correct and complete.
4.1.2 ORGANIZATION AND QUALIFICATION. Each member of its consolidated
group is (a) duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has all requisite corporate
power and authority to own and lease its property and to carry on its business
as it is currently being conducted and (c) is qualified and in good standing as
a foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the financial condition, results of
operations, business or prospects of its consolidated group.
4.1.3 FINANCIAL STATEMENTS AND REPORTS.
(a) It has delivered, or will deliver within ten (10) days of the date
hereof, to the other Constituent Corporation or its duly authorized
representatives true and complete copies of (i) the consolidated balance
sheets, related consolidated statements of income, stockholders' equity, and
cash flows and related notes and schedules (if any) thereto for each of its
three (3) most recent fiscal years, certified by independent certified public
accountants ("Financial Statements") with respect to it and its consolidated
subsidiaries, (ii) the unaudited consolidated balance sheets and unaudited
statements of income for the nine-month periods ended September 30, 1993 and
September 30, 1994 ("Interim Financial Statements") with respect to it and its
consolidated subsidiaries, (iii) its annual report to the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") for the year ended
December 31, 1993, (iv) all Call Reports made by its subsidiary bank to the
Comptroller of the Currency or to the Federal Deposit Insurance Corporation
("FDIC") since December 31, 1991, and (v) to the extent permitted by law, all
other reports filed by it or any member of its consolidated group since
December 31, 1991 with any bank regulatory agency. It will deliver to the other
Constituent Corporation, promptly after the issuance thereof, the consolidated
balance sheet, related consolidated statements of income, stockholders' equity,
and cash flows (and related notes and schedules, if any) for the fiscal year
ending December 31, 1994, and for each subsequent fiscal year while this
Agreement is in effect before the Effective Time, and unaudited consolidated
balance sheets and unaudited statements of income for each fiscal quarter
(other than the final quarter of each fiscal year) after September 30, 1994
(collectively the "Future Financial Statements") for it and its consolidated
subsidiaries.
(b) The Financial Statements, Interim Financial Statements and Future
Financial Statements with respect to it and its consolidated subsidiaries (i)
have been, or with respect to the Future Financial Statements will be, prepared
in conformity with generally accepted accounting principles applied on a basis
consistent with the prior periods, except as stated in the notes thereto, and
(ii) present, or with respect to the Future Financial Statements will present,
fairly in conformity with generally accepted accounting principles the
consolidated results of operations of its consolidated group for the respective
periods covered thereby and the consolidated financial condition of its
consolidated group as of the respective dates thereof (subject in the case of
Interim Financial Statements and unaudited Future Financial Statements, to
normal year-end audit adjustments which will not be material in amount or
effect to its consolidated group taken as a whole, and further subject to the
absence of complete footnote disclosures from the Interim Financial Statements
and unaudited Future Financial Statements). Independent certified public
accountants for it have rendered, or with respect to audited Future Financial
Statements will render, an unqualified opinion with respect to each Financial
Statement or audited Future Financial Statement or, if qualified, such
qualification is reasonably satisfactory to the other Constituent Corporation.
All Call Reports referred to above have been filed on the appropriate form and
prepared in accordance with such form's instructions and the applicable rules
and regulations of the appropriate regulatory agency. As of the respective
dates of the Financial Statements and Interim Financial Statements, no member
of its consolidated group had, nor were any of their respective assets subject
to, any material liability, commitment, indebtedness or obligation (of any kind
whatsoever, whether absolute, accrued, contingent, known, unknown, matured or
unmatured) that is not reflected and adequately reserved against in the
Financial Statements or Interim Financial Statements with respect to it and its
consolidated subsidiaries other than those, if any, not required under
generally accepted accounting principles to be reflected therein.
4.1.4 NO VIOLATION. Neither the execution, delivery or performance of
this Agreement or the Merger Agreement, nor the consummation of the
transactions contemplated hereby or thereby will, with respect to any member of
its consolidated group:
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(a) (i) violate, conflict with, or result in a breach of any provision
of, (ii) constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, (iii) result in the termination of
or accelerate the performance required by, or (iv) result in the creation of
any lien, security interest, charge or encumbrance upon any of its properties
or assets under, any of the terms, conditions or provisions of its articles of
incorporation or by-laws or any material note, bond, mortgage, indenture, deed
of trust, lease, license, agreement or other instrument or obligation under
which it or any of its assets is bound; or
(b) violate any order, writ, injunction, decree, statute, rule or
regulation of any governmental body applicable to it or any of its assets, such
that it would have a material adverse effect upon the financial condition,
results of operations, business or prospects of its consolidated group, or
enable any party to enjoin the consummation of the transactions contemplated
hereby.
4.1.5 ADEQUACY OF PORTFOLIO. All material loans, discounts and
financing leases (in which a member of its consolidated group is lessor)
reflected on the Interim Financial Statements with respect to it and its
consolidated subsidiaries (a) have been made for good, valuable and adequate
consideration in the ordinary course of business of its consolidated group, (b)
are evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be in all material respects, (c) to the
extent secured, have been secured by valid liens and security interests which
have been perfected and (d) are fully reserved against in an amount sufficient
to provide for all charge-offs reasonably anticipated in the ordinary course of
business.
4.1.6 ADEQUACY OF LOAN LOSS RESERVES. All reserves for loan losses
shown on the Interim Financial Statements with respect to it and its
consolidated subsidiaries are adequate in all material respects, and there is
no fact known to it or any member of its consolidated group that is likely to
require a future material increase in the provision for loan losses or a
material decrease in the loan loss reserve reflected in such Interim Financial
Statements.
4.1.7 EXAMINATION REPORTS. To the extent permitted by applicable laws,
it has provided to the other Constituent Corporation true and correct copies of
all bank examination reports with respect to it and its subsidiary banks, since
December 31, 1991.
4.1.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1994,
no event or condition of any character (whether actual, threatened or
contemplated) has occurred or was continuing, that has had, or can reasonably
be anticipated to have, a material adverse effect on the financial condition,
results of operations, business or prospects of its consolidated group, taken
as a whole, excluding changes in banking laws or regulations that affect
banking institutions generally. Except as specifically set forth in the Interim
Financial Statements with respect to it and its consolidated subsidiaries, or
in the respective schedules attached as Exhibit 4.1. 8-A (as to CNB) and
Exhibit 4.1 8-B (as to CNC and the Company), no member of its consolidated
group has, since December 31, 1993:
(a) suffered any damage, destruction or loss, whether or not covered
by insurance, which has, or may reasonably be anticipated to have, a material
adverse effect on its financial condition, results of operations, business or
prospects;
(b) received notice or had knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a material adverse effect on its
financial condition, results of operations, business or prospects;
(c) failed to operate its business in the ordinary course so as to
preserve its business organization intact and the goodwill of its customers and
others with whom it has business relations;
(d) incurred any material extraordinary loss or waived any material
right in connection with any aspect of its business, whether or not in the
ordinary course of business;
(e) cancelled any material debt owed to it, or any of its material
claims, or paid any of its noncurrent, material obligations or liabilities;
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(f) entered into any agreement requiring the payment, conditionally
or otherwise, of any salary, bonus, extra compensation, pension or severance
payment to any of its present or former directors, officers or employees,
except such agreements as are terminable at will without any penalty or other
payment by any member of its consolidated group; or, in the case of CNB's
consolidated group, increased more than ten percent (10%) annually the
compensation (including salaries, fees, bonuses, profit sharing, incentive,
pension, retirement or other similar payments) of any such person whose annual
compensation is, or after such increase would be, in excess of $50,000;
(g) changed any accounting practice followed or employed in preparing
the Financial Statements or Interim Financial Statements with respect to it and
its consolidated subsidiaries;
(h) made any material loan, given any material discount or entered
into any material financing lease that has not been (i) made for good, valuable
and adequate consideration in the ordinary course of business, (ii) to its
knowledge, evidenced by notes or other evidences of indebtedness which are
true, genuine and what they purport to be and (iii) fully reserved against in
an amount sufficient to provide for all charge-offs reasonably anticipated in
the ordinary course of business; or
(i) entered into any agreement, contract or commitment to do any of
the foregoing, provided that Subparagraph (f) shall apply only to CNB and its
consolidated group.
4.1.9 TAXES. Except as set forth on the schedule attached as Exhibit
4.1.9-A (as to CNB) and Exhibit 4.1.9-B (as to CNC and the Company), each
member of its consolidated group has timely filed all federal, state, foreign
and local income, franchise, excise, real and personal property, employment and
other material tax returns, tax information returns and reports required to be
filed, has paid all taxes, interest payments and penalties shown as due
thereon, has made adequate provision for the payment of all taxes accruable for
all periods ending on or before the date of this Agreement to any city, parish,
state, foreign country, the United States or any other taxing authority, and is
not delinquent in the payment of any material tax or governmental charge of any
nature. Except as set forth on the schedule attached as Exhibit 4.1.9-A (as to
CNB) and Exhibit 4.1.9-B (as to CNC and the Company), no audit, examination or
investigation is presently being conducted or, to its knowledge, threatened by
any taxing authority which is likely to result in a material tax liability, no
material unpaid tax deficiencies or additional liabilities of any sort have
been proposed by any governmental representative, and no agreements for
extension of time for the assessment of any material amount of tax have been
entered into by or on behalf of any member of its consolidated group. Each
member of its consolidated group has withheld from its employees (and timely
paid to the appropriate governmental entity) proper and accurate amounts for
all periods in material compliance with all tax withholding provisions of
applicable federal, state, foreign and local laws (including, without
limitation, income, social security and employment tax withholding for all
forms of compensation).
4.1.10 TITLE TO ASSETS.
(a) On September 30, 1994, each member of its consolidated group had
and, except with respect to assets disposed of for adequate consideration in
the ordinary course of business since September 30, 1994, now has good and
merchantable title to all real property and all other properties and assets
reflected in the Interim Financial Statements with respect to it and its
consolidated subsidiaries, free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges and encumbrances of any nature except
for (i) mortgages and encumbrances securing indebtedness which is properly
reflected in such Interim Financial Statements, (ii) liens for taxes accrued
but not yet payable, (iii) liens arising as a matter of law in the ordinary
course of business, provided that the obligations secured by such liens are not
delinquent or are being contested in good faith, (iv) such imperfections of
title and encumbrances, if any, as do not materially detract from the value or
interfere with the present use of any of its properties or assets or potential
sale of any of its owned properties or assets, and (v) capital leases and
leases, if any, to third parties for fair and adequate consideration. Each
member of its consolidated group owns, or has valid leasehold interests in, all
material properties and assets used in the conduct of its business. Any real
property and other material assets held under lease by it are held under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property by
it.
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(b) No member of its consolidated group has any legal obligation,
absolute or contingent, to any other person to sell or otherwise dispose of any
substantial part of its assets, or to sell or dispose of any of its assets
except in the ordinary course of business.
4.1.11 LITIGATION AND COMPLIANCE WITH LAWS.
(a) As to the Company, the amount in controversy in the matters set
forth in Exhibit 4.1.11 is material and an adverse outcome could have a
material adverse effect on the Company's financial condition or results of
operations. However, there are no claims (including those set forth in Exhibit
4.1.11) of any kind or any actions, suits, proceedings, arbitrations or
investigations pending or threatened, nor does any member of its consolidated
group have actual knowledge of a basis for any claim, in any court or before
any governmental agency or instrumentality or arbitration panel or otherwise,
against, by or affecting any member of its consolidated group, which is likely
to have a material adverse effect on the financial condition, results of
operations, business or prospects of its consolidated group taken as a whole,
or which would prevent the performance of the Merger Agreement or this
Agreement or any of the transactions contemplated thereby or hereby, or declare
the same unlawful or cause the rescission thereof.
(b) Each member of its consolidated group has complied with and is
not in material default in any respect under (and has not been charged or
threatened with or come under investigation with respect to any charge
concerning any material violation of any provision of) any federal, state or
local law, regulation, ordinance, rule or order (whether executive, judicial,
legislative or administrative) or any order, writ, injunction or decree of any
court, agency or instrumentality, where the failure to comply or the result of
such charge would have a material adverse effect upon the financial condition,
results of operations, business or prospects of any member of its consolidated
group, or which would prevent the performance of the Merger Agreement or this
Agreement or any of the transactions contemplated hereby or thereby or declare
the same unlawful or cause the rescission thereof.
(c) There are no material uncured violations, or violations with
respect to which material refunds or restitution may be required, cited in any
compliance report to any member of its consolidated group as a result of
examination of any bank regulatory authority.
(d) No member of its consolidated group is subject to any written
agreement, memorandum, or order with or by any bank or bank holding company
regulatory authority restricting its operations or requiring any material
actions.
4.1.12 EMPLOYEE BENEFIT PLANS.
(a) Each member of its consolidated group and each plan, agreement,
arrangement, commitment, practice or policy (including any item set forth in an
employee handbook) which is an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus, pension, profit
sharing, savings, retirement, stock option, stock purchase or severance pay
plan, or a holiday, vacation or other bonus practice, or any other benefit
plan, agreement, arrangement or commitment, including without limitation any
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by any member of
its consolidated group or with respect to which any member of its consolidated
group has any liability or obligation or any contingent liability or obligation
("Employee Benefit Plan") is in compliance with, and is not in breach or
violation of, any laws, requirements or orders under ERISA or the Internal
Revenue Code of 1986, as amended (the "Code"), which non-compliance, breach or
violation is reasonably likely to have a material adverse effect on the
financial condition, results of operations, business or prospects of such
Constituent Corporation's consolidated group, taken as a whole. Each Employee
Benefit Plan which is intended to be qualified under Sections 401 or 501 of the
Code has received a favorable determination letter from the Internal Revenue
Service, and no member of its consolidated group is aware of any circumstances
likely to affect qualification in an adverse manner. The current fair market
value of the assets of each of its Employee Benefit Plans that is subject to
Title IV of ERISA equals or exceeds the actuarial value of all accrued benefits
under such Employee Benefit Plan as of the end of the most recent plan year of
such plan, calculated on a termination or ongoing basis in accordance with
actuarial assumptions consistent with such plan and all applicable legal
requirements, and there has been no material change likely to affect the
funding status of any such plan. No member of its consolidated group has
contributed to, participated in or agreed to participate in a "multiemployer
plan" as defined in Section 3(37) of ERISA, and no
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withdrawal from or partition, termination, reorganization or insolvency
affecting a "multiemployer plan" is reasonably likely to occur which could
result in a liability of any member of its consolidated group which, if such
event occurred, would be reasonably likely to have a material adverse effect on
the financial condition, results of operations, business or prospects of its
consolidated group, taken as a whole. Each Employee Benefit Plan that is
subject to the minimum funding standards under Code section 412 and ERISA
section 302 meets all such applicable standards. All required premiums and
contributions and proper accruals have been made to or for each Employee
Benefit Plan and are reflected on the books of account of its consolidated
group in the manner and to the extent required by generally accepted accounting
principles. To the best of the Company's knowledge, none of its Employee
Benefit Plans, or any "disqualified person" (within the meaning of ERISA
section 4975(e)(2)) or "party-in-interest" (within the meaning of ERISA section
3(14)) with respect thereto, has engaged in a "prohibited transaction" as
defined in Section 406 of ERISA or, where applicable, Section 4975 of the Code
(i) for which no exemption is applicable, or for which adequate provision has
not been included by it in its most recent Financial Statements or Interim
Financial Statements, and (ii) which prohibited transaction is reasonably
likely to have a material adverse effect on the financial condition, results of
operations, business or prospects of its consolidated group, taken as a whole.
(b) Except as described in the schedule attached as Exhibit 4.1.12,
CNB has no Employee Benefit Plan covering persons presently or previously
employed by or providing services to any member of its consolidated group.
4.1.13 INSURANCE POLICIES. Each member of its consolidated group
maintains in force insurance policies and bonds in such amounts and against
such liabilities and hazards as are considered adequate. No member of its
consolidated group is now liable, nor will any such member become liable, for
any material retroactive premium adjustment that can reasonably be expected to
have a material adverse effect on its financial condition, results of
operations, business or prospect. All policies are valid and enforceable and in
full force and effect, and no member of its consolidated group has received any
notice of a material premium increase or a cancellation with respect to any of
its insurance policies or bonds. Within the last three years, no member of its
consolidated group has been refused any insurance coverage sought or applied
for, and it has no reason to believe that existing insurance coverage cannot be
renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect, other than possible increases in
premiums that do not result from any extraordinary loss experience of any
member of its consolidated group.
4.1.14 FINDERS' FEE. No agent, broker, investment banker, investment
or financial advisor or other person acting on behalf of any member of its
consolidated group or under any such member's authority is entitled to any
commission, broker's or finder's fee in connection with any of the transactions
contemplated by this Agreement, except for fees payable in connection with the
financial services rendered to CNB by Alex Sheshunoff & Co., for which CNB
shall pay a fee not to exceed $100,000.
4.1.15 GOVERNMENTAL AUTHORIZATIONS. Each member of its consolidated
group possesses all licenses, franchises, permits and other governmental
authorizations necessary for the continued conduct of its business without
material interference or interruption.
4.1.16 ENVIRONMENTAL MATTERS.
(a) To its knowledge, each member of its consolidated group is, and
has been, in compliance with all federal, state and local laws, regulations,
rules and decrees pertaining to pollution or protection of the environment
("Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601 et. seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et. seq., the Louisiana Environmental Quality Act, La. R.S. 30: 2001 et.
seq., or any similar federal, state or local law, except for such instances of
non-compliance that are not reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial condition, results of
operations, business or prospects of its consolidated group, taken as a whole.
(b) To its knowledge, all property owned, leased, operated or managed
by any member of its consolidated group, or in which any member of its
consolidated group has any interest, including any mortgage or security
interest ("Business Property"), and all businesses and operations conducted on
any of the Business Property (whether by a member of its consolidated group, a
mortgagor, or any other person), are, and have been, in compliance with all
Environmental Laws,
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except for such instances of non-compliance that are not reasonably likely to
have, individually or in the aggregate, a material adverse effect on the
financial condition, results of operations, business or prospects of its
consolidated group, taken as a whole.
(c) To its knowledge, there is no judicial, administrative,
arbitration or other similar proceeding pending or threatened before any court,
governmental agency, authority or other forum in which any member of its
consolidated group has been or, with respect to threatened matters, may be
named as a party relating to (i) alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) the release or threatened
release into the environment of any Hazardous Substance (as defined below),
whether or not occurring at, on, under, or involving any of the Business
Property, except for such proceedings pending or threatened that are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the financial condition, results of operations, business or prospects
of its consolidated group, taken as a whole, and to its knowledge there is no
reasonable basis for any such proceeding. The term "Hazardous Substance" means
any pollutant, contaminant, or toxic or hazardous substance, chemical, or waste
defined, listed or regulated by any Environmental Law (and specifically shall
include, but not be limited to, asbestos, polychlorinated biphenyls, and
petroleum and petroleum products).
(d) To its knowledge, there has been no release or threatened release
of a Hazardous Substance in, on, under, or affecting any of its Business
Property or any property in the vicinity of any Business Property that through
soil or groundwater migration reasonably could be expected to become located on
or under any Business Property, except such release or threatened release that
is not reasonably likely to have, individually or in the aggregate, a material
adverse effect on the financial condition, results of operations, business or
prospects of its consolidated group, taken as a whole.
4.1.17 STATEMENTS TRUE AND CORRECT. As of their respective dates,
each of its Financial Statements, Interim Financial Statements, Future
Financial Statements, and SEC Documents (as defined in Subsection 4.3.3), and
each report and other document, including financial statements, exhibits, and
schedules thereto, filed or to be filed in connection with the Merger or
otherwise by any member of its consolidated group with the Federal Reserve
Board, the Office of the Comptroller of the Currency, the FDIC, Securities and
Exchange Commission ("SEC"), National Association of Securities Dealers,
Louisiana Office of Financial Institutions and all other federal and state
regulatory agencies having jurisdiction over the Constituent Corporations and
their respective consolidated groups (collectively "Regulatory Authorities")
complied or will comply in all material respects with all applicable laws,
rules and regulations and, as of its respective date, did not or will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. No statement, certificate, instrument, or other writing furnished
or to be furnished by any member of its consolidated group to the other
Constituent Corporation pursuant to this Agreement or any other document,
agreement, or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the information supplied or to be supplied
by any member of its consolidated group for inclusion in the Registration
Statement (as defined in Section 5.10) will, when the Registration Statement
becomes effective, be false or misleading with respect to any material fact, or
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by any member of
its consolidated group for inclusion in the Proxy Statement (as defined in
Section 5.10) to be mailed to CNB's shareholders in connection with the annual
or special meeting of CNB's shareholders to be called for purposes of approving
this Agreement and the Merger Agreement (the "Shareholders' Meeting"), and any
other documents to be filed by any member of its consolidated group with the
SEC or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, and
with respect to the Proxy Statement, when first mailed to the shareholders of
CNB, be false or misleading with respect to any material fact, or contain any
untrue statement of material fact, or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or contain any untrue statement of material fact, or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or to correct any such untrue statement of material fact or
omission in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All
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documents that any member of its consolidated group is responsible for filing
with any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
all applicable laws, rules and regulations.
4.1.18 REGULATORY MATTERS. During the last five years, neither the
Company nor any of its banking subsidiaries has received a Community
Reinvestment Act rating of less than "satisfactory" and, during the same
period, neither the Company nor any of its banking subsidiaries was cited for
discriminatory lending practices by any of its regulatory authorities.
4.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CNB. CNB represents
and warrants to CNC and the Company as follows:
4.2.1 CNB CAPITAL STOCK.
(a) The authorized capital stock of CNB consists of 1,000,000 shares
of Common Stock, of which as of September 30, 1994, 361,563 shares were issued
and outstanding and 37,089 shares were held in treasury. The authorized capital
stock of the Bank consists of 234,121 shares of common stock, par value $10.00
per share, all of which, as of September 30, 1994, were issued and outstanding
(and all of which were and are owned beneficially and of record by CNB), and
none were held in treasury. Other than as disclosed in the schedule attached as
Exhibit 4.2.1, no member of CNB's consolidated group has outstanding any stock
options or other rights permitting the acquisition of any shares of capital
stock of CNB or any other member of its consolidated group, or any security
convertible into or exchangeable for such shares, or any obligation or
commitment to issue, sell or deliver any of the foregoing, any shares of
capital stock of CNB or any other member of its consolidated group, or any
other securities.
(b) All shares of the issued and outstanding capital stock of each
member of CNB's consolidated group have been duly authorized and validly
issued, fully paid, and (except as provided in 12 U.S.C. Section 55)
non-assessable, and all of the outstanding shares of each such member (other
than CNB) are owned by CNB free and clear of all liens, charges, security
interests, mortgages, pledges or other encumbrances. CNB has no subsidiary or
direct or indirect ownership interest exceeding five percent (5%) in any firm,
corporation, partnership or other business other than the members of its
consolidated group.
4.2.2 CNB AUTHORIZATION. The execution, delivery and performance of
this Agreement and the Merger Agreement have been authorized by its Board of
Directors and, subject to the approval of this Agreement and the Merger
Agreement by the shareholders of CNB in accordance with the LBCL, all
corporate acts and other proceedings required for the due and valid
authorization, execution, delivery and performance by it of this Agreement and
the Merger Agreement and the consummation of the Merger have been validly and
appropriately taken. Subject to such shareholders' approval and to such
regulatory approvals as are required by law, this Agreement is, and the Merger
Agreement upon its execution will be, its legal, valid and binding obligations
enforceable in accordance with their terms, except that the remedies of
specific performance and injunctive relief may be subject to the discretion of
the court before which a proceeding is brought.
4.2.3 CNB FEDERAL TAX RETURNS. The consolidated federal income tax
returns of its consolidated group have not been audited by the Internal Revenue
Service.
4.2.4 CNB CORPORATE DOCUMENTS. CNB has delivered, or will deliver
within ten (10) days of the date hereof, to the Company, or its duly authorized
representatives, true and correct copies of its articles of incorporation, as
amended, and its bylaws, as amended, in each case certified as of a recent
date. All of the corporate minutes and stock transfer records of each member of
its consolidated group are current, complete and correct in all material
respects.
4.2.5 CNB AGREEMENTS. Except as specifically described in its proxy
statement for its most recent annual meeting of shareholders, or in the
schedule attached as Exhibit 4.2.5 hereto, no member of its consolidated group
is a party to:
(a) any collective bargaining agreement;
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(b) any employment or other agreement or contract with or commitment
to any employee except such agreements as are terminable without penalty upon
not more than thirty (30) days notice by the employer (other than any Employee
Benefit Plan);
(c) any obligation of guaranty or indemnification (except as may be
provided in its articles of incorporation or bylaws) arising from any
agreement, contract or commitment which involves, singularly or in the
aggregate, material liability which is or may be materially adverse to the
financial condition, results of operations, business or prospects of its
consolidated group taken as a whole, except, if entered into in the ordinary
course of business, letters of credit, guaranties of endorsements and
guaranties of signatures;
(d) any agreement, contract or commitment which is or may be
materially adverse to the financial condition, results of operations, business
or prospects of any member of its consolidated group; or
(e) any contract which involves more than $50,000 and which by the
terms of such contract or a written addendum thereto, is not terminable by the
Company or CNC following the Mergers, upon no more than thirty (30) days
written notice.
To its knowledge, no member of its consolidated group has in any material
respect breached, nor is there any pending or threatened claim that it has
materially breached, any of the terms or conditions of any agreement, contract
or commitment, the breach of which singularly or in the aggregate could result
in the imposition of damages in a material amount or could otherwise result in
a material adverse effect on the financial condition, results of operations,
business or prospects of its consolidated group, taken as a whole.
4.3 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CNC AND THE COMPANY.
CNC and the Company represent and warrant to CNB as follows:
4.3.1 COMPANY CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, 10,000,000 shares of Class A Voting
Preferred Stock, no par value; and 10,000,000 shares of Class B Non-Voting
Preferred Stock, no par value, of which, as of September 30, 1994, 17,668,852
shares of Common Stock were issued and outstanding. The authorized capital
stock of DGNB consists of 3,225,181 shares of Common Stock, of which as of
September 30, 1994, 3,225,181 shares were issued and outstanding (3,156,926 of
which were and are owned beneficially and of record by the Company). The
authorized capital stock of Commercial National consists of 1,400,000 shares
of common stock, of which as of September 30, 1994, 1,400,000 shares were
issued and outstanding (and all of which were and are owned beneficially and of
record by CNC), and no shares were held in treasury. The authorized capital of
CNC consists of 5,000,000 shares of Common Stock of which, as of September 30,
1994, there were 4,200,000 shares of CNC Common Stock issued and outstanding
(all of which were and are owned beneficially and of record by the Company).
As of September 30, 1994, options to acquire 424,454 shares of the Company's
Common Stock were outstanding. Otherwise, no member of the Company's
consolidated group has outstanding any stock options or other rights permitting
the acquisition of any shares of capital stock of the Company or any other
member of its consolidated group, or any security convertible into or
exchangeable for such shares, or any obligation or commitment to issue, sell or
deliver any of the foregoing, any shares of capital stock of the Company or any
other member of its consolidated group, or any other securities.
(b) All shares of the issued and outstanding capital stock of each
member of the Company's consolidated group have been duly authorized and
validly issued, fully paid, and (except as provided in 12 U.S.C. Section 55 or
La. R.S. 6:262 non-assessable, and all of the outstanding shares of each such
member (other than the Company) are owned by the Company free and clear of all
liens, charges, security interests, mortgages, pledges or other encumbrances.
The Company has no subsidiary or direct or indirect ownership interest
exceeding 5 % in any firm, corporation, partnership or other business other
than the members of its consolidated group.
4.3.2 CNC AUTHORIZATION. The execution, delivery and performance of
this Agreement and the Merger Agreement have been authorized by its Board of
Directors, and, subject to the approval of this Agreement and the Merger
Agreement by the shareholders of CNC in accordance with the LBCL and, if
required, by the Company's shareholders in accordance
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with the business corporation law of the Company's jurisdiction of
incorporation, all corporate acts and other proceedings required for the due
and valid authorization, execution, delivery and performance by it of this
Agreement and the Merger Agreement and the consummation of the Merger have been
validly and appropriately taken. Subject to such shareholders' approval and to
such regulatory approvals as are required by law, this Agreement is, and the
Merger Agreement upon its execution will be, its legal, valid and binding
obligations enforceable in accordance with their terms, except that the
remedies of specific performance and injunctive relief may be subject to the
discretion of the court before which a proceeding is brought.
4.3.3 THE COMPANY SEC DOCUMENTS. It has delivered, or will deliver
within the earlier of ten (10) days of the date hereof or five (5) days after
the date on which it is filed with the SEC, to CNB true and complete copies of
(a) (i) the Company's most recent Quarterly Report on Form 10-Q, (ii) its
annual reports on Form 10-K for its three (3) most recent Fiscal years, (iii)
its proxy statement relating to its 1994 annual meeting of shareholders ("1994
Proxy Statement"), (iv) any other proxy statement, report or registration
statement filed by it with the SEC since December 31, 1991, each in the form,
including exhibits, filed with the SEC and (v) any proxy statement, report
(including, without limitation, any Annual Report on Form 10-K filed for any
fiscal year after the year ended December 31, 1993, and any Quarterly Report on
Form 10-Q for any fiscal quarter after the quarter ended September 30, 1994) or
registration statement to be filed by it with the SEC subsequent to the date of
this Agreement (collectively, the Company's "SEC Documents") and (b) any report
other than on Form 3, Form 4 or Form 5 made by any other person known by the
Company to have been filed with the SEC with respect to the Company's
securities since December 31, 1991.
4.3.4 COMPANY FEDERAL TAX RETURNS. The consolidated federal income
tax returns of its consolidated group have been audited or closed by the
Internal Revenue Service for all years prior to January 1, 1980.
4.3.5 LEGALITY OF COMPANY COMMON STOCK. All shares of Company Common
Stock to be issued pursuant to the Merger (a) have been duly authorized and,
when issued pursuant to this Agreement and the Merger Agreement, will be
validly issued, fully paid and non-assessable, and (b) will be issued and
delivered pursuant to the Registration Statement, as hereinafter defined, which
shall have been declared effective on or prior to the date that the Proxy
Statement is mailed to the shareholders of CNB soliciting their approval of the
transactions contemplated hereby, and will be issued in compliance with
applicable state securities or blue sky laws.
4.3.6 CNC AND COMPANY CORPORATE DOCUMENTS. The Company and CNC have
delivered, or will deliver within ten (10) days of the date hereof, to CNB, or
its representatives, true and correct copies of its articles of incorporation,
as amended, and its bylaws, as amended, in each case certified as of a recent
date. All of the corporate minutes and stock transfer records of each member of
its consolidated group are current, complete and correct in all material
respects.
ARTICLE 5
COVENANTS AND CONDUCT OF THE COMPANY, CNC, AND CNB
5.1 COVENANTS OF BOTH CONSTITUENT CORPORATIONS. Each Constituent
Corporation covenants and agrees with, and in favor of, the other Constituent
Corporation as follows:
5.1.1 INVESTIGATIONS; PLANNING. Each member of its consolidated group
shall continue to provide to the other Constituent Corporation and to its
authorized representatives full access during all reasonable times to its
premises, properties, books and records (including, without limitation, all
corporate minutes and stock transfer records), and to furnish the other
Constituent Corporation and such representatives with such financial and
operating data and other information of any kind respecting its business and
properties as the other Constituent Corporation shall from time to time
request. Any investigation shall be conducted in a manner which does not
unreasonably interfere with the operation of the business of the other
Constituent Corporation's consolidated group. Each Constituent Corporation
agrees to cooperate with the other Constituent Corporation from the date hereof
in connection with planning for the efficient and orderly combination of the
Constituent Corporations and the operation of the Company and CNC after
consummation of the Merger. In the event of termination of this Agreement prior
to the Effective Time, each Constituent Corporation shall return to the other,
without retaining copies thereof, all confidential or non-public documents,
work papers and other materials obtained from the other Constituent Corporation
in connection with the transactions contemplated hereby and shall keep such
information confidential, not disclose such information to any other person or
entity, and not use such information in connection with its business.
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5.1.2 COOPERATION AND BEST EFFORTS. It will cooperate with the other
Constituent Corporation and use its best efforts to (a) procure upon reasonable
terms and conditions all necessary consents and approvals, (b) complete all
necessary filings, registrations and certificates, (c) satisfy all requirements
prescribed by law for, and all conditions to, the consummation of the Merger
and the transactions contemplated hereby and by the Merger Agreement, and (d)
effect the transactions contemplated by the Merger Agreement and this Agreement
at the earliest practicable date.
5.1.3 PRESERVATION OF BUSINESS. It will use its best efforts to
preserve the possession and control of all of its assets other than those
consumed or disposed of for value in the ordinary course of business, to
preserve the goodwill of customers and others having business relations with it
and to do nothing knowingly to impair its ability to keep and preserve its
business as it exists on the date of this Agreement.
5.1.4 NOTIFICATION OF MATERIAL CHANGES. It will provide the other
Constituent Corporation with prompt written notice of any adverse or
potentially adverse material change in its or its consolidated group's
financial condition, results of operations, business or prospects.
5.1.5 PRESS RELEASES. It will cooperate with the other Constituent
Corporation in the preparation of any press releases announcing the execution
of this Agreement or the consummation of the transactions contemplated hereby.
Unless approved by the chief executive officer of the other Constituent
Corporation in advance, neither Constituent Corporation will issue any press
release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by law.
5.1.6 CONDUCT OF BUSINESS. It will conduct, and will cause each
member of its consolidated group to conduct, its business only in the ordinary
course and, by way of amplification and not limitation, except as otherwise
provided herein, each member of its consolidated group will not, without the
prior written consent of the chief executive officer of the other Constituent
Corporation:
(a) with respect to CNB and its consolidated group only, except in the
ordinary course of business, (i) dispose of any material portion of its assets,
(ii) place or suffer to exist on any material portion of its assets or
properties any mortgage, pledge, lien, charge or other encumbrance, except
those of the character described in Subsection 4.1.10 hereof, or (iii) cancel
any indebtedness owing to it or any claims which it may have possessed, or
waive any right of substantial value or discharge or satisfy any noncurrent
liability if such cancellation or waiver would have a material adverse effect
on the financial condition, results of operations, business or prospects of its
consolidated group, taken as a whole;
(b) commit or omit to do any act which act or omission would cause a
material breach of any material agreement, contract or commitment or which
would have a material adverse effect on the financial condition, results of
operations, business or prospects of its consolidated group;
(c) violate any law, statute, rule, governmental regulation or order,
which violation would have a material adverse effect on the financial
condition, results of operations, business or prospects of its consolidated
group;
(d) fail to maintain its books, accounts and records in the usual
manner on a basis consistent with that heretofore employed; or
(e) fail to pay, or to make provision adequate in the good faith
opinion of its management for the payment of, all taxes, interest payments and
penalties due and payable (and/or accruable for all periods to the Effective
Time, including that portion of its fiscal year up to and including the
Effective Time) to any city, parish, state, foreign country, the United States
or any other taxing authority, except those being contested in good faith by
appropriate proceedings and for which sufficient reserves have been or will be
established; provided, however, that no provision set forth in this Subsection
5.1.6 shall prevent, impair or otherwise restrict the ability of the Company to
acquire or enter into agreements to acquire other bank or savings and loan
holding companies, federal or state chartered bank, savings bank, thrift
homestead association, savings association, savings and loan association,
cooperative bank or similar financial institution (each individually a
"Financial Institution") by merger, consolidation, purchase or otherwise, other
than as prohibited by Section 5.6.
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5.1.7 LOAN POLICY. The Constituent Corporations shall not make any
loans, or enter into any commitments to make loans, which vary materially and
adversely from their respective current written loan policies, a true and
correct copy of such loan policy having been provided to the other.
5.2 ADDITIONAL NEGATIVE COVENANTS OF CNB. CNB will not do, and will
cause each member of its consolidated group not to do, any one or more of the
following:
(a) declare, set aside, increase or pay any dividend, or declare or
make any distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, except from other members of CNB's
consolidated group or in satisfaction of debts previously contracted, any
shares of its capital stock or authorize the issuance of or issue any
additional shares of its capital stock or any securities or obligations
convertible into or exchangeable for its capital stock or any warrants, options
or other rights to acquire its capital stock, except pursuant to existing
obligations under stock option and employee benefit plans; provided that the
prohibitions of this Section 5.2 shall not prohibit (i) the declaration and
payment of dividends or distributions from any member of CNB's consolidated
group to any other member of its consolidated group or (ii) the declaration and
payment by CNB (to the extent it otherwise is legally permitted) of cash
dividends on the issued and outstanding shares of CNB Common Stock (A) for 1994
in the aggregate amount of $2.20 per share, of which $1.40 has previously been
declared and up to $.80 per share may hereafter be declared and paid, and (B)
for each fiscal year (or portion thereof) after 1994 occurring prior to the
Effective Time at a rate of up to $ .1333 per share times the number of
complete calendar months elapsed prior to the Effective Time during the fiscal
year for which the dividend is being paid;
(b) amend its Articles of Incorporation or Bylaws;
(c) enter into or modify any agreement so as to require the payment,
conditionally or otherwise, of any salary, bonus, extra compensation, pension
or severance payment to any of its present or former directors, officers or
employees, except such agreements as are terminable at will without any penalty
or other payment; or increase by more than seven percent (7%) the compensation
(including salaries, fees, bonuses, profit sharing, incentive, pension,
retirement or other similar payments) of any such person, or increase by more
than ten percent (10%) the annual compensation of any such person whose annual
compensation is, or after such increase would be, in excess of $50,000; or
(d) enter into any new line of business.
5.3 CNB SHAREHOLDER APPROVAL. CNB's Board of Directors shall submit
this Agreement and the Merger Agreement to its shareholders for approval in
accordance with the LBCL at a special meeting duly called for that purpose as
soon as practicable.
5.4 CNC SHAREHOLDER APPROVAL. If required, CNC ' s Board of Directors
shall submit this Agreement and the Merger Agreement to CNC ' s shareholders
for approval in accordance with the business corporation law of CNC's
jurisdiction of incorporation at a special meeting duly called for that purpose
as soon as practicable.
5.5 PROHIBITED NEGOTIATIONS. Prior to the Effective Time or until
the termination of this Agreement, no member of the CNB consolidated group
shall, without the prior approval of the chief executive officer of the
Company,
(a) solicit or encourage inquiries or proposals with respect to; or
(b) except to the extent required in the opinion of its counsel by its
legal obligations, furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
substantial portion of the assets of, or of a substantial equity interest in,
such member or any subsidiary thereof, or any business combination with such
member or any subsidiary thereof, other than as contemplated by this Agreement;
CNB will notify the Company immediately if any such inquiries or proposals are
received by it, any such information is requested from it, or any such
negotiations or discussions are sought to be initiated with it, and shall
instruct its officers, directors, agents and affiliates to refrain from doing
any of the above; provided, however, that nothing contained herein shall be
deemed to prohibit any officer or director of CNB from taking any action that
in the opinion of counsel to CNB is required by law.
5.6 RESTRICTION ON ACQUISITION. Prior to Closing, or until
termination of this Agreement, the Company shall not, directly or indirectly,
without the consent of CNB, acting through CNB's Board of Directors acquire, or
enter into agreements
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to acquire, any Financial Institution with its principal business location in
Tangipahoa Parish, Louisiana (other than CNB), whether by merger,
consolidation, purchase or otherwise, or enter into discussions or negotiations
with any such Financial Institution with respect thereto.
5.7 EMPLOYEE BENEFITS AND CONTRACTS. From and after the Effective
Time, the Company will, subject to compliance with applicable legal and
regulatory requirements, provide coverage for all CNB and Bank employees under
all Company benefit plans for which they are eligible or would be eligible if
such employees where employees of the Company, as soon as practicable after the
Effective Time. For purposes of participation and vesting (but not accrual of
benefits) under such employee benefit plans, the service of the employees of
CNB and members of its consolidated group prior to the Effective Time shall be
treated as service with members of the Company's consolidated group
participating in such employee benefit plans. CNC or the Company shall honor,
and shall cause the Bank and its successors and assigns to honor, in accordance
with their terms all employment, severance, consulting, and other compensation
contracts disclosed in CNB's Proxy Statement for its 1994 Annual Meeting of
Shareholders or in the schedule attached as Exhibit 4.1.12 between CNB and
members of its consolidated group and any current or former director, officer
or employee thereof, and all provisions for vested benefits or other vested
amounts earned or accrued through the Effective Time under the CNB Employee
Benefit Plans. CNC or the Company also shall assume in writing the employment
contracts listed in the schedule attached as Exhibit 4.1.12.
5.8 ISSUANCE OF COMPANY COMMON STOCK. The Board of Directors of the
Company shall, prior to the Closing, take such action as is required to permit
the issuance of the Company Common Stock issuable pursuant to the Merger. The
Company shall, prior to the Closing, take such action as shall be necessary to
permit the shares of the Company Common Stock issuable to holders of CNB Common
Stock by reason of the Merger to be approved for listing on the national market
system of the National Association of Securities Dealers Automated Quotations
System ("NASDAQ/NMS") subject to official notice of issuance.
5.9 REGULATORY APPROVALS. The Company and CNC will prepare and submit
all regulatory applications which are required to be made to the Federal
Reserve Board pursuant to the Bank Holding Company Act, the FDIC, the Louisiana
Office of Financial Institutions, and any other Federal or state Regulatory
Authority or other governmental authority having jurisdiction with respect to
the Merger and the transactions contemplated in connection with the Merger for
all appropriate orders, authorizations, consents and approvals. CNB shall
cooperate fully with the Company and CNC and shall provide such support,
assistance and information to CNC and the Company as may be reasonably
requested by it in connection with its applications for all necessary
approvals, in connection with the transactions contemplated by this Agreement.
5.10 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) The Company shall prepare and file on Form S-4 or its equivalent a
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), complying with all the requirements
of the Securities Act and Securities Exchange Act of 1934 (the "Exchange Act")
applicable thereto, for the purpose of registering Company Common Stock to be
issued to the holders of CNB Common Stock in the Merger. The Company shall use
its best efforts to cause the Registration Statement to become effective as
soon as practicable, to qualify Company Common Stock under the securities or
blue sky laws of such jurisdictions as may be required and to keep the
Registration Statement and such qualifications current and in effect for so
long as is necessary to consummate the transaction contemplated herein. The
Company will advise CNB promptly after it receives notice thereof of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of the qualification of Company Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, of the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
(b) CNB shall cooperate in preparing the Registration Statement and
related proxy statement (the "Proxy Statement") to be used to solicit the
approval of CNB's shareholders of this Agreement and the Merger Agreement. CNB
will promptly furnish all such data and information relating to it and its
subsidiaries as the Company may reasonably request for the purpose of including
such data and information in the Registration Statement.
(c) The Company will indemnify and hold harmless CNB, each of its
directors, each of its officers and each person, if any, who controls CNB
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint,
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several or solidary, to which they or any of them may become subject, under the
Securities Act, any state securities or blue sky laws, or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, or in any amendment
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each such person for any legal or
other expenses reasonably incurred, promptly as they are incurred, by such
person in connection with investigating or defending any such action or claim;
provided, however, that the Company shall not be liable in any case to the
extent that any such loss, claim, damage or liability (or action in respect
thereof) arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement or
any such amendment or supplement concerning the business, financial condition,
properties, securities, capitalization, management, operations or condition of
CNB and members of its consolidated group.
(d) Promptly after receipt by an indemnified party under subparagraph
(c) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the Company under
such subparagraph, notify the Company in writing of the commencement thereof.
In case any such action shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel satisfactory to such indemnified
party, and, after notice from the Company to such indemnified party of its
election so to assume the defense thereof, the Company shall not be liable to
such indemnified party under such subparagraph for any legal expenses of other
counsel or any other expenses subsequently incurred by such indemnified party;
provided, however, if the Company elects not to assume such defense or counsel
for the indemnified parties advises in writing that there are material
substantive issues which raise conflicts of interest between the Company or CNB
and one or more of the indemnified parties, such indemnified parties may retain
counsel satisfactory to them, and the Company shall pay all reasonable fees and
expenses of such counsel for the indemnified parties promptly as statements
therefor are received.
5.11 INDEMNIFICATION AND LIABILITY INSURANCE.
(a) From and after the Effective Time, CNC and the Company shall, and
shall cause Bank and its successors and assigns to, indemnify, defend, and hold
harmless the present and former directors, officers, employees and agents of
CNB and Bank (each such director, officer, employee or agent referred to as an
"Indemnified Party") against all losses, claims, damages or liabilities, joint,
several or solidary, and any action or other proceeding in respect thereof, to
which the Indemnified Parties or any of them become subject, arising out of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the full extent permitted under
Louisiana Law or by CNB's Articles of Incorporation and Bylaws as in effect on
the date hereof, and will reimburse each such Indemnified Party for any legal
or other expenses reasonably incurred, promptly as they are incurred, by such
Indemnified Party in connection with investigating or defending any such loss,
claim, damages, liability or action or proceeding. Without limiting the
foregoing, in any case in which approval is required to effectuate any
indemnification, the determination of any such approval shall be made, at the
election of the Indemnified Party, by independent counsel mutually agreed upon
between CNC and the Company, and the Indemnified Party. The rights granted to
the Indemnified Parties under this Section and persons indemnified under
Section 5.10 are contractual rights inuring to the benefit of each such
Indemnified Party or other indemnified person and shall survive the Effective
Time and any merger, consolidation or other reorganization of CNC or the
Company, the Bank and their respective successors and assigns.
(b) Promptly after receipt by an Indemnified Party under the preceding
subparagraph (a) of notice of the commencement of any action, such Indemnified
Party shall, if a claim in respect thereof is to be made against CNC or the
Company under such subparagraph, notify CNC and the Company in writing of the
commencement thereof. In case any such action shall be brought against any
Indemnified Party and it shall notify CNC and the Company of the commencement
thereof, CNC and the Company shall be entitled to participate therein and, to
the extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such Indemnified Party, and, after notice from CNC and the
Company to such Indemnified Party of its election so to assume the defense
thereof, CNC and the Company shall not be liable to such Indemnified Party
under such subparagraph for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Party; provided, however, if
CNC and the Company elect not to assume such defense or counsel for the
Indemnified Parties advises in writing that there are material substantive
issues which raise conflicts of interest between CNC, Company or CNB and one
or more of the Indemnified Parties, such Indemnified Parties may retain counsel
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satisfactory to them, and CNC and the Company shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received.
(c) CNC and the Company shall use its best efforts to maintain CNB's
existing directors' and officers' liability insurance policy (or a policy
providing at least comparable coverage) covering persons who are currently
covered by such insurance for a period of five (5) years after the Effective
Time on terms generally no less favorable than those in effect on the date of
this Agreement; provided, however, that CNC and the Company may substitute
therefor policies providing at least comparable coverage containing terms and
conditions no less favorable than those in effect on the date of this
Agreement.
5.12 CNB AFFILIATES. CNB shall obtain by the Effective Time an
agreement from each of its shareholders who beneficially owns, within the
meaning of Rule 13d-3 under the Exchange Act, ten percent (10%) or more of the
capital stock of CNB and from each of its directors and executive officers (an
"Affiliate") who will receive shares of Company Common Stock by virtue of the
Merger to the effect that (a) he or she will not dispose of any Company Common
Stock received pursuant to the Merger in violation of the Securities Act or the
rules and regulations of the SEC thereunder and (b) in any event, if the Merger
is to be treated by the Company as a pooling of interests for accounting
purposes, until financial results covering at least thirty (30) days of
combined operations of the Constituent Corporations after the Effective Time
have been published.
5.13 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. The Company covenants to use its best efforts to file in a timely
manner all material required to use filed pursuant to Section 13, 14, or 15(d)
of the Exchange Act, or the rules and regulations promulgated thereunder, so as
to continue the availability of Rule 144 for sales of Company Common Stock. In
the event of any proposed sale by any former shareholder of CNB Common Stock
who receives shares of Company Common Stock by reason of the Merger, the
Company covenants to use its best efforts to cooperate with such shareholder so
as to enable such sale to be made in accordance with applicable laws, rules,
and regulations, the requirements of the Company's transfer agents, and the
reasonable requirements of the broker through which such sale is proposed to be
executed. Without limiting the generality of the foregoing, the Company agrees
to furnish, upon request and at its expense, to the extent it is able, with
respect to each such sale (a) a written statement certifying that the Company
has filed all reports required to be filed by it under the Exchange Act for a
period of at least one (1) year preceding the date of the proposed sale, and,
in addition, has filed the most recent annual report required to be filed by it
thereunder, and (b) an opinion of the Company's counsel regarding such matters
as the Company's transfer agents or the broker executing such sale may
reasonably require to confirm.
5.14 REGISTRATION RIGHTS. At the Closing, the Company shall furnish
to the holders of shares of CNB Common Stock listed in Exhibit 5.14-A an
agreement in substantially the form attached as Exhibit 5.14-B.
ARTICLE 6
CONDITIONS TO CLOSING AND TERMINATION
6.1 CONDITIONS TO OBLIGATIONS OF EACH CONSTITUENT CORPORATION. The
obligations of each Constituent Corporation to consummate the Merger shall be
subject to the satisfaction of the following conditions at or before the
Effective Time, unless waived by both Constituent Corporations:
6.1.1 SHAREHOLDER APPROVAL. This Agreement and the Merger Agreement
shall have been duly approved by the shareholders of CNB and, if required, CNC
and the Company.
6.1.2 REGISTRATION STATEMENT. The Registration Statement shall be
effective under the Securities Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals under
state securities and blue sky laws and the Securities Act and Exchange Act
relating to the issuance or trading of the shares of Company Common Stock
issuable pursuant to the Merger shall have been received.
6.1.3 EXCHANGE LISTING. The shares of Company Common Stock issuable
pursuant to the Merger shall have been approved for listing on the NASDAQ/NMS.
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6.1.4 STATUTORY REQUIREMENTS AND REGULATORY APPROVAL. All statutory
requirements for the valid consummation by the Constituent Corporations of the
transactions contemplated by the Merger Agreement and this Agreement shall have
been fulfilled; all appropriate orders, authorizations, consents, and approvals
from all regulatory agencies and other governmental authorities whose order,
consent or approval is required by law for the consummation of the transactions
contemplated by this Agreement and the Merger Agreement, including but not
limited to approval of the Merger by the Federal Reserve Board pursuant to
Section 3(a) of the Bank Holding Company Act, shall have been received and the
terms of all requisite orders, consents, and approvals shall then permit the
effectuation of the Merger.
6.1.5 NO RESTRAINING ACTION. (a) No action or proceeding shall have
been threatened or instituted before a court or other governmental body by any
governmental agency or public authority to restrain or prohibit the
transactions contemplated by the Merger Agreement or this Agreement or to
obtain damages or other material relief in connection with the execution of
such agreements or the consummation of the transactions, contemplated hereby or
thereby; and (b) no governmental agency shall have given notice to either
Constituent Corporation to the effect that consummation of the transactions
contemplated by the Merger Agreement or this Agreement would constitute a
violation of any law or that it intends to commence proceedings to restrain
consummation of the Merger; provided, however, that (i) the occurrence of an
event described in clause (a) or (b) of this subparagraph shall not be deemed
to create a condition pursuant to this subparagraph unless the Board of
Directors of either of the Constituent Corporations, by a vote of at least
two-thirds of the members thereof, shall have determined in good faith, and
given written notice to the other of its determination, that the occurrence of
the event makes consummation of the Merger unwise in its opinion, (ii) if any
action or proceeding described in clause (a) of this subparagraph has been
concluded by a final and non-appealable judgment which would not result in
material damages to either Constituent Corporation or restrain, prohibit or
declare unlawful the consummation of the transactions contemplated by the
Merger Agreement or this Agreement, then the action or proceeding shall not be
deemed to create a condition pursuant to this Subsection 6.1.5 and (iii) no
action purporting to assert the right of a dissenting shareholder shall be
deemed to create a condition under this Subsection 6.1.5.
6.1.6 TAX MATTERS. Each Constituent Corporation and the shareholders
of CNB shall have received a written opinion of counsel for CNC and the
Company, which counsel shall be reasonably satisfactory to CNB, in form
reasonably satisfactory to each Constituent Corporation (the "Tax Opinion"), to
the effect that (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, (ii) the exchange in the Merger of CNB
Common Stock for Company Common Stock will not give rise to gain or loss to the
shareholders of CNB with respect to such exchange (except to the extent of any
cash received), (iii) neither CNB, CNC, and the Company will recognize gain or
loss as a consequence of the Merger, (iv) the basis of the shares of Company
Common Stock to be received in the Merger by holders of CNB Common Stock will,
in each instance, include the basis of the respective shares of CNB Common
Stock exchanged therefor, provided that the shares of CNB Common Stock are held
as capital assets at the Effective Time, (v) the holding period of the shares
of Company Common Stock will, in each instance, include the holding period of
the respective shares of CNB Common Stock exchanged therefor, provided that the
shares of CNB Common Stock are held as capital assets at the Effective Time,
and (vi) the payment of cash to holders of CNB Common Stock in lieu of
fractional share interests of Company Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then redeemed by
the Company. In rendering such Tax Opinion, counsel for CNC and the Company
shall be entitled to rely upon representations of officers of CNB, CNC and the
Company reasonably satisfactory in form and substance to such counsel.
6.2 CONDITIONS TO OBLIGATIONS OF CNB. The obligations of CNB to
consummate the Merger shall be subject to the satisfaction of the following
conditions at or before the Effective Time, unless waived by CNB:
6.2.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of CNC and the Company herein contained shall be true in all
material respects at the Effective Time, with the same effect as if made at the
Effective Time, except to the extent of changes permitted by the terms of this
Agreement and except to the extent that the facts constituting any untruth or
inaccuracy in such representations or warranties do not reflect that a material
adverse change in the financial condition, results of operations, business or
prospects, taken as a whole, of CNC and the Company has occurred or is
reasonably likely to occur.
6.2.2 PERFORMANCE OF COVENANTS. Each member of the Company's
consolidated group shall have performed in all material respects all material
obligations and complied in all material respects with all material covenants
required by the Merger Agreement and this Agreement to be performed or complied
with by it prior to the Effective Time.
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6.2.3 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change from September 30, 1994 to the Effective Time in the
financial condition, results of operations, business, or prospects of the
consolidated group of the Company taken as a whole.
6.2.4 CERTIFICATES. CNC and the Company shall have delivered to CNB
its certificate dated as of the day of the Effective Time and signed by its
chief executive officer and its chief financial officer to the effect that the
conditions to CNB's obligations set forth in Subsections 6.2.1, 6.2.2 and 6.2.3
have been satisfied.
6.2.5 FAIRNESS OPINIONS. CNB shall have received a letter from Alex
Sheshunoff & Co., or another financial advisor selected by CNB, dated within
five (5) days of the date of mailing of the Proxy Statement to its
shareholders, and updated to within five (5) days prior to the Effective Time
to the effect that the terms of the Merger are fair to its shareholders from a
financial point of view.
6.2.6 OPINION OF COUNSEL. CNB shall have received from counsel to CNC
and the Company, which counsel shall be reasonably acceptable to CNB, an
opinion dated as of the Effective Time, in the form attached as Exhibit 6.2.6.
6.2.7 REGISTRATION RIGHTS AGREEMENT. The Company shall have delivered
to the holders of shares of CNB Common Stock listed in Schedule 5.14-A an
agreement in substantially the form attached as Exhibit 5.14-B.
6.3 CONDITIONS TO OBLIGATIONS OF CNC AND THE COMPANY. The obligations
of CNC and the Company to consummate the Merger shall be subject to the
satisfaction of the following conditions at or before the Effective Time,
unless waived by CNC and the Company:
6.3.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of CNB herein contained shall be true in all material respects at
the Effective Time, with the same effect as if made at the Effective Time,
except to the extent of changes permitted by the terms of this Agreement and
except to the extent that the facts constituting any untruth or inaccuracy in
such representations or warranties do not reflect that a material adverse
change in the financial condition, results of operations, business or
prospects, taken as a whole, of CNB has occurred or is reasonably likely to
occur.
6.3.2 PERFORMANCE OF COVENANTS. Each member of CNB's consolidated
group shall have performed in all material respects all material obligations
and complied in all material respects with all material covenants required by
the Merger Agreement and this Agreement to be performed or complied with by it
prior to the Effective Time.
6.3.3 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change from September 30, 1994 to the Effective Time in the
financial condition, results of operations, business, or prospects of the
consolidated group of CNB taken as a whole.
6.3.4 CERTIFICATES. CNB shall have delivered to CNC and the Company
its certificate dated as of the day of the Effective Time and signed by its
chief executive officer and its chief financial officer to the effect that the
conditions to CNC and the Company's obligations set forth in Subsections 6.3.1,
6.3.2 and 6.3.3 have been satisfied.
6.3.5 OPINION OF COUNSEL. CNC and the Company shall have received
from counsel to CNB, which counsel shall be reasonably acceptable to CNC and
the Company, an opinion dated as of the Effective Time, in the form attached as
Exhibit 6.3.5.
6.3.6 DISSENTERS' SHARES. The number of shares as to which
dissenters' rights have been perfected and not withdrawn or otherwise forfeited
under Section 131 of the LBCL shall not exceed ten percent (10%) of the
outstanding shares of CNB.
6.4 WAIVER OF CONDITIONS. Any condition to a Constituent
Corporation's obligations hereunder may be waived by it, other than the
conditions specified in Subsections 6.1.1, 6.1.2, 6.1.3, and 6.1.4. The failure
to waive any condition to a Constituent Corporation's obligations hereunder
shall not be deemed a breach of Subsection 5.1.2 hereof.
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<PAGE> 111
ARTICLE 7
TERMINATION AND SURVIVAL
7.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time before the Effective Time:
7.1.1 MUTUAL CONSENT. By the mutual consent of the Boards of Directors
of the Constituent Corporations.
7.1.2 MATERIAL BREACH. By the Board of Directors of either
Constituent Corporation in the event of a material breach by the other
Constituent Corporation (a) of any representation or warranty herein, if the
facts constituting such breach reflect a material adverse change in the
financial condition, results of operations, business or prospects of the
consolidated group, taken as a whole, of the breaching Constituent Corporation,
or (b) of any material agreement herein, which in either case cannot be cured
within sixty (60) days after written notice of such breach is given to the
Constituent Corporation committing such breach.
7.1.3 FAILURE TO OBTAIN NECESSARY CONSENTS. By the Board of Directors
of either Constituent Corporation in the event (i) any consent or approval of
any Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is not
appealed within the time limit for appeal, (ii) the shareholders of CNB fail to
vote their approval of this Agreement and the transactions contemplated hereby
as required by the LBCL at the Shareholders' Meeting, or (iii) the shareholders
of CNC fail to vote their approval of this Agreement and the transactions
contemplated hereby in the manner required by the business corporation law of
the jurisdiction in which CNC is organized, if this Agreement and the
transactions contemplated hereby are required to be approved by the
shareholders of CNC under such business corporation law.
7.1.4 EXPIRATION OF TIME PERIOD. By the Board of Directors of either
Constituent Corporation in the event that the Merger shall not have been
consummated by September 30, 1995, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Constituent Corporation electing to terminate
pursuant to this Subsection 7.1.4.
7.1.5 FAILURE OF CONDITIONS. By the Board of Directors of either
Constituent Corporation in the event that any of the conditions to the
obligations of such Constituent Corporation to consummate the Merger cannot be
satisfied or fulfilled by the date specified in Subsection 7.1.4 of this
Agreement and will not be waived by such Constituent Corporation.
7.1.6 FAILURE TO OBTAIN FAIRNESS OPINION. By the Board of Directors of
CNB, if CNB shall not have received a letter from Alex Sheshunoff & Co., or
another financial advisor selected by CNB, dated within five (5) days of the
date of mailing of the Proxy Statement to its shareholders, and updated to
within five (5)days prior to the Effective Time to the effect that the terms of
the Merger are fair to its shareholders from a financial point of view or, if
either such fairness opinion shall have been withdrawn after having been given.
7.2 EFFECT OF TERMINATION. If this Agreement shall terminate
pursuant to Section 7.1, the Merger Agreement shall also terminate, and this
Agreement and the Merger Agreement shall be void and of no further effect, and
there shall be no liability by reason of this Agreement or the Merger
Agreement, or the termination thereof, on the part of the Constituent
Corporations or their respective directors, officers, employees, agents or
shareholders, except that (a) the provisions of Section 5.10(c) and (d) shall
survive for a period of five (5) years after such termination for the benefit
of the officers, directors and controlling persons of CNB referred to in
Section 5.10(c) and (d), and (b) liability of the Constituent Corporations for
breach of Sections 3.1, 5.1.2, 5.5, and 5.6 shall survive for a period of six
(6) months following any termination of this Agreement, at which time such
provisions shall terminate, be void and have no further effect.
7.3 SURVIVAL. Except for the representations, warranties and
agreements of CNC and the Company contained in Articles 1 and 2, Sections
4.3.2, 4.3.5, 5.7, 5.8, 5.10(c) and (d), 5.11, 5.13 and 8.8, which shall
survive the Closing and Effective Time until performed or until the applicable
period of limitations with respect thereto shall have expired, the
representations, warranties and other agreements of the Constituent
Corporations herein (as well as any representations and warranties made in any
other document related hereto, including without limitation any certificate
delivered in connection with this Agreement) shall expire with, and be
terminated and extinguished by, the effectiveness of the Merger and shall not
survive the Effective Time.
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<PAGE> 112
7.4 DEFENSES PRESERVED. Except as provided in Sections 7.2 and 7.3,
the sole right and remedy arising from a misrepresentation or breach of a
warranty made by either Constituent Corporation shall be the termination of
this Agreement by the other Constituent Corporation prior to the Effective Time
pursuant to Section 7.1; provided, however, that no representation or warranty
given by CNB or any member of its consolidated group shall be deemed to be
terminated or extinguished so as to deprive CNC, the Company, DGNB, Commercial
National, or their respective directors and officers, and no representation or
warranty given by CNC and the Company shall be deemed to be terminated or
extinguished so as to deprive the former directors and officers of CNB or Bank,
of any defense in law or equity that they otherwise would have to any claim
against them by any person, including, without limitation, any shareholder or
former shareholder of the Company or CNB. The survival of representations and
warranties pursuant to this Section shall be solely for the purpose of
affording defenses as described herein and shall not create, and shall not be
construed to create, a cause or right of action or other right (whether direct,
indirect or third-party) in any person.
ARTICLE 8
MISCELLANEOUS
8.1 NOTICES. Any notice, communication, request, reply, advice or
disclosure (hereinafter severally and collectively called "notice") required or
permitted to be given or made by any party to another in connection with this
Agreement or the Merger Agreement or the transactions herein contemplated must
be in writing and may be given or served by facsimile transmission or by
depositing the same in the United States mail, postage prepaid and registered
or certified with return receipt requested, or by delivering the same to the
address of the persons or entity to be notified, or by sending by a national
commercial courier service (such as Federal Express, Emery Air Freight, Network
Courier, Purolator or the like) for next-day delivery, provided such delivery
is confirmed in writing by such courier. Notice deposited in the mail in the
manner hereinabove described shall be effective 48 hours after such deposit,
and notice delivered by facsimile transmission, in person, or by commercial
courier shall be effective at the time of delivery. A party delivering notice
shall endeavor to obtain a receipt therefor. For purposes of notice, the
addresses of the parties shall, until changed as hereinafter provided, be as
follows:
If to CNC and the Company:
Deposit Guaranty Corp.
One Deposit Guaranty Plaza
210 East Capitol Street
P.0. Box 730
Jackson, Mississippi 39205
Attention: Arlen L. McDonald
Fax Number: (601) 354-8192
Phone Number: (601)354-8497
With copies to:
Watkins Ludlam & Stennis
633 North State Street (39202)
Post Office Box 427
Jackson, Mississippi 39205-0427
Attention: L. Keith Parsons, Esq.
Fax Number: (601) 949-4804
Phone Number: (601) 949-4701
If to CNB:
Citizens National Bancshares, Inc.
201 N.W. Railroad Avenue
Hammond, Louisiana 70401
Attention: Phil K. Livingston
Fax Number: (504) 542-2209
Phone Number.: (504) 345-3545
21
<PAGE> 113
With copies to:
Stone, Pigman, Walther, Wittmann & Hutchinson
546 Carondelet Street
New Orleans, Louisiana 70130-3588
Attention: Paul M. Haygood, Esq.
Fax Number.: (504) 581-3861
Phone Number: (504) 581-3200
or such substituted persons or addresses as either Constituent Corporation has
given notice to the other in writing.
8.2 WAIVER. The failure by either Constituent Corporation to enforce
any of its rights hereunder shall not be deemed to be a waiver of such rights,
unless such waiver is an express written waiver which has been signed by the
waiving party, and expressly approved by its Board of Directors. Waiver of any
one breach shall not be deemed to be a waiver of any other breach of the same
or any other provision hereof.
8.3 EXPENSES. Regardless of whether the Merger is consummated, all
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Constituent Corporation incurring
them.
8.4 HEADINGS. The headings in this Agreement have been included solely
for ease of reference and shall not be considered in the interpretation or
construction of this Agreement.
8.5 EXHIBITS AND SCHEDULES. The exhibits and schedules to this
Agreement are incorporated herein by this reference and expressly made a part
hereof.
8.6 INTEGRATED AGREEMENT. This Agreement, the Merger Agreement, the
schedules and exhibits hereto and thereto and all other documents and
instruments delivered in accordance with the terms hereof constitute the entire
understanding and agreement among the Constituent Corporations hereto with
respect to the subject matter hereof, and there are no agreements,
understandings, restrictions, representations or warranties among the
Constituent Corporations other than those set forth herein or herein provided
for, all prior agreements and understandings being superseded hereby.
8.7 CHOICE OF LAW. The validity of this Agreement and the Merger
Agreement, the construction of their terms and the determination of the rights
and duties of the parties hereto and thereto shall be governed by and construed
in accordance with the laws of the United States and those of the State of
Louisiana applicable to contracts made and to be performed wholly within such
State.
8.8 PARTIES IN INTEREST. This Agreement shall bind and inure to the
benefit of the Constituent Corporations hereto. This Agreement may not be
transferred or assigned by either Constituent Corporation without the prior
written consent of the other Constituent Corporation, including any transfer or
assignment by operation of law. Nothing in this Agreement or the Merger
Agreement is intended or shall be construed to confer upon or to give any
person other than the Constituent Corporations any rights or remedies under or
by reason of this Agreement, except as expressly provided for herein and except
that (a) following the Effective Time the surviving representations, warranties
and agreements of CNC and the Company in Articles 1 and 2, and in Sections
4.3.2, 4.3.5, 5.8, 5.13 and this Section 8.8 which survive the Effective Time,
shall inure to the benefit of the recipients of Company Common Stock pursuant
to the Merger, (b) following the Effective Time, the representations,
warranties and agreements of CNC and the Company in Sections 5.7, 5.10(c) and
(d), and 5.11 and this Section 8.8, which survive the Effective Time, shall
inure to the benefit of the persons who were the directors, officers, employees
and controlling persons of CNB's consolidated group prior to the Effective Time
referred to in such Sections, and (c) if this Agreement is terminated under
Section 7.1, the agreements of CNC and the Company in Section 5.10(c) and (d)
shall inure to the benefit of the officers, directors and controlling persons
of CNB referred to in Section 5.10.
8.9 KNOWLEDGE. The term "knowledge" as used with respect to a
Constituent Corporation shall mean the actual knowledge of the chairman, chief
executive officer, president, chief operating officer, chief financial officer,
chief accounting officer, chief credit officer, general counsel, any assistant
or deputy general counsel, or any senior or executive vice president of such
Constituent Corporation.
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<PAGE> 114
8.10 AMENDMENTS. The Constituent Corporations may, by mutual agreement
of their respective Boards of Directors, amend, modify or supplement this
Agreement, any exhibit to this Agreement and the Merger Agreement in such
manner as may be agreed upon by the Constituent Corporations in writing, at any
time before or after approval of this Agreement and the Merger Agreement by
their shareholders, provided that no such amendment, modification or supplement
made after such approval by the shareholders shall, in the sole judgment of the
Boards of Directors of the Constituent Corporations, materially and adversely
affect the rights of their respective shareholders. This Agreement and any
exhibit to this Agreement may be amended and, as amended, restated, at any time
by the mutual consent of the chief executive officers of the Constituent
Corporations, without the necessity for approval by their respective Boards of
Directors or shareholders, to correct typographical errors or to change
erroneous references or cross references, or in any other manner which is
immaterial to the substance of the transactions contemplated hereby.
8.11 COUNTERPARTS. This Agreement may be executed by the Constituent
Corporations in one or more counterparts, any one of which need not contain the
signature of more than one party, but all of which taken together shall
constitute one and the same original instrument.
IN WITNESS WHEREOF, the Constituent Corporations have executed this
Agreement as of the date first above written.
DEPOSIT GUARANTY CORP.
By:_______________________________________
E. B. Robinson, Jr., Chairman of the
Board and Chief Executive Officer
COMMERCIAL NATIONAL CORPORATION
By:______________________________________
E. B. Robinson, Jr., Chairman
CITIZENS NATIONAL BANCSHARES, INC.
By:______________________________________
Phil K. Livingston, President and
Chief Executive Officer
23
<PAGE> 115
EXHIBIT 1
MERGER AGREEMENT
This Merger Agreement is made and entered into as of ________, 1995,
between Deposit Guaranty Corp. (the "Company"), a Mississippi corporation,
Commercial National Corporation ("CNC"), a Louisiana corporation and Citizens
National Bancshares, Inc. ("CNB"), a Louisiana corporation.
WITNESSETH:
WHEREAS, the Company, CNC, and CNB (collectively, the "Constituent
Corporations") and their respective Boards of Directors deem it advisable that
CNB be merged into CNC (the "Merger") pursuant to the provisions of the
Louisiana Business Corporation Law and upon the terms and conditions
hereinafter set forth and in the Plan (as hereinafter defined); and
WHEREAS, the Constituent Corporations have entered into an Agreement
and Plan of Merger dated as of ________________, 1994, (the "Plan") setting
forth certain representations, warranties, covenants and conditions relating to
the Merger.
NOW, THEREFORE, it is agreed as follows:
ARTICLE ONE
THE MERGER
Upon the terms and subject to the conditions hereinafter set forth, at
the Effective Time (as defined in Article Two hereof) CNB shall be merged into
CNC and the separate existence of CNB shall cease.
ARTICLE TWO
EFFECTIVE TIME
The Merger shall be effective at 12:01 a.m. on the date immediately
following the day when this Merger Agreement, having been certified, signed and
acknowledged in the manner required by law, is filed in the office of the
Secretary of State of Louisiana (such time and date being herein referred to as
the "Effective Time".
ARTICLE THREE
CONVERSION AND CANCELLATION OF SHARES
Except for shares as to which dissenters' rights have been perfected
and not withdrawn or otherwise forfeited under Section 131 of the Louisiana
Business Corporation Law, on the Effective Date each issued and outstanding
share of CNB Common Stock, par value $10.00 per share ("CNB Common Stock"),
shall be exchanged for and converted into ______________ shares of the Company
Common Stock, no par value per share ("the Company Common Stock"). The exchange
of certificates representing the Company Common Stock for certificates formerly
representing CNB Common Stock shall be effected as provided in the Plan. No
fractional shares of the Company Common Stock or script certificates
representing such fractional shares will be issued to the holders of CNB Common
Stock. Instead, a holder of CNB Common Stock otherwise entitled to receive such
fractional shares shall be entitled to a cash payment (without interest) as
provided in the Plan.
ARTICLE FOUR
EFFECTS OF MERGER
The Merger shall have the effects set forth in Section 115 of the
Louisiana Business Corporation Law.
<PAGE> 116
ARTICLE FIVE
FILING OF MERGER AGREEMENT
If this Merger Agreement is approved by the shareholders of CNB, then
the fact of such approval shall be certified hereon by the secretary or
assistant secretary of CNB, and this Merger Agreement, as approved and
certified, shall be signed and acknowledged by the president or vice president
of each of the Constituent Corporations. Thereafter, a multiple original of
this Merger Agreement, so certified, signed and acknowledged, shall be
delivered to the Secretary of State of Louisiana for filing and recordation in
the manner required by law; and thereafter, as soon as practicable (but not
later than the time required by law), a copy of the Certificate of Merger
issued by the Secretary of State of Louisiana shall be filed for record in the
office of the recorder of mortgages for the parish of Tangipahoa and shall also
be recorded in the conveyance records for the parish of Tangipahoa and any
other parish in which any of the Constituent Corporations owns real property at
the Effective Time of the Merger.
ARTICLE SIX
MISCELLANEOUS
The obligations of the Constituent Corporations to effect the Merger
shall be subject to all of the terms and conditions of the Plan. At any time
prior to the Effective Time, this Merger Agreement may be terminated (a) by the
mutual agreement of the Boards of Directors of the Constituent Corporations
notwithstanding approval of this Agreement by the shareholders of any or all of
the Constituent Corporations or (b) pursuant to the terms and provisions of the
Plan.
IN WITNESS WHEREOF, this Merger Agreement has been approved by
resolutions of the Boards of Directors of each of the Constituent Corporations,
effective as of the day first above written.
CERTIFICATE OF SECRETARY OF
COMMERCIAL NATIONAL CORPORATION
(A LOUISIANA CORPORATION)
I hereby certify that I am the duly elected Secretary of Commercial
National Corporation, a Louisiana corporation, presently serving in such
capacity and that, pursuant to Section 112E of the Louisiana Business
Corporation Law, approval of the Merger Agreement by the shareholders of
Commercial National Corporation is not required.
Certificate dated ____________________, 1995.
_____________________________________
Secretary
CERTIFICATE OF SECRETARY OF
CITIZENS NATIONAL BANCSHARES, INC.
(A LOUISIANA CORPORATION)
I hereby certify that I am the duly elected Secretary of Citizens
National Bancshares, Inc., a Louisiana corporation, presently serving in such
capacity and that the foregoing Merger Agreement was, in the manner required by
the Louisiana Business Corporation Law, duly approved, without alteration or
amendment, by the shareholders of Citizens National Bancshares, Inc., at a
meeting duly held pursuant to notice on ___________________, 1995, at which
meeting a quorum was present and acting throughout by a vote of ___________
shares "for" to__________________ shares "against" or not voting.
Certificate dated __________________________, 1995.
_____________________________________
Secretary
<PAGE> 117
EXECUTION BY CORPORATIONS
Considering the approval of this Merger Agreement by the shareholders
of Citizens National Bancshares, Inc., and the fact that no such approval is
required by the shareholders of Commercial National Corporation, both as
certified above, this Merger Agreement is executed by such corporations, acting
through their respective Presidents, this ____ day of _________________,1995.
<TABLE>
<S> <C>
DEPOSIT GUARANTY CORP.
By:______________________________________________
President
ATTEST:
___________________________________________
Secretary
COMMERCIAL NATIONAL CORPORATION
By:______________________________________________
President
ATTEST:
__________________________________________
Secretary
CITIZENS NATIONAL BANCSHARES, INC.
By:______________________________________________
President
ATTEST:
_________________________________________
Secretary
</TABLE>
<PAGE> 118
ACKNOWLEDGMENT AS TO
CITIZENS NATIONAL BANCSHARES, INC
STATE OF LOUISIANA
PARISH OF TANGIPAHOA
BEFORE ME, the undersigned Notary Public, on this ______ day of
_____________, 199 _, in the presence of the undersigned competent witnesses,
personally came and appeared ______________________, who, being duly sworn,
declared and acknowledged before me that he is the President of Citizens
National Bancshares, Inc. and that in such capacity he was duly authorized to
and did execute the foregoing Merger Agreement on behalf of such Corporation,
for the purposes therein expressed, and as his and such Corporation's free act
and deed.
WITNESSES:
________________________________________
________________________________________
Notary Public
ACKNOWLEDGMENT AS TO
DEPOSIT GUARANTY CORP.
STATE OF MISSISSIPPI
COUNTY OF HINDS
BEFORE ME, the undersigned Notary Public, on this ______ day of
_____________, 199 _, in the presence of the undersigned competent witnesses,
personally came and appeared ______________________, who, being duly sworn,
declared and acknowledged before me that he is the President of Deposit
Guaranty Corp. and that in such capacity he was duly authorized to and did
execute the foregoing Merger Agreement on behalf of such Corporation, for the
purposes therein expressed, and as his and such Corporation's free act and
deed.
WITNESSES:
________________________________________
________________________________________
Notary Public
ACKNOWLEDGMENT AS TO
COMMERCIAL NATIONAL CORPORATION
STATE OF MISSISSIPPI
COUNTY OF HINDS
BEFORE ME, the undersigned Notary Public, on this ______ day of
_____________, 199 _, in the presence of the undersigned competent witnesses,
personally came and appeared ______________________, who, being duly sworn,
declared and acknowledged before me that he is the President of Commercial
National Corporation and that in such capacity he was duly authorized to and
did execute the foregoing Merger Agreement on behalf of such Corporation, for
the purposes therein expressed, and as his and such Corporation's free act and
deed.
WITNESSES:
________________________________________
________________________________________
Notary Public
<PAGE> 119
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
BETWEEN
DEPOSIT GUARANTY CORP.,
COMMERCIAL NATIONAL CORPORATION
AND
CITIZENS NATIONAL BANCSHARES, INC.
AMENDMENT dated as of March 27, 1995 ("Amendment") to AGREEMENT AND
PLAN OF MERGER dated as of December 2, 1994 ("Agreement") adopted and made by
and between Deposit Guaranty Corp. ("the Company"), a Mississippi corporation,
CNB National Corporation ("CNC"), a Louisiana corporation, and Citizens
National Bancshares, Inc. ("CNB"), a Louisiana corporation.
CNB, the Company and CNC entered into the Agreement as of December 2,
1994. CNB, the Company and CNC have determined to amend the Agreement.
In consideration of their mutual promises and obligations, the parties
hereto adopt and make this Amendment to the Agreement as follows:
1. Amendment. The Agreement is hereby amended to add thereto a
new Section 6.3.7 immediately following Section 6.3.6 and immediately before
Section 6.4, reading as follows:
"6.3.7 ACCOUNTING TREATMENT. Neither the SEC nor the
Company's independent certified public accountants shall have
concluded that the Merger will not qualify as a pooling of interests
for accounting purposes."
2. Execution in Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed to constitute an original. Each
such counterpart shall become effective when one counterpart has been signed by
each party hereto.
3. Governing Law. This Amendment shall be governed by, and
interpreted in accordance with, the laws of the State of Louisiana applicable
to agreements made and entirely to be performed within such State, except as
federal law may be applicable.
4. Headings. The headings in this Amendment are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Amendment.
<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers and their
corporate seals to be hereunto affixed, all as of the day and year first above
written.
DEPOSIT GUARANTY CORP.
By:________________________________
Name:______________________________
Title:_____________________________
ATTEST:
_________________________________
Secretary
COMMERCIAL NATIONAL CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
ATTEST:
_________________________________
Secretary
CITIZENS NATIONAL BANCSHARES, INC.
By:________________________________
Phil K. Livingston
Its: President and Chief
Executive Officer
ATTEST:
_________________________________
Secretary
<PAGE> 121
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
BETWEEN
DEPOSIT GUARANTY CORP.,
COMMERCIAL NATIONAL CORPORATION
AND
CITIZENS NATIONAL BANCSHARES, INC.
SECOND AMENDMENT dated as of April 11, 1995 ("Second Amendment") to
AGREEMENT AND PLAN OF MERGER dated as of December 2, 1994, among Deposit
Guaranty Corp. ("the Company"), a Mississippi corporation, Commercial National
Corporation ("CNC"), a Louisiana corporation, and Citizens National Bancshares,
Inc. ("CNB"), a Louisiana corporation, as amended by the AMENDMENT TO AGREEMENT
AND PLAN OF MERGER dated as of March 27, 1995, among Deposit Guaranty, CNC and
CNB (collectively, the Agreement").
In consideration of their mutual promises and obligations contained
herein, the parties hereto adopt and make this Second Amendment to the
Agreement as follows:
1. Amendment. The Agreement is hereby amended by deleting
therefrom in its entirety clause (B) of Section 5.2(a)(ii), and substituting in
its place a new clause (B) of Section 5.2(a)(ii), reading as follows:
"(B) for each fiscal year (or portion thereof) after 1994 occurring
prior to the Effective Time at a rate of up to $ .1333 per share times
the number of complete calendar months elapsed prior to the Effective
Time during the fiscal year for which the dividend is being paid,
provided that if the Effective Time occurs at a time during a calendar
quarter that is before the Company's record date for payment of the
Company's regular quarterly dividend for that quarter, no such
dividend otherwise permitted to be paid by CNB under this clause (B)
shall be paid for that quarter"
2. Execution in Counterparts. This Second Amendment may be
executed in counterparts, each of which shall be deemed to constitute an
original. Each such counterpart shall become effective when one counterpart
has been signed by each party hereto.
3. Governing Law. This Second Amendment shall be governed by,
and interpreted in accordance with, the laws of the State of Louisiana
applicable to agreements made and entirely to be performed within such State,
except as federal law may be applicable.
4. Headings. The headings in this Second Amendment are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Second Amendment.
<PAGE> 122
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers and their
corporate seals to be hereunto affixed, all as of the day and year first above
written.
DEPOSIT GUARANTY CORP.
By:_________________________________
Name:_______________________________
Title:______________________________
ATTEST:
_________________________________
Secretary
COMMERCIAL NATIONAL CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
ATTEST:
_________________________________
Secretary
CITIZENS NATIONAL BANCSHARES, INC.
By:_________________________________
Phil K. Livingston
Its: President and Chief Executive
Officer
ATTEST:
_________________________________
Secretary
2
<PAGE> 123
EXHIBIT B
[ALEX SHESHUNOFF & CO. INVESTMENT BANKING LETTERHEAD]
April 13, 1995
Board of Directors
Citizens National Bancshares, Inc.
201 Northwest Railroad Avenue
Hammond, Louisiana 70401
Gentlemen:
You have requested our opinion, as an independent financial analyst to the
common shareholders of Citizens National Bancshares, Inc., Hammond, Louisiana
("CNB"), as to the fairness, from a financial point of view to the common
shareholders of CNB, of the terms of the proposed merger of CNB with Deposit
Guaranty Corp., Jackson, Mississippi ("DGC"). Pursuant to the terms of the
Agreement and Plan of Merger, in the event the Average Market Price of DGC
common stock is greater than or equal to $30.50 per share, the Exchange Ratio
shall equal 1,393,442 divided by the total number of shares of CNB common stock
issued and outstanding immediately prior to the Effective Time. In the event
the Average Market Price of DGC common stock is less than or equal to $28.50
per share, the Exchange Ratio shall equal 1,491,228 divided by the total number
of shares of CNB common stock issued and outstanding immediately prior to the
Effective Time. In the event the Average Market Price of DGC common stock is
greater than $28.50 per share but less than $30.50 per share, the Exchange
Ratio shall be determined by dividing $42,500,000 by the Average Market Price
and then dividing the product by the total number of shares of CNB common stock
issued and outstanding immediately prior to the Effective Time.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrifts securities in connection with mergers and acquisitions nationwide.
Prior to being retained for this assignment, Alex Sheshunoff & Co. Investment
Banking has provided professional services and products to CNB and DGC. The
revenues derived from such services and products are insignificant when
compared to the firm's total gross revenues.
In connection with this assignment, we reviewed (i) the terms of the Agreement
and Plan of Merger between DGC and CNB; (ii) the most recent external auditor's
reports to the Boards of Directors of each organization; (iii) the March 31,
1995 Report of Condition and Income for CNB and the audited 1994 Balance Sheet
and Income Statement for DGC; (iv) the Rate Sensitivity Analysis reports for
each organization; (v) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (vi) each
organization's internal loan classification list; (vii) a listing of other real
estate owned for each organization; (viii) the budget and long range operating
plan of each organization; (ix) a listing of unfunded letters of credit and any
other off-balance sheet risks for each organization; (x) the Minutes of the
Board of Directors of each organization; (xi) the most recent Board report for
each organization; (xii) the listing and description of significant real
properties for each organization; (xiii) the directors and officers liability
and blanket bond insurance policies for each organization; and (xiv) market
conditions and current trading levels of outstanding equity securities of both
organizations.
We have also had discussions with the management of CNB and DGC regarding their
respective financial results and have analyzed the most current financial data
available on CNB and DGC. We also considered such other information, financial
studies, analyses and investigations, and economic and market criteria which we
deemed relevant. We have met with the management of CNB and DGC to discuss the
foregoing information with them.
<PAGE> 124
We have considered certain financial data of CNB and DGC, and have compared
that data with similar data for other banks and bank holding companies which
have recently merged or been acquired; furthermore, we have considered the
financial terms of these business combinations involving said banks and bank
holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of CNB or
DGC.
In reaching our opinion we took into consideration the financial benefits of
the proposed transactions to all CNB shareholders. Based on all factors that
we deem relevant and assuming the accuracy and completeness of the information
and data provided to us by CNB and DGC, it is our opinion as of April 13, 1995,
that the proposed transaction is fair and equitable to all CNB shareholders
from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
By:_______________________________
Alex Sheshunoff
President
By:_______________________________
Wade Schuessler
Assistant Vice President
<PAGE> 125
EXHIBIT C
La. R.S. 12:131 (1993)
Section 131. Rights of a shareholder dissenting from certain corporate
actions
A. Except as provided in subsection B of this section, if a
corporation has, by vote of its shareholders, authorized a sale, lease or
exchange of all of its assets, or has, by vote of its shareholders, become a
party to a merger or consolidation, then, unless such authorization or action
shall have been given or approved by at least eighty percent of the total
voting power, a shareholder who voted against such corporate action shall have
the right to dissent. If a corporation has become a party to a merger pursuant
to R.S. 12:112(H), the shareholders of any subsidiaries party to the merger
shall have the right to dissent without regard to the proportion of the voting
power which approved the merger and despite the fact that the merger was not
approved by vote of the shareholders of any of the corporations involved.
B. The right to dissent provided by this Section shall not exist
in the case of:
(1) A sale pursuant to an order of a court having jurisdiction in
the premises.
(2) A sale for cash on terms requiring distribution of all or
substantially all of the net proceeds to the shareholders in accordance with
their respective interests within one year after the date of the sale.
(3) Shareholders holding shares of any class of stock which, at
the record date fixed to determine shareholders entitled to receive notice of
and to vote at the meeting of shareholders at which a merger or consolidation
was acted on, were listed on a national securities exchange, or were designated
as a national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, unless the articles of the
corporation issuing such stock provide otherwise or the shares of such
shareholders were not converted by the merger or consolidation solely into
shares of the surviving or new corporation.
C. Except as provided in the last sentence of this subsection,
any shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than
eighty percent of the total voting power, and the merger, consolidation or
sale, lease or exchange of assets authorized thereby be effected, the
corporation shall promptly thereafter give written notice thereof, by
registered mail, to each shareholder who filed such written objection to, and
voted his shares against, such action, at such shareholder's last address on
the corporation's records. Each such shareholder may, within twenty days after
the mailing of such notice to him, but not thereafter, file with the
corporation a demand in writing for the fair cash value of his shares as of the
day before such vote was taken; provided that he state in such demand the value
demanded, and a post office address to which the reply of the corporation may
be sent, and at the same time deposit in escrow in a chartered bank or trust
company located in the parish of the registered office of the corporation, the
certificates representing his shares, duly endorsed and transferred to the
corporation upon the sole condition that said certificates shall be delivered
to the corporation upon payment of the value of the shares determined in
accordance with the provisions of this section. With his demand the
shareholder shall deliver to the corporation, the written acknowledgment of
such bank or trust company that it so holds his certificates of stock. Unless
the objection, demand and acknowledgment aforesaid be made and delivered by the
shareholder within the period above limited, he shall conclusively be presumed
to have acquiesced in the corporate action proposed or taken. In the case of a
merger pursuant to R.S. 12:112(H), the dissenting shareholder need not file
an objection with the corporation nor vote against the merger, but need only
file with the corporation, within twenty days after a copy of the merger
certificate was mailed to him, a demand in writing for the cash value of his
shares as of the day before the certificate was filed with the secretary of
state, state in such demand the value demanded and a post office address to
which the corporation's reply may be sent, deposit the certificates
representing his shares in escrow as hereinabove provided, and deliver to the
corporation with his demand the acknowledgment of the escrow bank or trust
company as hereinabove prescribed.
D. If the corporation does not agree to the value so stated and
demanded, or does not agree that a payment is due, it shall, within twenty days
after receipt of such demand and acknowledgment, notify in writing the
shareholder, at the designated post office address, of its disagreement, and
shall state in such notice the value it will agree to pay if any payment
<PAGE> 126
should be held to be due; otherwise it shall be liable for, and shall pay to
the dissatisfied shareholder, the value demanded by him for his shares.
E. In case of disagreement as to such fair cash value, or as to
whether any payment is due, after compliance by the parties with the provisions
of subsections C and D of this section, the dissatisfied shareholder, within
sixty days after receipt of notice in writing of the corporation's
disagreement, but not thereafter, may file suit against the corporation, or the
merged or consolidated corporation, as the case may be, in the district court
of the parish in which the corporation or the merged or consolidated
corporation, as the case may be, has its registered office, praying the court
to fix and decree the fair cash value of the dissatisfied shareholder's shares
as of the day before such corporate action complained of was taken, and the
court shall, on such evidence as may be adduced in relation thereto, determine
summarily whether any payment is due, and, if so, such cash value, and render
judgment accordingly. Any shareholder entitled to file such suit may, within
such sixty-day period but not thereafter, intervene as a plaintiff in such suit
filed by another shareholder, and recover therein judgment against the
corporation for the fair cash value of his shares. No order or decree shall be
made by the court staying the proposed corporate action, and any such corporate
action may be carried to completion notwithstanding any such suit. Failure of
the shareholder to bring suit, or to intervene in such a suit, within sixty
days after receipt of notice of disagreement by the corporation shall
conclusively bind the shareholder (1) by the corporation's statement that no
payment is due, or (2) if the corporation does not contend that no payment is
due, to accept the value of his shares as fixed by the corporation in its
notice of disagreement.
F. When the fair value of the shares has been agreed upon between
the shareholder and the corporation, or when the corporation has become liable
for the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of notice of the corporation's
disagreement, the action of the shareholder to recover such value must be
brought within five years from the date the value was agreed upon, or the
liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation,
as the case may be, shall, in its notice of disagreement, have offered to pay
to the dissatisfied shareholder on demand an amount in cash deemed by it to be
the fair cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as
the case may be; otherwise the costs of the proceeding shall be taxed against
such shareholder.
H. Upon filing a demand for the value of his shares, the
shareholder shall cease to have any of the rights of a shareholder except the
rights accorded by this section. Such a demand may be withdrawn by the
shareholder at any time before the corporation gives notice of disagreement, as
provided in subsection D of this section. After such notice of disagreement is
given, withdrawal of a notice of election shall require the written consent of
the corporation. If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares, his share certificates shall be
returned to him (and, on his request, new certificates shall be issued to him
in exchange for the old ones endorsed to the corporation), and he shall be
reinstated to all his rights as a shareholder as of the filing of his demand
for value, including any intervening preemptive rights, and the right to
payment of any intervening dividend or other distribution, or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
<PAGE> 127
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of Mississippi. Subarticle
E of Article 8 of the Mississippi Business Corporation Act prescribes the
conditions under which indemnification may be obtained by a present or former
director or officer of the Company who incurs expenses or liability as a
consequence of matters arising out of his activities as a director or officer.
Article Nine of the Company's Articles of Incorporation also provides
for indemnification of officers and directors under certain circumstances. The
Company has purchased a liability policy which, subject to any limitations set
forth in the policy, indemnifies the Company's directors and officers for
damages that they become legally obligated to pay as a result of any negligent
act, error or omission committed by such person in his capacity as an officer
or director.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS
The following exhibits are furnished (or incorporated by reference) as
a part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
*2 Agreement and Plan of Merger dated as of December 2, 1994, as amended included as Exhibit A
to the Proxy Statement/Prospectus contained herein.
*5 Opinion of Watkins Ludlam & Stennis regarding legality of common stock registered hereby.
8 Revised Form of Opinion of Watkins Ludlam & Stennis regarding tax matters.
*23(a) Consent of KPMG Peat Marwick, LLP, independent auditors
*23(b) Consent of Arthur Andersen, LLP, independent auditors
*23(c) Consent of Watkins Ludlam & Stennis is contained in their opinion filed as Exhibit 5 to this
Registration Statement
*23(d) Consent of Alex Sheshunoff & Co.
*24 Power of attorney included as part of signature page
99 Revised Form of Proxy
</TABLE>
* Previously filed
ITEM 22. UNDERTAKINGS
(1) The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
<PAGE> 128
the informationcalled for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and issued in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post- effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(4) The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Deposit
Guaranty has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Jackson, State of Mississippi on this the 13th day of April, 1995.
DEPOSIT GUARANTY CORP.
BY: /s/ E. B. ROBINSON, JR.
_____________________________
E. B. Robinson, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ E. B. ROBINSON, JR.
______________________________ Chairman of the Board April 13, 1995
E. B. Robinson, Jr. and Director (Principal
Executive Officer)
/s/ HOWARD L. MCMILLAN, JR.
______________________________ President and Director April 13, 1995
Howard L. McMillan, Jr.
/s/ ARLEN L. MCDONALD
______________________________ Executive Vice President April 13, 1995
Arlen L. McDonald (Principal Financial
Officer)
/s/ STEPHEN E. BARKER
______________________________ Controller (Principal April 13, 1995
Stephen E. Barker Accounting Officer)
</TABLE>
<PAGE> 130
<TABLE>
<S> <C> <C>
* WARREN A. HOOD, JR.
_________________________ Director April 13, 1995
Warren A. Hood, Jr.
* RICHARD D. MCRAE, JR.
__________________________ Director April 13, 1995
Richard D. McRae, Jr.
* W.R. NEWMAN, III
__________________________ Director April 13, 1995
W. R. Newman, III
* STEVEN C. WALKER
__________________________ Director April 13, 1995
Steven C. Walker
* J. KELLEY WILLIAMS
__________________________ Director April 13, 1995
J. Kelley Williams
* By: /s/ E.B. ROBINSON, JR.
________________________
E.B. Robinson, Jr.
Attorney-in-fact
</TABLE>
<PAGE> 131
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ----------- --------
<S> <C> <C>
8 Revised Form of Opinion of Watkins Ludlam & Stennis regarding tax matters.
99 Revised Form of Proxy
</TABLE>
<PAGE> 1
Exhibit 8
[Date of Closing]
<TABLE>
<S> <C>
Board of Directors Board of Directors
Deposit Guaranty Corp. Citizens National Bancshares, Inc.
One Deposit Guaranty Plaza 201 N.W. Railroad Avenue
210 East Capitol Street Hammond, Louisiana 60401
Post Office Box 730
Jackson, Mississippi 39205-0730
</TABLE>
Board of Directors
Commercial National Corporation
333 Texas Street
Shreveport, Louisiana 71152
RE: THE FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN MATTERS ARISING
UNDER THE CORPORATE REORGANIZATION PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED
Gentlemen:
You have requested our opinion regarding the federal income tax
consequences of the proposed merger of Citizens National Bancshares, Inc.
("CNB") with and into Commercial National Corporation ("CNC"). The merger of
CNB with and into CNC as further described in Section II.C. hereof, is
hereinafter referred to as the "Merger." Unless otherwise noted, the
capitalized terms herein shall have the same meaning ascribed to such terms in
that certain Agreement and Plan of Merger by and among you, dated as of
December 2, 1994 (the "Merger Agreement"). This opinion is rendered in
satisfaction of the closing condition described in Section 6.1.6 of the Merger
Agreement.
<PAGE> 2
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 2
We have examined and are familiar with the Merger Agreement, the Proxy
Statement/Prospectus of Deposit Guaranty Corp. and CNB dated April __, 1995
regarding the proposed transactions, certain financial statements of the
parties to the proposed Mergers, and such other documents as we have deemed
sufficient to enable us to express our informed opinion. In rendering this
opinion we have relied not only on such documents but also on the
representations and statements of the parties to the proposed Mergers, which
are stated in the Certificate dated [date of closing], attached hereto as
Exhibit "A", regarding certain matters addressed in this opinion, and the
following factual information supplied by the parties to the proposed Mergers.
I. BACKGROUND FACTS CONCERNING CORPORATE PARTIES(1)
A. Deposit Guaranty Corp.
Deposit Guaranty Corp. ("DGC") was incorporated in 1968 under the laws
of the State of Mississippi for the primary purpose of acting as a bank holding
company for Deposit Guaranty National Bank ("DGNB"), a national banking
association. DGC is registered as a bank holding company with the Federal
Reserve System.
DGC has an authorized capital structure consisting of 50,000,000
shares of no par value voting common stock ( the "DGC Common Stock"),
10,000,000 shares of no par value Class A voting preferred stock, and
10,000,000 shares of Class B non-voting preferred stock. DGC has _________
shares of Common Stock issued and outstanding and no preferred stock is
outstanding. DGC is a publicly held company with over 5,000 shareholders of
record, and its stock is traded on the NASDAQ National Market System. In
addition, options to acquire 441,354 shares of DGC Common Stock are
outstanding.
DGC and its subsidiaries are engaged only in the general banking
business and activities closely related to banking, as authorized by the
banking laws of the United States and the regulations issued pursuant thereto.
DGC offers complete banking and trust services to the commercial, industrial
and agricultural areas which it serves through its banking subsidiaries, DGNB
and Commercial National Bank. DGC owns and operates DGC Services Company, a
Mississippi business corporation, furnishing managerial and financial advisory
services to DGC.
__________________________________
(1) The following information regarding the capital structures of the
various parties is as of December 31, 1994.
<PAGE> 3
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 3
The books of account of DGC are maintained on a calendar year basis
and DGC computes its income under the accrual method of accounting. DGC is the
parent of an affiliated group that, for federal income tax purposes, includes,
among other entities, CNC (described below).
B. CNC.
CNC is a bank holding company and is registered as such with the
Federal Reserve System. The authorized capital stock of CNC consists of
5,000,000 shares of common stock, $5.00 par value. There are 4,200,000 shares
of CNC common stock issued and outstanding, all of which are owned by DGC. All
of CNC's common stock was acquired by DGC in February, 1990.
CNC does not engage in any substantial business activities other than
its ownership of Commercial National Bank. The books of CNC are maintained on
a calendar year basis and CNC computes its income under the accrual method of
accounting.
C. CNB.
CNB is a bank holding company registered with the Federal Reserve
System. Its only subsidiary is Citizens National Bank in Hammond, Louisiana.
CNB, through its subsidiary, provides a full complement of consumer and
commercial banking services in Tangipahoa Parish, Louisiana.
As of December 31, 1994, the authorized capital stock of CNB consisted
of 1,000,000 shares of $10.00 par value Common Stock (the "CNB Common Stock"),
of which 361,684 shares were issued and outstanding and 37,089 shares were held
in treasury.
The books of account of CNB are maintained on a calendar year basis
and CNB computes its income under the accrual method of accounting. CNB is the
parent of an affiliated group that, for federal income tax purposes, includes
Citizens National Bank.
<PAGE> 4
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 4
II. BUSINESS REASONS FOR AND DESCRIPTION
OF THE PROPOSED MERGERS
A. CNB's Reasons for the Merger.
In authorizing the execution of the Merger Agreement, the CNB Board of
Directors considered a number of factors. Without assigning any relative or
specific weights to the factors, the CNB Board considered the following
material factors:
(1) The information presented to the CNB Board concerning the
business, operations, earnings, asset quality, financial condition and
dividend payouts, of both CNB and DGC;
(2) The financial terms of the Merger, including the relationship
of the value of the DGC Common Stock issuable in the Merger to the
market value, book value, and earnings per share of CNB Common Stock,
the partial protection against a decline in the market value of DGC
Common Stock, and the partial participation in any appreciation in
value of DGC Common Stock;
(3) The nonfinancial terms of the Merger, including the treatment
of the Merger as a tax-free exchange of CNB Common Stock for DGC
Common Stock for federal and state income tax purposes;
(4) The likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay;
(5) The report of CNB's financial advisor reviewing, among other
information, premiums paid in other recent merger transactions; and
(6) The opinion rendered by CNB's financial advisor to the effect
that, from a financial point of view, the exchange of CNB Common Stock
for DGC Common Stock on the terms and conditions set forth in the
Agreement is fair to the holders of CNB Common Stock.
B. DGC's Reasons for the Merger.
The DGC Board of Directors believes that by expanding DGC's customer
base into the southern portion of Louisiana, the Merger should enhance DGC's
earnings capacity by enabling it
<PAGE> 5
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 5
to deliver products and provide services to that enlarged customer base, and by
permitting cost savings through consolidation of operations. In addition, the
DGC Board of Directors believes that the combination of DGC and CNB will allow
DGC and CNB to increase overall efficiency and take advantage of economies of
scale in several areas. In evaluating the Merger, the DGC Board of Directors
considered a variety of factors, including the respective results of
operations, financial condition and prospects of DGC and CNB; the compatibility
and complimentary nature of the respective businesses and managerial
philosophies of DGC and CNB; and the relative prices paid in recent
acquisitions of financial institutions.
C. Description of Proposed Merger.
The proposed Mergers will be structured in accordance with the
preceding statements of background facts, the Merger Agreement, the laws of the
State of Louisiana and the United States, the statements and representations of
the parties to the transactions as stated in the Certificate, and the following
descriptions:
(1) As of the Effective Time, CNB will be merged with and into CNC
on the terms and subject to the conditions set forth in the Merger
Agreement, some of which are further described below. CNB will
transfer and CNC will acquire substantially all of the assets and
assume all of the liabilities of CNB. (For purposes of this
description, "substantially all" means at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets of CNB held immediately prior to the
Merger.)
(2) CNC will continue in existence as the surviving corporation.
CNB will cease to exist at the Effective Time of the Merger.
(3) Each share of CNB Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger (except shares
held directly or indirectly by DGC other than in a fiduciary capacity
and except Dissenting Shares) will be exchangeable for and converted
into shares of DGC Common Stock, with the exchange ratio to be
determined in accordance with a formula.
(4) If after application of the exchange ratio the exchange of the
CNB Common Stock for the DGC Common Stock results in any shareholder
of CNB being entitled to receive a fractional share of DGC Common
Stock, then such shareholder will receive cash in lieu of
<PAGE> 6
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 6
such fractional share. Such cash amount shall be equal to the fair
market value of the fractional share interest at the Effective Time,
with the fair market value to be calculated by multiplying the
fraction by the Average Market Price as defined in the Merger
Agreement.
(5) Holders of CNB Common Stock who vote against the proposed
Merger and otherwise perfect dissenters' rights under the Louisiana
Business Corporation Law will have the right to receive the fair value
or the appraised value (as the case may be) of their shares in cash.
Under the Merger Agreement, DGC and CNC have the right to not
consummate the Merger if at or before the Effective Time the number of
shares of CNB Common Stock as to which dissenters' rights have been
perfected exceeds ten percent (10%) of the outstanding shares of CNB.
(6) As a result of the Merger, the shareholders of CNB (with the
exception of those shareholders exercising dissenters' rights) will
become shareholders of DGC. There will be no cash paid in connection
with the Merger (except for payments for fractional shares and
dissenters' shares as noted above).
(7) After the Merger, DGC, CNC and Citizens National Bank will
each continue their historical business in a substantially unchanged
manner. There is no plan or intention to liquidate CNC or to merge it
into another entity. CNC intends to preserve Citizens National Bank
as a separate wholly owned subsidiary.
III. DISCUSSION OF APPLICABLE REORGANIZATION PROVISIONS
The parties intend that the Merger will satisfy the requirements for
nonrecognition (i.e., treatment as a tax-free reorganization) under section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code") by
reason of the application of Code section(2) 368(a)(2)(D). These Code sections
describe a forward triangular or subsidiary merger under which the target
corporation (CNB) is merged into a first tier subsidiary (CNC) of the parent
corporation (DGC here) in exchange for parent company stock distributed to the
target's historic shareholders.
Following are the criteria for nonrecognition in the case of a forward
triangular merger (applied in the context of the proposed Merger):
__________________________________
(2) Unless otherwise noted, all section references are to the Code.
<PAGE> 7
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 7
1. "Substantially all" of the properties of CNB must be acquired
by CNC. For Internal Revenue Service ("Service") ruling
purposes, this means that CNC must acquire at least seventy
percent (70%) of the fair market value of the gross assets and
at least ninety percent (90%) of the fair market value of the
net assets held by CNB immediately prior to the Merger. See
Code section 368(a)(2)(D); Treas. Reg. Section 1.368-2(b)(2);
and Rev. Proc. 77-37, 1977-2 C.B. 568, Section 3.01.
2. A "could have merged with the parent" test must be met. This
test means that it must have been possible for CNB to have
merged directly into DGC in a transaction qualifying under
Code section 368(a)(1)(A) (a "Type A" merger). A Type A
merger is a statutory merger under state or federal law
(although Code section 368(a)(1)(A) also covers
consolidations, consolidations are not permitted in the
context of Code section 368(a)(2)(D)). This test essentially
means that it must be shown that the continuity of interest,
business purpose and continuity of business enterprise
requirements would have been met had CNB merged into DGC.
3. The stock issued in consideration of CNC's acquisition of
CNB's properties must consist solely of parent (DGC) stock.
The use of any CNC stock would disqualify the Merger under
Code section 368(a)(2)(D).
4. In addition to the requirements under the Code which have been
generally described above, nonrecognition for the Merger is
subject to several other nonstatutory rules that have been
established through case law and Treasury Regulations. These
requirements involve continuity of proprietary interest,
continuity of business enterprise, and the existence of a
valid business purpose for the transaction. The
judicially-developed step transaction doctrine, wherein a
series of formally separate steps are considered together as
component parts of an overall plan, must also be considered
when evaulating whether a transaction, in substance, qualifies
as a valid forward subsidiary merger under Code section
368(a)(1)(A) and section 368(a)(2)(D).
IV. OPINION
In reliance upon the foregoing facts and the representations of the
parties to the Merger transactions, as stated in the Certificate and based upon
our review of such documents and consideration of such legal matters as we have
deemed relevant and sufficient to enable us to render an informed opinion, we
are of the
<PAGE> 8
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 8
opinion that the federal income tax consequences of the proposed Merger will be
as follows:
1. Provided that the proposed Merger of CNB with and into CNC
qualifies as a statutory merger under applicable Louisiana
law, the Merger will constitute a reorganization within the
meaning of Code section 368(a)(1)(A) and section 368(a)(2)(D).
DGC, CNC, and CNB will each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
2. No gain or loss will be recognized by CNB upon the Merger.
(Code sections 361(a) and 357(a)).
3. No gain or loss will be recognized by DGC or CNC on the
receipt by CNC of the assets of CNB in the Merger in exchange
for the DGC Common Stock, cash paid in lieu of fractional
shares and to dissenters, and the assumption by CNC of the
liabilities of CNB and the liabilities to which the
transferred assets are subject (Rev. Rul. 57-278, 1957-1 C.B.
124).
4. The basis of the assets of CNB in the hands of CNC will be, in
each instance, the same as the basis of those assets in the
hands of CNB immediately prior to the Merger (Code section
362(b)).
5. The holding period of CNB's assets in the hands of CNC will,
in each instance, include the period during which such assets
were held by CNB (Code section 1223(2)).
6. No gain or loss will be recognized by the shareholders of CNB
upon their receipt of DGC Common Stock (including fractional
share interests to which they may be entitled) solely in
exchange for their CNB Common Stock (Code section 354(a)(1)).
<PAGE> 9
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 9
7. The basis of the DGC Common Stock to be received by the CNB
shareholders (including any fractional share interests to
which they may be entitled) will be, in each instance, the
same as the basis of the CNB Common Stock surrendered in
exchange therefor (Code section 358(a)(1)).
8. The holding period of the DGC Common Stock to be received by
the CNB shareholders (including any fractional share interests
to which they may be entitled) will include, in each case, the
period during which the CNB Common Stock surrendered in
exchange therefor was held, provided that the CNB Common Stock
is held as a capital asset in the hands of the CNB shareholder
on the date of the Merger (Code section 1223(1)).
9. The payment of cash to CNB shareholders in lieu of fractional
shares of DGC Common Stock will be treated for federal income
tax purposes as if the fractional shares were distributed as
part of the reorganization exchange and then redeemed by DGC.
The cash payments will be treated as having been received as
distributions in full payment in exchange for such fractional
share interests, subject to the provisions and limitations of
section 302 of the Code (Rev. Rul. 66-365, 1966-2 C.B. 116;
Rev. Proc. 77-41, 1977-2 C.B. 574).
10. Where a dissenting CNB shareholder receives solely cash in
exchange for his or her CNB Common Stock, such cash will be
treated as having been received by the shareholder as a
distribution in redemption of his or her stock subject to the
provisions and limitations of Code section 302.
We have qualified our opinions by reference to the Code, the Treasury
Regulations promulgated thereunder, and existing judicial and administrative
interpretations thereof, as such authorities were in effect as of the date of
this opinion. In so opining, we have relied upon the foregoing facts and
representations and have reviewed such documents and have considered such legal
matters as we have deemed relevant and sufficient to enable us to render an
informed opinion. While we have not been requested nor have we undertaken to
make independent investigations to verify such facts and representations, based
upon our discussions with representatives of the parties and our limited review
of the background material noted in the second paragraph of this opinion, we
believe that it is reasonable for us to rely on such representations and
statements.
<PAGE> 10
Board of Directors
Deposit Guaranty Corp.
Commercial National Corporation
Citizens National Bancshares, Inc.
[date of closing]
Page 10
Our opinion is limited to the specific opinions expressed above, and
no other opinions are intended nor should they be inferred. An opinion of
counsel has no binding effect upon the Service and no assurances can be given
that the conclusions reached in any opinion will not be contested by the
Service, or if contested, will be sustained by a court.
The opinions we have expressed above are based on the facts and
representations outlined herein being correct in all material respects as of
the dates indicated or at the time of the proposed transactions as the case may
be. In the event that one or more of the facts or representations are
incorrect for any such time, our opinion would likely be substantially
different than that expressed above.
The opinion expressed herein is for the sole benefit of DGC, CNC, and
CNB, together with their respective shareholders, and is not to be delivered to
or relied upon by any other party without our prior written consent.
Very truly yours,
WATKINS LUDLAM & STENNIS
<PAGE> 1
EXHIBIT 99
CITIZENS NATIONAL BANCSHARES, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE CITIZENS NATIONAL BANCSHARES, INC.
The undersigned shareholder of CITIZENS NATIONAL BANCSHARES, INC.
("CNB"), a Louisiana corporation, hereby appoints John W. Gautier and Robert A.
Maurin III, and each of them, proxies with power of substitution to vote and
act for the undersigned, as designated below, with respect to the number of
shares of CNB Common Stock the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of CNB, which will be
held at 201 NW Railroad Avenue, Hammond, Louisiana 70401-3249, on May 18, 1995,
at 2:00 p.m. (the "Special Meeting"), and at any adjournments or postponements
thereof, and, at their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE DULY EXECUTED PROXY
IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF
THE BOARD OF DIRECTORS OF CNB.
The Board of Directors of CNB recommends that you vote FOR approval of
the Agreement and Plan of Merger dated effective December 2, 1994, among CNB,
Deposit Guaranty Corp. and Commercial National Corporation, as amended by the
Amendment to Agreement and Plan of Merger dated effective March 27, 1995 and
the Second Amendment to Agreement and Plan of Merger dated effective April 11,
1995, and the related Merger Agreement.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
<PAGE> 2
PLEASE MARK YOUR CHOICE LIKE
THIS [x] IN BLUE OR BLACK INK
Item: Approval of the Agreement and Plan of Merger dated effective
December 2, 1994, among CNB, Deposit Guaranty Corp. and
Commercial National Corporation, as amended by the Amendment
to Agreement and Plan of Merger dated effective March 27,
1995 and the Second Amendment to Agreement and Plan of Merger
dated effective April 11, 1995, and the related Merger
Agreement.
For Against Abstain
[ ] [ ] [ ]
The undersigned hereby acknowledges receipt of a copy of the
accompanying Notice of Special Meeting of Shareholders and Proxy
Statement/Prospectus and hereby revokes any proxy or proxies heretofore given.
Date ____________________________
Signature ________________________
Please mark, date and sign as your account name appears and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian or
in a similar capacity, you should so indicate when signing. If the person
signing is a corporation, partnership or other entity, please sign the full
name of the corporation, partnership or other entity by a duly authorized
officer, partner or other person. If the shares are held jointly, each
shareholder named should sign.
