Filed with the SEC on January 20, 1998 Registration No. 333-39583
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
AMENDMENT NUMBER TWO TO FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
------------------------------
DEPOSIT GUARANTY CORP.
(Exact name of registrant as specified in its charter)
Mississippi 6711 64-072169
(State or other jurisdiction (Primary Standard Industria (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. Robert Walker, Esq.
Watkins Ludlam Winter & Stennis, P.A. Baker, Donelson, Bearman & Caldwell
633 North State Street 165 Madison Avenue, Suite 2000
Post Office Box 427 Memphis, Tennessee 38103
Jackson, Mississippi 39205-0427 Telephone Number: (901) 577-2219
Telephone Number: (601) 949-4701
Approximate date of commencement of proposed sale of securities to the public:
The Effective Date of the merger of Victory Bancshares, Inc. into Deposit
Guaranty Corp. 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>
DEPOSIT GUARANTY CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
Caption or Location
in Proxy
Items in Form S-4 Statement/Prospectus
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; Comparative
Rights of Shareholders
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
10.Information with Respect to
S-3 Registrants.................. Available Information;
Incorporation of Certain
Documents by Reference
<PAGE>
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-2 or
S-3 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-2 or
S-3 Companies.................... Information Concerning Victory
Bancshares; Victory Bancshares'
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Index to Consolidated
Financial Statements of Victory
Bancshares
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; Dissenters' Rights; Security
Ownership of Principal Shareholders and
Management; Experts
19.Information if Proxies, Consents
or Authorizations Are Not to be
Solicited or in an Exchange
Offer............................ Not Applicable
<PAGE>
VICTORY BANCSHARES, INC.
5350 Poplar Avenue
Memphis, Tennessee 38119
January 23, 1998
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Victory Bancshares, Inc. ("Victory Bancshares") to be held at
5:00 p.m. local time, on February 26, 1998 at 7550 West Farmington Boulevard,
Germantown, Tennessee.
At the Meeting, you will be asked to consider and vote upon a proposal
to approve an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
September 24, 1997, by and among Deposit Guaranty Corp. ("Deposit Guaranty"), a
Mississippi corporation, and its wholly-owned subsidiary, Deposit Guaranty
National Bank ("DGNB"), a banking association organized under the laws of the
United States, on the one hand, and Victory Bancshares and its wholly-owned
subsidiary, Victory Bank and Trust Company (the "Bank"), a state banking
corporation organized under the laws of the State of Tennessee, on the other
hand, pursuant to which (a) Victory Bancshares will merge into Deposit Guaranty
(the "Holding Company Merger" or the "Merger"), and (b) each outstanding share
of Victory Bancshares common stock will be converted into a number of shares of
Deposit Guaranty common stock as determined pursuant to the Merger Agreement.
Details of the proposal are set forth in the accompanying Proxy
Statement/Prospectus, which you should read carefully.
The Merger Agreement provides that shareholders of Victory Bancshares
who do not exercise dissenters' rights will receive Deposit Guaranty common
stock. Under the terms of the Merger Agreement, holders of Victory Bancshares
common stock will receive a maximum of .9804 shares and a minimum of .9043
shares of Deposit Guaranty common stock for each share owned. The closing price
of Deposit Guaranty common stock on the New York Stock Exchange on
January 16, 1998 was $53.50. If the Merger had been consummated on that
date the number of shares received for each share owned would have been .9043
and the value of those shares based on the closing price on that date would have
been $48.38. The actual number of shares of Deposit Guaranty common stock into
which each outstanding share of Victory Bancshares common stock will be
converted will be determined based on the average closing price of Deposit
Guaranty common stock on the New York Stock Exchange over a 20-day period ending
three business days before consummation of the Merger. Page 12 of the
accompanying Proxy Statement/Prospectus contains a table that illustrates the
number of shares to be received based on a range of average closing prices of
Deposit Guaranty common stock.
After careful consideration, the Merger Agreement has been unanimously
approved by your Board of Directors. The Board believes the Merger is in the
best interests of Victory Bancshares and its shareholders and unanimously
recommends that you vote for approval of the Merger Agreement. The reasons for
such recommendation are set forth in the accompanying Proxy
Statement/Prospectus. Furthermore, Victory Bancshares' financial advisor, Mercer
Capital Management, Inc., has issued its opinion to the effect that, as of the
date of such opinion and based upon the considerations described therein, the
consideration to be received by the holders of Victory Bancshares common stock
pursuant to the Holding Company Merger is fair, from a financial point of view,
to such shareholders.
The Merger presents an exceptional opportunity for holders of Victory
Bancshares common stock 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 actively traded on
the New York Stock Exchange.
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.
Very truly yours,
--------------------------------
David F. Leake, Chairman of the Board
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
VICTORY BANCSHARES, INC.
5350 Poplar Avenue
Memphis, Tennessee 38119
------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 26, 1998
------------------------------
To the Shareholders of Victory Bancshares, Inc.:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Victory Bancshares, Inc. ("Victory Bancshares") will be held at
7550 West Farmington Boulevard, Germantown, Tennessee, on February 26, 1998 at
5:00 p.m. local time, for the purpose of considering and voting upon the
following matters:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of September 24,
1997, by and among Deposit Guaranty Corp. ("Deposit Guaranty"), a
Mississippi corporation, and its wholly-owned subsidiary, Deposit
Guaranty National Bank ("DGNB"), a banking association organized under
the laws of the United States, on the one hand, and Victory Bancshares,
and its wholly-owned subsidiary, Victory Bank and Trust Company (the
"Bank"), a state banking corporation organized under the laws of the
State of Tennessee, on the other hand, pursuant to which (a) Victory
Bancshares will merge into Deposit Guaranty (the "Holding Company
Merger") and (b) each outstanding share of Victory Bancshares common
stock will be converted into shares of Deposit Guaranty common stock
in accordance with the terms of the Merger Agreement; and
2. To transact such other business as may properly come before the
Meeting.
The foregoing items of business are more fully described in the Proxy
Statement/Prospectus accompanying this Notice.
Only shareholders of record at the close of business on December 31,
1997 are entitled to notice of, and to vote at, the Meeting and any adjournments
thereof.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Victory Bancshares.
The Board of Directors of Victory Bancshares recommends that
shareholders vote to approve the Merger Agreement.
By Order of the Board of Directors
----------------------------------
Jack C. Johnson, Secretary
January 23, 1998
Memphis, Tennessee
To ensure your representation at the Meeting, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. To revoke a proxy, you must submit to the
Secretary of Victory Bancshares, prior to voting, either a signed instrument of
revocation or a duly executed proxy bearing a date or time later than the proxy
being revoked. If you attend the Meeting, you may vote in person even if you
previously returned a proxy.
<PAGE>
PROSPECTUS PROXY STATEMENT
DEPOSIT GUARANTY CORP. VICTORY BANCSHARES, INC.
- ------------------- --------------
808,435 Shares of Special Meeting of
Common Stock, no par value Shareholders to be held
February 26, 1998
This Proxy Statement/Prospectus is being furnished to holders of the
common stock of Victory Bancshares, Inc. ("Victory Bancshares") in connection
with the solicitation of proxies by the Board of Directors of Victory Bancshares
for use at its Special Meeting of Shareholders (the "Meeting") to be held on
February 26, 1998. This Proxy Statement/Prospectus and accompanying proxy cards
were first mailed to shareholders of Victory Bancshares on or about January 23,
1998.
At the Meeting, the holders of Victory Bancshares common stock, $1.00
par value per share ("Victory Bancshares Common Stock"), will be asked to
approve the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
September 24, 1997, by and among Deposit Guaranty Corp. ("Deposit Guaranty"), a
Mississippi corporation, and its wholly-owned subsidiary Deposit Guaranty
National Bank ("DGNB"), a banking association organized under the laws of the
United States, on the one hand, and Victory Bancshares and its wholly-owned
subsidiary, Victory Bank and Trust Company (the "Bank"), a state banking
corporation organized under the laws of the State of Tennessee, on the other
hand, pursuant to which Victory Bancshares will merge into Deposit Guaranty (the
"Holding Company Merger" or the "Merger"). Upon consummation of the Merger, each
outstanding share of Victory Bancshares Common Stock, other than shares held by
Victory Bancshares' 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,
all in accordance with the terms of the Merger Agreement. Under the terms of the
Merger Agreement, holders of Victory Bancshares Common Stock will receive a
maximum of .9804 shares and a minimum of .9043 shares of Deposit Guaranty Common
Stock for each share owned. Deposit Guaranty Common Stock is traded on the New
York Stock Exchange under the symbol DEP. The closing price of Deposit Guaranty
Common Stock on the New York Stock Exchange on January 16, 1998 was $53.50. If
the Merger had been consummated on that date the number of shares received for
each share owned would have been .9043 and the value of those shares based on
the closing price on that date would have been
$48.38.
Victory Bancshares Common Stock is not listed, traded or quoted on any
securities exchange or in the over-the-counter market, and no dealer makes a
market in the Victory Bancshares Common Stock, although isolated transactions
between individuals occur from time to time. To Victory Bancshares' management's
knowledge, the most recent transactions with respect to Victory Bancshares
Common Stock were at $16.00 per share. As of December 31, there were 817,419
shares of Victory Bancshares Common Stock issued and outstanding, and options to
acquire 7,416 shares were outstanding.
The actual number of shares of Deposit Guaranty Common Stock into
which each outstanding share of Victory Bancshares Common Stock will be
converted will be determined based on the average closing price of Deposit
Guaranty Common Stock on the New York Stock Exchange over a 20-day period ending
three business days before consummation of the Merger. The actual number of
shares to be issued in the Merger and the actual value of such shares may differ
from the example given above since the market value of Deposit Guaranty Common
Stock is subject to fluctuation. Therefore, Victory Bancshares' shareholders may
not know at the time of the Meeting how many shares of Deposit Guaranty Common
Stock they will receive in the Merger. Page 12 of this Proxy
Statement/Prospectus contains a table that illustrates the number of shares to
be received based on a range of average closing prices of Deposit Guaranty
Common Stock. 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 "Dissenters' Rights" and Exhibit C.
ON DECEMBER 7, 1997, DEPOSIT GUARANTY ENTERED INTO AN AGREEMENT AND
PLAN OF MERGER WITH FIRST AMERICAN CORPORATION, A TENNESSEE CORPORATION,
PROVIDING FOR, AMONG OTHER THINGS, THE MERGER OF DEPOSIT GUARANTY WITH AND INTO
FIRST AMERICAN CORPORATION. SEE "SUMMARY - RECENT DEVELOPMENT".
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 (the "Securities Act"), covering up to
808,435 shares of Deposit Guaranty Common Stock to be issued in connection with
the Merger. This document constitutes a Proxy Statement of Victory Bancshares in
connection with the Meeting and a Prospectus of Deposit Guaranty with respect to
the shares of Deposit Guaranty Common Stock to be issued upon consummation of
the Merger. Each of Deposit Guaranty and Victory Bancshares has furnished all
information included herein with respect to it and its consolidated
subsidiaries.
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 Victory Bancshares' shareholders upon
consummation of the Holding Company Merger, and no person is authorized to make
use of this Proxy Statement/Prospectus in connection with any such resale.
<PAGE>
-------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS 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 SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK DEPOSITS, ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE OF DEPOSIT
GUARANTY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
--------------------------
The date of this Proxy Statement/Prospectus is
January 23, 1998.
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 NW, Washington, D.C. 20549 and at the Commission's Regional
Offices located in the Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048 and they are also available to the public at the web site maintained by
the Commission at "http://www.sec.gov." Copies of such material can also be
obtained from the Commission's Public Reference Section, Judiciary Plaza, 450
Fifth Street NW, Washington, D.C. 20549, at prescribed rates. In addition,
material filed by Deposit Guaranty can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, on which the
Deposit Guaranty Common Stock is listed (symbol:
DEP).
Deposit Guaranty has filed with the Commission a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act with respect
to the common stock offered by this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, 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 by
reference certain information with respect to Deposit Guaranty, which is not
presented herein or delivered herewith. Copies of any such information or
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 February 19, 1998, 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. Deposit Guaranty will send the requested documents by
first-class mail within one business day of the receipt of the request.
<PAGE>
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, 1996;
(2) Deposit Guaranty's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; and
(3) 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, and Item 3a of Deposit Guaranty's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, 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 Victory Bancshares 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>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SUMMARY ............................................................................................................1
Purpose of the Meeting ....................1
Date, Time and Place of the Meeting; Record Date ....................2
Vote Required ....................2
The Parties ....................2
Recommendation of the Boards of Directors; Reasons for the Merger ....................2
Opinion of Financial Advisor ....................3
Regulatory Approvals ....................3
Other Conditions to Consummation of the Merger ....................3
Exchange of Victory Bancshares' Certificates; No Fractional Shares ....................3
Effective Date ....................3
Interests of Certain Persons in the Merger ....................4
Termination ....................4
Certain Federal Income Tax Consequences ....................4
Accounting Treatment ....................4
Dissenters' Rights ....................4
Resales of Deposit Guaranty Common Stock ....................4
Recent Market Prices ....................5
Recent Development ....................5
Selected Financial Data ....................6
Victory Bancshares and Subsidiary-Selected Financial Data ....................7
Deposit Guaranty Corp. and Subsidiaries - Selected Financial Data ....................8
Comparative Per Share Information ....................9
INTRODUCTION........................................................................................................10
General ...................10
Record Date; Voting Rights; Proxies ...................10
THE MERGER..........................................................................................................11
General ...................11
Structure and Terms of the Merger ...................11
Background of and Reasons for the Merger - Victory Bancshares ...................13
Reasons for the Merger - Deposit Guaranty ...................14
Opinion of Financial Advisor ...................15
Transaction Summary ...................15
Effective Date ...................19
Regulatory Approvals ...................19
Other Conditions to the Merger ...................20
Interests of Certain Persons in the Merger ...................21
Exchange of Victory Bancshares' Certificates ...................22
Amendment; Waiver; Termination ...................22
Conduct of Business Pending the Merger ...................23
Resales of Deposit Guaranty Common Stock ...................23
Expenses and Fees ...................24
Accounting Treatment ...................24
Certain Federal Income Tax Consequences ...................24
DISSENTERS' RIGHTS..................................................................................................25
Filing Written Objection and Vote Against the Merger ...................25
Notice of the Effective Date ...................25
Written Demand ...................26
Appraisal ...................26
Payment and Costs ...................27
Notices ...................27
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS..................................................................................27
Cumulative Voting Rights ...................28
Limitations on Directors' and Officers' Liability ...................28
Supermajority Voting Requirements; Business Combinations ...................28
Removal of Directors ...................29
Board of Directors ...................29
Vacancies in the Board of Directors ...................29
Amendment of the Articles of Incorporation or Bylaws ...................30
Special Meetings of Shareholders ...................30
Shareholder Proposals and Nominations ...................30
Authorized Capital ...................30
Indemnification ...................31
INFORMATION CONCERNING VICTORY BANCSHARES...........................................................................31
General ...................31
Employees ...................32
Customers ...................32
Properties ...................32
Competition ...................32
Legal Proceedings ...................32
Banking ...................32
Market Prices and Dividends ...................32
Supervision and Regulation ...................33
Effect of Governmental Policies ...................34
SUPPLEMENTAL FINANCIAL INFORMATION OF VICTORY BANCSHARES............................................................35
Investment Securities ...................35
Risk Elements ...................35
Deposits ...................35
Earning Asset/Interest-Bearing Liabilities Yields and Rates ...................36
Volume/Rate Analysis ...................36
Return on Equity and Assets ...................37
Loan Portfolio ...................37
Summary of Loan Loss Experience ...................38
VICTORY BANCSHARES' MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................................39
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.........................................................41
LEGAL OPINION.......................................................................................................43
EXPERTS ...........................................................................................................43
OTHER MATTERS.......................................................................................................43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF VICTORY BANCSHARES...................................................F-1
Exhibit A - Agreement and Plan of Merger
Exhibit B - Fairness Opinion of Mercer Capital Management, Inc.
Exhibit C - Title 48, Chapter 23 of the Tennessee Business Corporation Act
</TABLE>
<PAGE>
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 is necessarily incomplete 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.
Purpose of the Meeting
The purpose of the Meeting (as defined below) is to consider and vote
upon a proposal to approve an Agreement and Plan of Merger, dated September 24,
1997 (the "Merger Agreement"), by and among Deposit Guaranty Corp. ("Deposit
Guaranty"), a Mississippi corporation, and its wholly-owned subsidiary, Deposit
Guaranty National Bank ("DGNB"), a banking association organized under the laws
of the United States, on the one hand, and Victory Bancshares, Inc. ("Victory
Bancshares"), a Tennessee corporation, and its wholly-owned subsidiary, Victory
Bank and Trust Company (the "Bank"), a state banking corporation organized under
the laws of the State of Tennessee, on the other hand, pursuant to which, among
other things, (a) Victory Bancshares will be merged into Deposit Guaranty (the
"Holding Company Merger" or the "Merger") and (b) on the effective date of the
Merger (the "Effective Date"), each outstanding share of Victory Bancshares
common stock, $1.00 par value per share ("Victory Bancshares Common Stock"),
will be converted into a number of shares of common stock, no par value per
share, of Deposit Guaranty ("Deposit Guaranty Common Stock") as determined
pursuant to the Merger Agreement.
Victory Bancshares' shareholders will receive a maximum of .9804 shares
and a minimum of .9043 shares for each share of Victory Bancshares Common Stock.
The number of shares of Deposit Guaranty Common Stock to be issued in exchange
for Victory Bancshares Common Stock will be based on the Exchange Ratio (as
defined below). The "Exchange Ratio" shall be determined as follows: (a) in the
event the Average Market Price (as defined below) of Deposit Guaranty Common
Stock is in the range from $29.74 per share to $34.92 per share, the Exchange
Ratio shall be determined by dividing 773,275 by the total number of shares of
Victory Bancshares Common Stock outstanding; (b) in the event the Average Market
Price of Deposit Guaranty Common Stock is less than $29.74 per share and greater
than $28.45, the Exchange Ratio shall be determined by dividing $23,000,000 by
the Average Market Price and then dividing the result by the total number of
shares of Victory Bancshares Common Stock outstanding; (c) in the event the
Average Market Price of Deposit Guaranty Common Stock is greater than $34.92 per
share and less than $36.21, the Exchange Ratio shall be determined by dividing
$27,000,000 by the Average Market Price and then dividing the result by the
total number of shares of Victory Bancshares Common Stock outstanding; (d) in
the event the Average Market Price of Deposit Guaranty Common Stock is $36.21
per share or greater, the Exchange Ratio shall be determined by dividing 745,650
by the total number of shares of Victory Bancshares Common Stock outstanding;
and (e) in the event the Average Market Price of Deposit Guaranty Common Stock
is $28.45 per share or less, the Exchange Ratio shall be determined by dividing
808,435 by the total number of shares of Victory Bancshares Common Stock
outstanding. The Average Market Price of Deposit Guaranty Common Stock shall be
the average of the closing per share trading prices of Deposit Guaranty Common
Stock as reported by the New York Stock Exchange on the New York Stock Exchange
composite transactions tape (adjusted for any stock split or similar
transaction) on the 20 consecutive trading days ending on the third business day
prior to the Effective Date (as defined herein).
The closing price of Deposit Guaranty Common Stock on the New York
Stock Exchange on January 16, 1998 was $53.50. If the Merger had been
consummated on that date the number of shares received for each share owned
would have been .9043 and the value of those shares based on the closing price
on that date would have been $48.38. This is determined as follows: the
average of the closing per share trading prices of Deposit Guaranty Common Stock
as reported by the New York Stock Exchange on the New York Stock Exchange
composite transactions tape (adjusted for any stock split or similar
transaction) on the 20 consecutive trading days ending on the third business day
prior to January 16, 1998 was $55.575. Since $55.575 is greater than $36.21,
745,650 shares would be issued. To determine the Exchange Ratio, 745,650 is
divided by 824,565, which is the number of shares and options outstanding on
the Record Date. The value is determined by multiplying .9043 by $53.50.
Page 12 of this Proxy Statement/Prospectus contains a table that illustrates
the number of shares to be received based on a range of average prices of
Deposit Guaranty Common Stock.
As a result of the Merger, the business and properties of Victory
Bancshares will become the business and properties of Deposit Guaranty, and
holders of Victory Bancshares Common Stock will become shareholders of Deposit
Guaranty, except for any such holders who perfect dissenters' rights.
1
<PAGE>
Date, Time and Place of the Meeting; Record Date
A Special Meeting of Shareholders (the "Meeting") of Victory Bancshares
will be held on February 26, 1998, at 5:00 p.m. at 7550 West Farmington
Boulevard, Germantown, Tennessee. The Board of Directors of Victory Bancshares
has fixed the close of business on December 31, 1997, as the record date (the
"Record Date") for determining holders of outstanding shares of Victory
Bancshares Common Stock entitled to notice of and to vote at the Meeting. Only
holders of Victory Bancshares Common Stock of record on the books of Victory
Bancshares 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 817,419 shares of Victory Bancshares 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
A majority of the outstanding shares of Victory Bancshares must approve
the Merger Agreement. As of the Record Date, the executive officers and
directors of Victory Bancshares as a group had the power to vote approximately
306,000 shares of Victory Bancshares Common Stock, representing approximately
37% of the outstanding shares.
The Parties
Deposit Guaranty Corp. Deposit Guaranty is a bank holding company
headquartered at 210 East Capitol Street, Jackson, Mississippi 39201, telephone
number (601) 354-8497. Its principal subsidiaries are Deposit Guaranty National
Bank, a national banking association with its principal office in Jackson,
Mississippi, and three full-service mortgage banking firms, Deposit Guaranty
Mortgage Services, headquartered in Jackson, Mississippi, McAfee Mortgage and
Investment Company, headquartered in Lubbock, Texas and First Mortgage Corp.,
headquartered in Omaha, Nebraska. Deposit Guaranty, through its subsidiaries,
provides comprehensive corporate, commercial, correspondent and individual
banking services, mortgage loan servicing, and personal and corporate trust
services.
As of September 30, 1997, Deposit Guaranty had total assets of $6.8
billion, total deposits of $5.3 billion, total loans of $4.4 billion and
shareholders' equity of $624 million. Based on total assets at September 30,
1997, Deposit Guaranty ranked first among Mississippi-based bank holding
companies.
Deposit Guaranty National Bank. DGNB is a national bank headquartered
at 210 East Capitol Street, Jackson, Mississippi, 39201, telephone number (601)
354-8497. DGNB provides a full complement of consumer and commercial banking
services in Mississippi, Louisiana and Arkansas.
Victory Bancshares, Inc. Victory Bancshares is a Tennessee bank holding
company headquartered at 5350 Poplar Avenue, Memphis, Tennessee, 38119,
telephone number (901) 753-7000. Through its sole bank subsidiary, the Bank,
Victory Bancshares provides various consumer and commercial banking services.
Victory Bank and Trust Company. The Bank is a Tennessee state bank,
which offers consumer and commercial banking services through its main office at
5350 Poplar Avenue, Memphis, Tennessee 38119, telephone number (901) 753-7000,
and at three branch offices in Shelby County, Tennessee.
Recommendation of the Boards of Directors; Reasons for the Merger
THE BOARD OF DIRECTORS OF VICTORY BANCSHARES (THE "VICTORY BANCSHARES
BOARD") BELIEVES THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF VICTORY
BANCSHARES AND ITS SHAREHOLDERS AND RECOMMENDS THAT HOLDERS OF VICTORY
BANCSHARES COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. See "The
Merger -- Background of and Reasons for the Merger - Victory Bancshares." For
information
on the interests of certain officers and directors of Victory Bancshares in the
Merger, see "The Merger -- Interests of Certain Persons in the Merger."
In recommending approval of the Merger Agreement to the holders of
Victory Bancshares Common Stock, the Victory Bancshares Board considered, among
other factors, the enhanced opportunities for operating efficiencies and growth.
See "The Merger -- Background of and Reasons for the Merger - Victory
Bancshares."
In addition, the Victory Bancshares Board has received the opinion of
Mercer Capital Management, Inc. ("Mercer Capital") that the Exchange Ratio under
the Merger Agreement is fair from a financial point of view to the holders of
Victory Bancshares
2
<PAGE>
Common Stock. The opinion of Mercer Capital is attached as Exhibit B and
should be read in its entirety. See "The Merger -- Opinion of Financial
Advisor."
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
Victory Bancshares can take advantage of increased overall efficiencies and
economies of scale. See "The Merger -- Reasons for the Merger - Deposit
Guaranty."
Opinion of Financial Advisor
Mercer Capital, Victory Bancshares' financial advisor, has rendered its
opinion that the consideration to be received by the shareholders of Victory
Bancshares pursuant to the Merger Agreement, when taken as a whole, is fair to
Victory Bancshares and its shareholders from a financial point of view. The
opinion of Mercer Capital is attached hereto as Exhibit B, and should be read in
its entirety with respect to the assumptions made therein and other matters
considered. See "The Merger -- Opinion of Financial Advisor" for further
information regarding, among other things, the selection of Mercer Capital and
its compensation arrangement in connection with the Merger Agreement.
Regulatory Approvals
It is a condition to the consummation of the Merger that all required
regulatory approvals be obtained. The only required regulatory approval is the
approval of the Office of the Comptroller of the Currency (the "OCC"), which was
obtained on November 21, 1997. In addition, filings required to be made with the
Federal Reserve Bank of Atlanta and the Tennessee Commissioner of Financial
Institutions have been made. See "The Merger -- Regulatory Approvals."
Other Conditions to Consummation of the Merger
In addition to regulatory approvals and the approval of the Merger
Agreement by the requisite vote of the holders of Victory Bancshares Common
Stock, which conditions may not be waived, the respective obligations of each
party under the Merger Agreement are subject, among other conditions, to receipt
of an opinion of Watkins Ludlam Winter & Stennis, P.A. 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 Internal Revenue
Code of 1986 (the "Code"), which condition may not be waived, and the absence of
a material adverse change in the financial condition, results of operations or
business of the other party's consolidated group which condition may be waived.
See "The Merger -- Other Conditions to the Merger" for additional information
concerning the conditions to consummation of the Merger.
Exchange of Victory Bancshares' Certificates; No Fractional Shares
As soon as practicable after the Effective Date, Deposit Guaranty
National Bank (the "Exchange Agent") will mail to each holder of record of
Victory Bancshares Common Stock, a letter of transmittal and instructions for
use in effecting the surrender of the certificates which, immediately prior to
the Effective Date, represented issued and outstanding shares of Victory
Bancshares Common Stock in exchange for certificates representing Deposit
Guaranty Common Stock. See "The Merger -- Exchange of Victory Bancshares'
Certificates." Cash will be paid in lieu of any fractional shares of Deposit
Guaranty Common Stock. See "The Merger -- Structure and Terms of the Merger."
Certificates representing Victory Bancshares Common Stock should not be
surrendered until the letter of transmittal is received.
Effective Date
If the Merger Agreement is approved by the requisite vote of the
holders of Victory Bancshares Common Stock, 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
date (the "Effective Date") a certificate of merger (the "Certificate of
Merger") is filed with the Secretary of State of the State of Tennessee and the
Secretary of State of the State of Mississippi, or as of such later date to
which Deposit Guaranty and Victory Bancshares agree, which may be specified in
the Certificate of Merger to be filed with the Secretary of State of the State
of Tennessee pursuant to the Business Corporation Act of the State of Tennessee
(the "Tennessee BCA") and the Secretary of State of the State of Mississippi
pursuant to the Business Corporation Act of the State of Mississippi (the
"Mississippi BCA"). It is expected that the Effective Date will occur February
28, 1998; 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 Date" and "The Merger -- Other Conditions to the Merger."
3
<PAGE>
Interests of Certain Persons in the Merger
Certain members of Victory Bancshares' management and Board of
Directors have interests in the Merger in addition to their interests as
shareholders of Victory Bancshares generally. Those interests include, among
others, provisions in the Merger Agreement regarding indemnification and
eligibility to participate in certain Deposit Guaranty employee benefit plans.
Frank Cianciola, President and CEO of the Bank, Ken McNeil, Executive Vice
President of the Bank, and Michael McCarver, Senior Vice President of the Bank,
are parties to Performance Compensation Agreements with the Bank. Under the
Performance Compensation Agreements, upon consummation of the Merger, Mr.
Cianciola will receive $768,382, Mr. McNeil will receive $441,437 and Mr.
McCarver will receive $287,243. Under the terms of agreements between
the Bank and Mr. Cianciola, Mr. McNeil and Mr. McCarver, these officers could
also receive severance benefits if their employment is terminated by Deposit
Guaranty. The amount of severance benefits that would be received depends on
when employment is terminated. The maximum severance benefit would be received
if employment is terminated on the date the Merger is consummated; this amount
would be $130,000 for Mr. Cianciola, $158,333 for Mr. McNeil, and $34,500 for
Mr. McCarver. The executive officers and directors of Victory Bancshares will
also receive shares of Deposit Guaranty Common Stock in the Merger with an
aggregate value of $16,776,102, based on the closing price of Deposit Guaranty
Common Stock on the New York Stock Exchange on January 16, 1998 of $53.50 per
share. See "The Merger -- Interests of Certain Persons in the Merger" and
"Security Ownership of Principal Shareholders and Management."
Termination
Among other reasons, the Merger Agreement may be terminated at any time
prior to the Effective Date (i) in the event the Merger Agreement is not
approved by the shareholders of Victory Bancshares at the Meeting, (ii) if the
number of shares of Victory Bancshares Common Stock, the holders of which
perfect dissenters' rights, exceeds 10% of the outstanding shares of Victory
Bancshares Common Stock, or (iii) if the Closing has not occurred by June 30,
1998. The Merger Agreement may also be terminated by mutual consent. See "The
Merger -- Amendment; Waiver; Termination."
Certain Federal Income Tax Consequences
Consummation of the Merger is conditioned upon receipt by each of the
parties to the Merger Agreement of an opinion of Watkins Ludlam Winter &
Stennis, P.A. 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 Victory Bancshares or by holders of Victory Bancshares Common
Stock who exchange all of their Victory Bancshares 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). Victory Bancshares'
shareholders who exercise dissenters' rights and receive cash for their shares
will have gain or loss for federal income tax purposes. Victory Bancshares'
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."
Accounting Treatment
Deposit Guaranty intends to use the pooling of interests method of
accounting to account for the Merger upon consummation. See "The Merger --
Accounting Treatment."
Dissenters' Rights
Under the Tennessee BCA, holders of Victory Bancshares Common Stock who
vote against the Merger and who deliver to Victory Bancshares the required
written demand and who otherwise comply with the requirements of the Tennessee
BCA will be entitled to receive the value of their shares in cash as determined
under the provisions of the Tennessee BCA. Such right will be lost, however, if
the procedural requirements of the Tennessee BCA are not fully and precisely
satisfied. See "Dissenters' Rights" and Exhibit C hereto.
Resales of Deposit Guaranty Common Stock
The shares of Deposit Guaranty Common Stock to be issued to the holders
of Victory Bancshares Common Stock pursuant to the Merger Agreement have been
registered under the Securities Act pursuant to a Registration Statement on Form
S-4, of which this Proxy Statement/Prospectus is a part, thereby allowing such
shares to be freely transferred without restriction by persons who will not be
"affiliates" of Deposit Guaranty or who were not "affiliates" of Victory
Bancshares within the meaning of Rule 145 under the Securities Act. In general,
affiliates of Victory Bancshares include its executive officers and directors
and any person who controls, is controlled by or is under common control with
Victory Bancshares. Holders of Victory Bancshares Common Stock who are
affiliates of Victory Bancshares will not be able to resell the Deposit Guaranty
Common Stock received by them in the Merger unless the Deposit Guaranty Common
Stock is registered for resale under the Securities Act, is sold in compliance
with Rule 145
4
<PAGE>
under the Securities Act or is sold in compliance with another exemption from
the registration requirements of the Securities Act. See "The Merger --
Resales of Deposit Guaranty Common Stock."
Recent Market Prices
The following table sets forth the closing sales price on September 23,
1997, the day before the Merger Agreement was signed, and on January 16, 1998
for a share of Deposit Guaranty Common Stock, as quoted on the New York Stock
Exchange, and the equivalent per share price for a share of Victory Bancshares
Common Stock based on an assumed exchange ratio of .9043. No assurance can be
given as to the market price of Deposit Guaranty Common Stock on the Effective
Date. Victory Bancshares Common Stock is not listed, traded, or quoted on
any securities exchange or in the over-the-counter market, and no dealer
makes a market in the Victory Bancshares Common Stock, although isolated
transactions between individuals occur from time to time. To Victory
Bancshares' management's knowledge, the most recent transactions with
respect to Victory Bancshares Common Stock were at $16.00 per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Market Price Per Share at: Deposit Guaranty Victory Bancshares Victory Bancshares
Common Stock Common Stock Equivalent Per Share
Price
September 23, 1997 $32.6875 $16.00 $29.56
January 16, 1998 $53.50 $16.00 $48.38
</TABLE>
Recent Development
On December 7, 1997, Deposit Guaranty entered into an Agreement and
Plan of Merger with First American Corporation, a Tennessee corporation ("First
American"), providing for, among other things, the merger of Deposit Guaranty
with and into First American. The merger is intended to constitute a tax-free
reorganization for federal income tax purposes and to be accounted for as a
pooling of interests.
Pursuant to the terms of the merger agreement, each share of Deposit
Guaranty Common Stock outstanding immediately prior to the effective time of the
merger, will (subject to certain exceptions) be converted into the right to
receive 1.17 shares of First American common stock, par value $2.50 per share,
together with the number of First American rights associated therewith (with
cash being paid in lieu of fractional share interests). The Exchange Ratio is
subject to adjustment in certain circumstances as set forth in the merger
agreement.
Consummation of the merger is subject to various conditions including
the approval by the shareholders of Deposit Guaranty of the merger agreement,
approval by the shareholders of First American of the merger agreement and of an
amendment to First American's charter to increase the number of authorized
shares of common stock of First American, and the receipt of all requisite
regulatory approvals. Because it is uncertain whether the Merger of Victory
Bancshares into Deposit Guaranty will be consummated prior to the record date
for the Deposit Guaranty shareholders' meeting to vote on the merger with First
American, it is uncertain whether Victory Bancshares shareholders will have an
opportunity to vote on the merger of Deposit Guaranty into First American.
The combined company, which will be headquartered in Nashville,
Tennessee, will have assets of approximately $17.4 billion, deposits of $13.0
billion and stockholders' equity of $1.5 billion. It will operate in Tennessee,
Mississippi, Louisiana, Arkansas, Virginia and Kentucky and will be the 4th
largest financial services institution in the Mid-South region in total assets.
First American is a $10.6 billion financial services holding company
headquartered in Nashville, Tennessee, with 169 banking offices, 440 ATMs and
approximately 4,200 employees. First American is the parent company of First
American National Bank, First American Federal Savings Bank of Virginia and
First American Enterprises Inc. First American also owns 98% of INVEST Financial
Corporation. Through INVEST, First American has approximately 1,900
representatives selling mutual funds, annuities and other investments and
insurance products in more than 1,000 investment centers throughout the United
States. First American is subject to the informational requirements of 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 First American can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street NW, Washington, D.C. 20549 and at the
Commission's Regional Offices located in the Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048 and they are also available to the public at the web site
maintained by the Commission at "http://www.sec.gov." Copies of such material
can also be obtained from the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street NW, Washington, D.C. 20549, at prescribed rates.
5
<PAGE>
Selected Financial Data
The following selected financial data for Deposit Guaranty and Victory
Bancshares have been derived from the consolidated financial statements of
Deposit Guaranty and Victory Bancshares. The information set forth below should
be read in conjunction with the consolidated financial statements of Deposit
Guaranty and Victory Bancshares incorporated by reference or included elsewhere
herein, and Victory Bancshares' Management's Discussion and Analysis of
Financial Condition and Results of Operations, included elsewhere herein.
6
<PAGE>
Victory Bancshares and Subsidiary-Selected Financial Data
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts and Ratios)
Nine Months Ended Year Ended December 31,
September 30,
(unaudited)
1997 1996 1996 1995 1994 1993 1992
-------------- ------------------ ----------- ----------- - ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of earnings
Interest income $7,330 $6,166 $8,342 $6,183 $4,180 $3,251 $3,133
Interest expense 3,534 3,184 4,366 3,107 1,553 1,193 1,312
-------------------------------------------------------------------------------------------
Net interest income 3,796 2,982 3,976 3,076 2,627 2,058 1,821
Provision for possible loan losses 138 220 355 78 128 192 160
-------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 3,658 2,762 3,621 2,998 2,499 1,866 1,661
Other operating income 518 332 500 249 185 177 206
Other operating expense 2,996 2,505 3,194 2,223 1,623 1,257 1,193
------------------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting
change 1,180 589 927 1,024 1,061 786 674
Income tax expense 445 211 355 349 387 291 263
------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 735 378 572 675 674 495 411
Cumulative effect of accounting
change - - - - - 7 -
------------------------------------------------------------------------------------------
Net income $ 735 $ 378 $ 572 $ 675 $ 674 $ 502 $ 411
============== ============= =========== ==== ======= ============ =========== =========
Net income per common share
Income before cumulative effect of
accounting change $ .91 $ .47 $ .71 $ .85 $ .86 $ .63 $ .51
Cumulative effect of accounting
change - - - - - .01 -
-------------- ------------- ----------- ---- ------- ------------ ----------- ---------
Net income $ .91 $ .47 $ .71 $ .85 $ .86 $ .64 $ .51
============== ============= =========== ==== ======= ============ =========== =========
============== ============= =========== ==== ======= ============ =========== =========
Weighted average shares 808,786 809,473 808,605 795,504 787,092 787,092 798,763
outstanding
Statements of condition - averages
Total assets $112,506 $95,377 $98,506 $71,721 $53,548 $44,826 $38,136
Earning assets 106,134 91,046 94,583 68,828 50,885 41,884 36,227
Securities 16,873 21,794 21,123 18,115 11,929 11,610 10,938
Loans 87,429 66,382 70,299 48,318 37,673 28,674 23,239
Deposits 92,461 81,353 84,271 63,161 45,196 38,375 32,417
FHLB advances 5,348 3,900 5,039 1,180 504 254 -
Total stockholders' equity 8,023 7,312 7,405 6,736 5,979 5,444 5,033
Selected ratios
Return on average assets .87% .53% .58% .94% 1.26% 1.12% 1.08%
Return on average equity 12.21 6.89 7.72 10.04 11.27 9.22 8.17
Net interest margin - tax equivalent 4.77 4.37 4.23 4.54 5.28 4.91 5.03
Loans to deposits 94.56 81.60 83.42 76.50 83.35 74.72 71.69
Allowance for possible loan losses to
loans 1.21 1.24 1.25 1.25 1.60 1.72 1.42
Net charge-offs to average loans .04 .01 .04 .03 .11 .04 -
Dividend payout - - - - - - -
Average equity to average assets 7.13 7.67 7.51 9.39 11.17 12.14 13.20
Leverage ratio 7.13 7.06 7.03 9.11 10.53 10.93 12.30
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Deposit Guaranty Corp. and Subsidiaries -
Selected Financial Data
(In Thousands Except Per Share Amounts and Ratios)
Nine Months Ended
September 30, Year Ended December 31,
(unaudited)
1997 1996 1996 1995 1994 1993 1992
------------ -- ------------ -------------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of earnings
Interest income $ 362,907 $ 320,345 $ 432,222 $ 402,704 $ 307,272 $ 299,327 $ 322,114
Interest expense 149,732 136,448 182,688 173,432 125,881 124,687 155,459
-------------------------------------------------------------------------------------------------
------------ -- ------------ -------------- ---------- ------------ ----------- ----------
Net interest income 213,175 183,897 249,534 229,272 181,391 174,640 166,655
Provision for possible loan
losses 5,625 4,005 5,340 2,160 (4,750) (16,000) 10,378
-------------------------------------------------------------------------------------------------
------------ -- ------------ -------------- ---------- ------------ ----------- ----------
Net interest income after
provision for possible loan
losses 207,550 179,892 244,194 227,112 186,141 190,640 156,277
Other operating income 97,469 86,932 117,245 91,989 93,499 74,781 67,977
Other operating expense 202,377 171,727 237,208 211,452 180,047 171,567 164,470
------------------------------------------------------------------------------------------------
------------ -- ------------ -------------- ---------- ------------ ----------- ----------
Income before income taxes 102,642 95,097 124,231 107,649 99,593 93,854 59,784
Income tax expense 34,837 30,972 40,621 35,029 32,463 27,302 14,270
------------------------------------------------------------------------------------------------
Net income $ 67,805 $64,125 $ 83,610 $ 72,620 $ 67,130 $ 66,552 $ 45,514
============ == ============ ============== ========== ============ =========== ==========
Net income per share
Primary $ 1.65 $1.66 $ 2.16 $1.89 $1.90 $1.89 $1.34
Fully diluted 1.65 1.66 2.16 1.89 1.90 1.89 1.30
Cash dividends per share $ .60 $.52 $ .715 $.605 $.530 $.465 $.400
Weighted average shares
outstanding
Primary 41,170,877 38,620,170 38,760,192 38,431,162 35,336,124 35,299,704 34,067,328
Fully diluted 41,170,877 38,620,170 38,760,192 38,431,162 35,336,124 35,299,704 34,930,564
Statements of condition -
averages
Total assets $6,701,378 $5,983,117 $ 6,026,548 $5,571,697 $4,940,977 $4,826,726 $4,777,596
Earning assets 5,957,153 5,358,152 5,395,343 4,961,261 4,413,938 4,333,740 4,275,345
Securities available for sale 1,462,262 1,293,508 1,293,830 186,194 712,184 1,308,634 ---
Investment securities 161,231 124,383 130,255 1,365,070 718,891 396,011 1,616,658
Loans, net of unearned
income 4,283,189 3,731,139 3,774,490 3,273,408 2,581,724 2,293,416 2,261,034
Deposits 5,312,688 4,712,369 4,750,894 4,438,797 3,997,038 3,867,669 3,876,927
Long-term debt 109,973 57,307 67,888 --- --- --- 6,320
Total stockholders' equity 606,477 541,612 551,754 498,023 429,967 367,592 315,833
Selected ratios
Return on average assets 1.35% 1.43% 1.39% 1.30% 1.36% 1.38% .95%
Return on average equity 14.95 15.82 15.15 14.58 15.61 18.10 14.41
Net interest margin - tax
equivalent 4.90 4.73 4.77 4.75 4.24 4.18 4.12
* Efficiency ratio 61.34 60.30 63.35 64.62 64.22 67.23 67.68
Loans to deposits 80.62 79.18 79.45 73.75 64.59 59.30 58.32
Allowance for possible loan
losses to loans, net of unearned 1.50 1.58 1.56 1.64 1.95 2.56 3.30
income
Net charge-offs (recoveries) to
average loans, net of unearned .32 .11 .10 .12 .10 (.14) 1.02
income
Dividend payout 36.36 31.32 33.10 32.01 27.89 24.67 29.96
Average equity to average assets 9.05 9.05 9.15 8.94 8.70 7.62 6.61
Leverage ratio 7.28 8.13 8.23 7.87 8.43 8.13 6.80
Tier 1 risk-based 10.82 12.07 11.42 11.05 12.49 13.28 12.00
Total risk-based 12.07 13.32 12.67 12.30 13.75 14.54 13.27
<FN>
* Excludes the effects of the amortization of goodwill and core deposit intangibles.
</FN>
</TABLE>
8
<PAGE>
Comparative Per Share Information
The following table sets forth certain historical comparative information
and certain pro forma and equivalent pro forma information with respect to
income per share, book value per share and cash dividends per share for the
Deposit Guaranty Common Stock and the Victory Bancshares Common Stock. The
information that follows should be read in conjunction with the audited
historical financial statements and notes thereto of Deposit Guaranty
incorporated by reference herein and the audited historical financial statements
and notes thereto of Victory Bancshares included in this Proxy
Statement/Prospectus. The comparative pro forma and equivalent pro forma data
have been included herein for comparative purposes only and do not purport to be
indicative of the results of operations or financial condition that actually
would have resulted had the Holding Company Merger occurred at the beginning of
the period or the results of operations or financial condition that may be
obtained in the future.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------
Deposit
Guaranty and
Victory Victory
Bancshares Bancshares
Pro Forma Pro Forma
Per Common Share Historical Combined (a) Equivalent (b)
- --------------------------------------- ----------------------------------------- ----------------- ------------------
Deposit Victory
Guaranty Bancshares
------------ ----------------
<S> <C> <C> <C> <C>
Net Income (c)
For the nine months ended
September 30, 1997 $ 1.65 $0.91 $ 1.64 $ 1.48
For the year ended
December 31,
1996 $ 2.16 $0.71 $ 2.13 $ 1.93
1995 1.89 0.85 1.87 1.69
1994 1.90 0.86 1.88 1.70
Cash Dividends (d)
For the nine months ended
September 30, 1997 $ 0.60 - $ 0.60 $ 0.54
For the year ended
December 31,
1996 $ 0.72 - $ 0.72 $ 0.65
1995 0.61 - 0.61 0.55
1994 0.53 - 0.53 0.48
Book Value (e)
As of September 30, 1997 $15.29 $10.52 $15.22 $13.77
As of December 31, 1996 14.83 10.01 14.75 13.34
As of December 31, 1995 13.91 9.87 13.83 12.50
As of December 31, 1994 12.62 9.55 12.53 11.33
<FN>
(a) In accordance with generally accepted accounting principles, Deposit
Guaranty will account for the Merger using the pooling of interests
method of accounting.
(b) Victory Bancshares pro forma equivalent amounts are computed by
multiplying the pro forma combined amounts based on an assumed exchange
ratio of .9043.
(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.
</FN>
</TABLE>
9
<PAGE>
INTRODUCTION
General
This Proxy Statement/Prospectus is being furnished to holders of Victory
Bancshares Common Stock in connection with the solicitation by the Victory
Bancshares Board of Directors of proxies for use at the Meeting to be held at
5:00 p.m. local time, on February 26, 1998 at 7550 West Farmington Boulevard,
Germantown, Tennessee, and at any adjournment thereof.
At the Meeting, shareholders will consider and vote upon a proposal to
approve the Merger Agreement, by and among Deposit Guaranty, DGNB, Victory
Bancshares and the Bank, pursuant to which Victory Bancshares will merge into
Deposit Guaranty, the Bank will merge into DGNB and each share of Victory
Bancshares Common Stock issued and outstanding immediately prior to the
Effective Date of the Merger (except Dissenting Shares, as hereinafter defined)
will be converted into and exchangeable for a number of shares of Deposit
Guaranty Common Stock, as determined pursuant to the Merger Agreement. As a
result of the Merger, the holders of Victory Bancshares Common Stock (other than
holders of Dissenting Shares) will become shareholders of Deposit Guaranty.
This Proxy Statement/Prospectus constitutes a Proxy Statement of Victory
Bancshares with respect to the Meeting and 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 Victory Bancshares 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 Victory Bancshares is located at
5350 Poplar Avenue, Memphis, Tennessee 38119, and its telephone number is (901)
753-7000.
This Proxy Statement/Prospectus is first being mailed to holders of
Victory Bancshares Common Stock on or about January 23, 1998.
Record Date; Voting Rights; Proxies
The Victory Bancshares Board of Directors has fixed the close of business
on December 31, 1997 as the Record Date for determining holders of outstanding
shares of Victory Bancshares Common Stock entitled to notice of and to vote at
the Meeting. Only holders of Victory Bancshares Common Stock of record on the
books of Victory Bancshares at the close of business on the Record Date are
entitled to vote at the Meeting or at any adjournment thereof. As of the Record
Date, there were 817,419 shares of Victory Bancshares Common Stock issued and
outstanding, each of which is entitled to one vote. The presence, in person or
by proxy, of a majority of the total voting power of Victory Bancshares is
necessary to constitute a quorum of the shareholders to take action at the
Meeting. Shares of Victory Bancshares 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
thereof, except that, with respect to shares voting against approval of the
Merger Agreement, this discretionary authority will not be used to vote for
adjournment of the Meeting in order to permit further solicitation of proxies. A
shareholder who has given a proxy may revoke it at any time before it is voted
by (a) filing with the Secretary of Victory Bancshares (i) a notice in writing
revoking it, or (ii) a duly executed proxy bearing a later date or (b) voting in
person at the Meeting.
Approval of the Merger Agreement requires the approval of a majority of
the outstanding shares of stock of Victory Bancshares. An abstention by a
shareholder present at the Meeting in person or by proxy, a failure to return a
properly executed proxy, or a broker submitting a proxy without exercising
discretionary authority with respect to approval of the Merger Agreement will
have the same effect as a vote against the Merger Agreement. As of the Record
Date, the executive officers and directors of Victory Bancshares as a group had
the power to vote approximately 306,000 shares of Victory Bancshares Common
Stock, representing approximately 37% of the outstanding shares, all of which
are expected to be voted in favor of approval of the Merger Agreement.
Deposit Guaranty's shareholders are not required to approve the Merger
Agreement or the issuance of shares of Deposit Guaranty Common Stock.
Victory Bancshares 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 Victory Bancshares in person, or by
telephone, telecopier 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 Victory Bancshares Common
Stock held of record by such persons, and Victory
10
<PAGE>
Bancshares may reimburse such custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred in connection therewith.
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 of the holders of Victory Bancshares Common
Stock, Victory Bancshares will be merged with and into Deposit Guaranty. As a
result of the Merger, the separate corporate existence of Victory Bancshares
will cease and the holders of Victory Bancshares Common Stock (other than shares
owned by shareholders who, pursuant to the Tennessee BCA, perfect any right to
receive the fair value of such shares ("Dissenting Shares")) will become
shareholders of Deposit Guaranty. The date on which the Merger will be
consummated is herein referred to as the "Effective Date." See "The Merger --
Effective Date."
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.
Structure and Terms of the Merger
Upon consummation of the Merger, Victory Bancshares will be merged with
and into Deposit Guaranty and the Victory Bancshares Common Stock issued and
outstanding at the Effective Date (other than holders of Dissenting Shares) will
be converted into and exchangeable for a number of shares of Deposit Guaranty
Common Stock determined by multiplying the number of such shares by the sum of
the Exchange Ratio.
Victory Bancshares' shareholders will receive a maximum of .9804 shares
and a minimum of .9043 shares for each share of Victory Bancshares Common Stock.
The closing price of Deposit Guaranty Common Stock on the New York Stock
Exchange on January 16, 1998 was $53.50. If the Merger had been consummated on
that date, the number of shares received for each share owned would have been
.9043 and the value of those shares based on the closing price on that date
would have been $48.38. The number of shares of Deposit Guaranty Common Stock to
be issued in exchange for Victory Bancshares Common Stock will be based on 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 in the range
from $29.74 per share to $34.92 per share, the Exchange Ratio shall be
determined by dividing 773,275 by the total number of shares of Victory
Bancshares Common Stock outstanding; (b) in the event the Average Market Price
of Deposit Guaranty Common Stock is less than $29.74 per share and greater than
$28.45, the Exchange Ratio shall be determined by dividing $23,000,000 by the
Average Market Price and then dividing the result by the total number of shares
of Victory Bancshares Common Stock outstanding; (c) in the event the Average
Market Price of Deposit Guaranty Common Stock is greater than $34.92 per share
and less than $36.21, the Exchange Ratio shall be determined by dividing
$27,000,000 by the Average Market Price and then dividing the result by the
total number of shares of Victory Bancshares Common Stock outstanding; (d) in
the event the Average Market Price of Deposit Guaranty Common Stock is $36.21
per share or greater, the Exchange Ratio shall be determined by dividing 745,650
by the total number of shares of Victory Bancshares Common Stock outstanding;
and (e) in the event the Average Market Price of Deposit Guaranty Common Stock
is $28.45 per share or less, the Exchange Ratio shall be determined by dividing
808,435 by the total number of shares of Victory Bancshares Common Stock
outstanding. The Average Market Price of Deposit Guaranty Common Stock shall be
the average of the closing per share trading prices of Deposit Guaranty Common
Stock as reported by the New York Stock Exchange on the New York Stock Exchange
composite transactions tape (adjusted for any stock split or similar
transaction) on the 20 consecutive trading days ending on the third business day
prior to the Effective Date.
The operation of the Exchange Ratio is illustrated by the table below,
which shows the effect that various Average Market Prices would have on the
Exchange Ratio, the total number of shares of Deposit Guaranty Common Stock
issuable in the Holding Company Merger, and the aggregate value of such shares
based on the Average Market Price. The table assumes that immediately before the
Effective Date, a total of 824,565 shares of Victory Bancshares Common Stock are
outstanding.
11
<PAGE>
Average Market Total Number of
Price of Deposit Shares of Deposit Average Market Price
Guaranty Exchange Guaranty Common Times Total Number of
Common Stock Ratio Stock Issuable Shares Issuable
$53.50* 0.9043 745,650 $39,892,275
$36.21 0.9043 745,650 $26,999,987
$36.20 0.9045 745,856 $26,999,987
$34.93 0.9374 772,975 $27,000,016
$34.92 0.9378 773,275 $27,002,763
$32.33 0.9378 773,275 $24,999,981
$29.74 0.9378 773,275 $22,997,199
$29.73 0.9382 773,629 $22,999,990
$28.46 0.9801 808,152 $23,000,006
$28.45 0.9804 808,435 $22,999,976
$27.45 0.9804 808,435 $22,191,541
*The closing price of Deposit Guaranty Common Stock on the New York Stock
Exchange on January 16, 1998 was $53.50.
This table is presented for illustration purposes only and no inference is
intended or may be drawn concerning the actual Average Market Price which may
occur or the resulting Exchange Ratio. Moreover, the actual market value of a
share of Deposit Guaranty Common Stock at the effective time of the Holding
Company Merger and at the time certificates for those shares are delivered to
holders of Victory Bancshares Common Stock may be more or less than the Average
Market 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 holders of Victory Bancshares Common Stock will vote on whether to approve
the Holding Company 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 Holding Company Merger or the time
certificates representing such shares are delivered to holders of Victory
Bancshares Common Stock. Shareholders of Victory Bancshares 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.
If prior to the Effective Date the outstanding shares of Deposit Guaranty
Common Stock shall be increased, decreased, changed into or exchanged for a
different number or class of shares by reason of any reclassification,
recapitalization, stock split or reverse stock split, split-up or if a stock
dividend thereon shall be declared with a record date within such period, or by
reason of a combination or exchange of shares in a transaction in which Deposit
Guaranty is effectively acquired, or other like changes in Deposit Guaranty's
capitalization shall have occurred, then the Exchange Ratio shall be adjusted
accordingly. This provision does not apply to a transaction in which Deposit
Guaranty or one of its subsidiaries is effectively the acquiring entity.
The Exchange Ratio was determined by a process of arm's length
negotiations involving the managements of Victory Bancshares and Deposit
Guaranty and their respective financial advisors. The maximum number of shares
of Deposit Guaranty Common Stock which may be issued upon consummation of the
Merger (808,435 shares) would constitute approximately 1.98% of the shares of
Deposit Guaranty Common Stock outstanding immediately after the Effective Date.
The minimum number of shares of Deposit Guaranty Common Stock which may be
issued upon consummation of the Merger (745,650 shares) would constitute
approximately 1.83% of the shares of Deposit Guaranty Common Stock outstanding
immediately after the Effective Date. These calculations do not make any
adjustment for fractional shares or Dissenting Shares and are based upon the
number of shares of Victory Bancshares 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 Victory Bancshares 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 determined by multiplying (i) the Average
Market Price of Deposit Guaranty Common Stock, by (ii) the fraction of a share
of Deposit Guaranty Common Stock to which such holder would otherwise be
entitled.
12
<PAGE>
Background of and Reasons for the Merger - Victory Bancshares
Background of the Merger. The Bank began operations in May 1989 as a
community bank located in Cordova, Tennessee. Because of the Bank's strategic
location and growth potential, David F. Leake, Chairman of the Board of Victory
Bancshares, was contacted from time to time by other in-state and out-of-state
financial institutions which expressed an interest in a potential transaction
with Victory Bancshares. As part of its business expansion strategy, Deposit
Guaranty would periodically make calls on financial institutions in areas
targeted for expansion to determine whether there was any interest in a
potential merger.
In February 1995, Mr. Leake was contacted by a representative of Deposit
Guaranty to determine whether the Victory Bancshares Board might have an
interest in meeting with representatives of Deposit Guaranty. Mr. Leake and
two other directors met with two representatives of Deposit Guaranty in
February and again in June 1995, at which time E. B. Robinson, Jr., Chairman of
the Board of Deposit Guaranty, was present. Neither of these meetings
resulted in any specific proposals for a potential transaction and were merely
introductory in nature.
In February 1996, a representative of Deposit Guaranty again contacted
Mr. Leake and provided Mr. Leake certain public information concerning Deposit
Guaranty. While no specific proposal for a potential transaction was discussed,
a continuing interest in a potential transaction was expressed by Deposit
Guaranty. During November and December 1996, there were various telephone calls
and one meeting between a representative of Deposit Guaranty and Mr. Leake
expressing Deposit Guaranty's continuing interest in a transaction, but no
specific proposal was discussed.
In June 1997, Mr. Leake met with representatives of Deposit Guaranty and
specifically discussed Deposit Guaranty's interest in a transaction, the
structure of the transaction and the consideration available for a potential
transaction.
On or about July 10, 1997, Mr. Leake traveled to Jackson, Mississippi to
visit Deposit Guaranty's home offices and meet with officers of Deposit
Guaranty. No financial terms of a transaction were discussed. The meeting was
introductory in nature. The parties shared only preliminary financial
information.
On July 17, 1997, the Victory Bancshares Board decided to pursue a merger
strategy and appointed a special committee ("Special Committee") consisting of
Mr. Leake and directors Frank Cianciola, Jack Johnson, Marlin Mosby, Charles
Kilpatrick and Buddy Wittichen to continue discussions with representatives of
Deposit Guaranty. The Special Committee met on July 21 and 28 and again on
August 4, 1997 to discuss strategy and the employment of potential financial
advisors. On July 31, 1997, the Special Committee engaged M & D Capital as a
financial consultant. The entire Victory Bancshares Board met with officers of
Deposit Guaranty in Memphis, Tennessee on August 7, 1997.
On August 13, 1997, Victory Bancshares engaged Mercer Capital as a
financial advisor. During the remainder of August and throughout September until
the execution of the Merger Agreement, the Special Committee members met
personally or by telephone conference at various times to discuss the proposed
Merger Agreement and related issues as the business and legal representatives of
each party continued to finalize the proposed Merger Agreement. During this
period, two other financial institutions contacted Victory Bancshares regarding
a potential interest in a business combination. Neither inquiry resulted in any
further discussion regarding a written agreement or a more favorable proposal.
The Victory Bancshares Board had not solicited offers for a business combination
and did not consider alternatives other than a merger.
On September 23, 1997, the Victory Bancshares Board met to consider the
proposed Merger Agreement. Mercer Capital presented its financial analysis of
the proposed transaction and delivered its oral opinion that the consideration
to be received in the proposed transaction was fair, from a financial point of
view, to the Victory Bancshares shareholders. After considering the
presentations of its financial and legal advisors, and presentations of certain
of its officers with respect to the historical and projected financial
performance of Victory Bancshares, and the financial performance, stock
performance, growth prospects and other matters concerning Deposit Guaranty, the
Victory Bancshares Board unanimously approved the Merger Agreement.
Reasons for the Merger. In reaching its determination that the Merger and
Merger Agreement are fair to, and in the best interests of, Victory Bancshares
and its shareholders, the Victory Bancshares Board consulted with its legal and
financial advisors, as well as with Victory Bancshares' management, and
considered a number of factors, including, without limitation, the following:
(a) the Victory Bancshares Board's review, based in part on the
presentation by Victory Bancshares' management regarding its due
diligence of Deposit Guaranty, of the business, operations,
earnings and financial conditions of Deposit Guaranty on both a
historical and prospective basis, the enhanced opportunities for
operating efficiencies (particularly in terms of integration of
operations, data processing and support functions, although the
Victory Bancshares Board did not
13
<PAGE>
quantify such anticipated operating efficiencies) that could
result from the Merger, the enhanced opportunities for growth
that the Merger would make possible and the respective
contributions the parties would bring to a combined institution;
(b) the Victory Bancshares Board's belief, based upon an analysis of
the anticipated financial effects of the Merger, that upon
consummation of the Merger, Deposit Guaranty and its banking
subsidiary would continue to be well capitalized institutions,
the financial positions of which would be in excess of all
applicable regulatory capital requirements;
(c) the Victory Bancshares Board's belief that, in light of the
reasons discussed above, Deposit Guaranty was the most
attractive choice as a long-term affiliation partner of Victory
Bancshares;
(d) the expectation that the Merger will generally be a tax-free
transaction of Victory Bancshares and its shareholders to the
extent such shareholders receive shares of Deposit Guaranty
Common Stock. See "The Merger -- Certain Federal Income Tax
Consequences;"
(e) the current and prospective economic and regulatory environment
and competitive constraints facing the banking and
financial institutions in Victory Bancshares' market area;
(f) the fact that inquiries of two other financial institutions
regarding a potential business combination did not result in a
more favorable proposal than the Deposit Guaranty proposal; and
(g) the recent business combinations involving financial
institutions, either announced or completed, during the past
year in the United States, the State of Tennessee and contiguous
states and the effect of such combinations on competitive
conditions in Victory Bancshares' market area.
The Victory Bancshares Board considered as potentially negative the fact
that the Bank would no longer be an independent community-based bank owned
primarily by local residents, and the fact that the directors were required to
execute a non-solicitation agreement for a period of one year. See "The Merger
- -- Interests of Certain Persons in the Merger."
The interests of Messrs. Cianciola and McNeil in connection with
severance arrangements were considered by the Victory Bancshares Board in its
discussions relating to the Merger but such interests were not a factor in the
Victory Bancshares Board's reaching its determination that the Merger is fair
to, and in the best interests of, the shareholders of Victory Bancshares. See
"The Merger -- Interests of Certain Persons in the Merger."
The Victory Bancshares Board did not assign any specific or relative
weight to the foregoing factors in their considerations. It should be noted that
there is no guarantee that any of the positive results listed above will be
achieved.
BASED ON THE FOREGOING, THE VICTORY BANCSHARES BOARD APPROVED THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF VICTORY BANCSHARES
COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Reasons for the Merger - Deposit Guaranty
The Deposit Guaranty Board of Directors believes that by expanding
Deposit Guaranty's customer base into the State of Tennessee, 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 Victory
Bancshares will allow Deposit Guaranty and Victory Bancshares 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 Victory Bancshares; the
compatibility and complementary nature of the respective businesses and
managerial philosophies of Deposit Guaranty and Victory Bancshares; and the
relative prices paid in recent acquisitions of financial institutions.
14
<PAGE>
Opinion of Financial Advisor
The Special Committee of the Victory Bancshares Board retained Mercer
Capital during August 1997 to serve as its financial advisor in the negotiations
with Deposit Guaranty. Mercer Capital rendered an oral fairness opinion at the
September 23, 1997 meeting of the Board of Directors of Victory Bancshares in
which the Directors approved the Merger Agreement. Mercer Capital subsequently
rendered a written fairness opinion, dated November 10, 1997, that the
consideration to be paid to Victory Bancshares' shareholders is fair from a
financial point of view. The fairness opinion, which is included in Exhibit B,
should be read in its entirety by Victory Bancshares' shareholders.
Mercer Capital, as part of its financial institution practice, is
regularly engaged to value the securities of banks, issue fairness opinions and
assist in other aspects of structuring mergers among financial institutions. The
Committee retained Mercer Capital on the basis of its reputation and its
experience in evaluating mergers among financial institutions and in
representing the institutions in merger transactions. No limitations were
imposed by the Victory Bancshares Board with respect to the investigations made
or the procedures followed by Mercer Capital in rendering its fairness opinion.
In August 1997, Mercer Capital was paid a fee of $25,000 for serving as
financial advisor and rendering its opinion. Otherwise, neither Deposit Guaranty
nor Victory Bancshares has paid Mercer Capital any other fees during the last
two years.
As part of its investigation, Mercer Capital reviewed: (1) the Merger
Agreement; (2) Victory Bancshares' annual reports for fiscal years 1994, 1995
and 1996; (3) the Bank's Call Reports for fiscal years 1994, 1995 and 1996 and
the quarters ended March 31, 1997 and June 30, 1997; (4) Victory Bancshares'
proxy statements for fiscal years 1995, 1996 and 1997; (5) Deposit Guaranty's
annual reports for the fiscal years ended December 31, 1994, 1995 and 1996; (6)
Deposit Guaranty's 10-K for fiscal years 1994, 1995 and 1996 and Form 10-Q for
the quarters ended March 31, 1997 and June 30, 1997; (7) Deposit Guaranty's
proxy statements for fiscal years 1995, 1996 and 1997; (8) projected financial
statements prepared by the management of Victory Bancshares; (9) public market
pricing data of publicly traded banks which Mercer Capital deemed comparable to
Deposit Guaranty; (10) transaction data involving other banks which have been
acquired; and (11) public data regarding Deposit Guaranty's agreement to merge
with First American.
As part of its engagement, representatives of Mercer Capital visited with
the management of Victory Bancshares in Memphis, Tennessee and Deposit Guaranty
management in Jackson, Mississippi. Factors considered in rendering the opinion
included: (1) terms of the Merger Agreement; (2) the arms' length process by
which the Merger Agreement was negotiated; (3) an analysis of the proposed
Merger presented to the Committee; (4) an analysis of the estimated pro forma
changes in book value per share, earnings per share, and dividends per share
from the perspective of the shareholders of Victory Bancshares; (5) a review of
Deposit Guaranty's historical financial performance, historical stock pricing,
the liquidity of its shares and pricing in relation to other publicly traded
bank holding companies; (6) a review of Victory Bancshares' historical financial
performance and projected financial performance; and (7) tax consequences of the
Merger for shareholders of Victory Bancshares.
In connection with rendering its opinion, Mercer Capital performed a
variety of financial analyses, which are summarized below. Mercer Capital
believes that its analyses must be considered as a whole and that selection of
portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the process underlying Mercer Capital's opinion. Also, Mercer
Capital relied upon management forecasts in rendering its opinion. Mercer
Capital did not represent or warrant that the actual performance would reflect
that which was projected.
Mercer Capital did not compile nor audit Victory Bancshares' or Deposit
Guaranty's financial statements, nor did Mercer Capital independently verify the
information reviewed. Mercer Capital relied upon such information as being
complete and accurate in all material respects. Mercer Capital did not make an
independent valuation of the loan portfolio, adequacy of the loan loss reserve
or other assets or liabilities of either institution.
Mercer Capital's opinion does not constitute a recommendation to any
shareholder as to how the shareholder should vote on the proposed Merger; nor
did Mercer Capital express any opinion as to the prices at which any security of
Victory Bancshares or Deposit Guaranty might trade in the future.
Transaction Summary
Mercer Capital noted that under the terms of the Merger Agreement,
Victory Bancshares' shareholders would receive 773,275 shares of Deposit
Guaranty Common Stock if Deposit Guaranty's Average Market Price, as defined, is
between $29.74 per share and $34.92 per share immediately prior to the
consummation of the Merger. On the date that Mercer Capital rendered its oral
opinion to the Victory Bancshares Board, Deposit Guaranty was trading in the
vicinity of $32.33 per share, which implied an aggregate purchase price of
approximately $25 million. The implied purchase price represented approximately
300% of Victory Bancshares' reported common
15
<PAGE>
equity as of June 30, 1997, 28x trailing twelve month earnings as of June 30,
1997, 25x projected 1997 earnings, and 17x projected 1998 earnings. Mercer
Capital noted, however, that the actual consideration to be received by
shareholders of Victory Bancshares would depend on the Average Market Price of
Deposit Guaranty's Common Stock.
Comparable Transaction Analysis. Mercer Capital reviewed the prices paid
for various banks which have been acquired based upon certain available public
information as compiled by SNL Securities. Mercer Capital noted that most
banking transactions are measured in terms of the price/book ("P/B"),
price/tangible book ("P/TB"), price/earnings ("P/E"), price/assets ("P/A") and
tangible book premium/core deposit ("TBP/CD") ratios.
The bank acquisition data was divided into the following six groups: (1)
aggregate national acquisition data; (2) banks based in the Southeast; (3) banks
based in Tennessee, Mississippi and Arkansas; (4) banks with assets of $75
million to $150 million and an equity- to-asset ratio less than 10%; and (5)
banks which are located in a metropolitan area and have assets of $75 million to
$150 million and an equity-to-asset ratio less than 10%.
For each group, average and median P/E, P/B, P/TB, P/A and TBP/CD ratios
were calculated for calendar years 1992-1996 and the year-to-date period ended
August 1, 1997. The 1997 median P/E ratio and average P/B, P/TB, P/A and TBP/CD
ratios were then multiplied times Victory Bancshares' respective net income for
the latest twelve months ended June 30, 1997 and June 30, 1997 book value,
tangible book value, assets and core deposits to develop an overall indicated
range for Victory Bancshares. A summary of Mercer Capital's analysis is
presented in the table below.
<TABLE>
1997 Transaction Multiples
-------------------------------------------------------------------------
Price/E Price/ Tng Bk
PS Price/ Tangible Price/ Prem/Core
Transaction Group (LTM) Book Book Assets Deposits
- ------------------------------------------- ---------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
National Average 18.6 212% 217% 20.0% 13.2%
Southeast Average 20.4 228% 231% 21.4% 16.3%
TN, AR & MS * 18.4 192% 200% 19.9% 12.8%
Assets of $75MM-$150MM and Equity 18.3 215% 221% 17.5% 11.7%
< than 10%
Assets of $75MM-$150MM, Equity < 19.3 216% 220% 17.2% 12.3%
than 10%, Metro *
---------- ------------- ---------------- ------------- --------------
High 20.4 228% 231% 21.4% 16.3%
Average 19.0 213% 218% 19.2% 13.3%
Median 18.6 215% 220% 19.9% 12.8%
Low 18.3 192% 200% 17.2% 11.7%
Implied Values for Victory Bancshares ($000s)
-------------------------------------------------------------------------
Price/E Price/ Tng Bk
PS Price/ Tangible Price/ Prem/Core
Transaction Group (LTM) Book Book Assets Deposits
- ------------------------------------------- ---------- ------------- ---------------- ------------- --------------
National Average $16,312 $17,318 $17,436 $23,000 $18,807
Southeast Average $17,891 $18,625 $18,561 $24,610 $21,337
TN, AR & MS * $16,137 $15,684 $16,070 $22,885 $18,481
Assets of $75MM-$150MM and Equity $16,049 $17,563 $17,757 $20,125 $17,583
< than 10%
16
<PAGE>
Assets of $75MM-$150MM, Equity < $16,926 $17,645 $17,677 $19,780 $18,073
than 10%, Metro *
--- ---------- ------------- ---------------- ------------- --------------
High $17,891 $18,625 $18,561 $24,610 $21,337
Average $16,663 $17,367 $17,500 $22,080 $18,856
Median $16,312 $17,563 $17,677 $22,885 $18,481
Low $16,049 $15,684 $16,070 $19,780 $17,583
<FN>
(*) 96-97 transaction data
</FN>
</TABLE>
Mercer Capital concluded that the pricing that Deposit Guaranty offered compared
favorably with the transactions given an overall range of $15.7 million to $24.6
million, while the range based only upon the median multiples was from $16.3
million to $22.9 million.
Dilution Analysis. A dilution analysis was conducted whereby
hypothetical non-dilutive prices for Victory Bancshares were generated under the
assumption that various potential buyers would structure an offer so that
Victory Bancshares' pro forma earnings per share would equal that of the assumed
buyer based solely on the shares issued to Victory Bancshares.
The valuation analysis was based upon hypothetical non-dilutive mergers
with Deposit Guaranty, National Commerce Bancorporation, First Tennessee
National Corporation, Union Planters Corporation, BancorpSouth, First Commercial
Corporation, SouthTrust Corporation and First American. The analysis calculated
a range of values for each assumed buyer based upon Victory Bancshares'
estimated 1997 earnings, plus after-tax cost savings that a buyer might realize.
Expense savings were assumed to range from 0% to 40% of Victory Bancshares'
non-interest operating expenses.
The analysis indicated an overall range of $14.2 million (0% expense
savings) to $37.6 million, with the upper end attributable to National Commerce
Bancorporation, whose shares were trading at over 19x estimated 1997 earnings.
Excluding this company, the range was from $14.2 million to $32.2 million.
Mercer Capital noted that the implied pricing of Deposit Guaranty's offer was
near the mid-point of the range. Mercer Capital cautioned, however, that the
implicit assumption in the analysis is that the buyer "pays" the seller for all
expense savings and no revenues are lost in the acquisition, and, in Mercer
Capital's opinion, buyers rarely credit the seller with all expense savings.
Contribution Analysis. Mercer Capital compared the relative
contribution Victory Bancshares and Deposit Guaranty will make to the pro forma
organization based upon June 30, 1997 balance sheet data and trailing 12 month
net income. Mercer Capital noted that shareholders of Victory Bancshares will
collectively own 1.8% of Deposit Guaranty Common Stock assuming 773,275 shares
of Deposit Guaranty Common Stock are issued to Victory Bancshares. By way of
comparison, Victory Bancshares will contribute approximately 1.3% of the equity,
2.2% of the loans and 1.9% of the deposits to the pro forma organization. In
addition, Victory Bancshares would contribute approximately 1.0% of the stated
earnings assuming no cost savings.
Pro Forma Analysis of Per Share Data. Mercer Capital analyzed the
changes in pro forma dividends per share, earnings per share and book value per
share from the perspective of Victory Bancshares' shareholders. Mercer Capital
did not represent or warrant that the actual pro forma data reflected in the
Proxy Statement/Prospectus mailed to Victory Bancshares' shareholders would
reflect that which was developed in its analysis. Mercer Capital noted that the
proposed terms of the Merger would result in a substantial increase in earnings
and book value per share for shareholders of Victory Bancshares. In addition,
Mercer Capital calculated that shareholders of Victory Bancshares would benefit
from an increase in dividends to $0.76 per share from $0.00 per share presently
based upon Deposit Guaranty's current annualized quarterly dividend of $0.80 per
share and the proposed Exchange Ratio.
Discounted Cash Flow Analysis. A discounted cash flow ("DCF") analysis
was prepared to develop an estimate of value shareholders of Victory Bancshares
might realize assuming a merger was delayed five years. Indications of value
derived using the DCF method reflect interim cash flows (dividends) and a
terminal cash flow (the value of Victory Bancshares at the end of the projection
period), both discounted to the present at an appropriate required rate of
return.
Victory Bancshares' management indicated that it did not anticipate
paying any dividends during the next five years; thus, no interim cash flows
were assumed. The terminal value was based upon the product of a range of
earnings for 2002 and a range of P/E ratios. Mercer Capital assumed a range of
net income from $2.4 million to $3.0 million in 2002, with the upper end equal
to management's forecast, while the P/E ratios were assumed to range between
14.0x and 20.0x. The terminal values and interim dividends were discounted to
present values at rates of 15% and 17%.
17
<PAGE>
Mercer Capital calculated a range of present values of $16.7 million to
$29.8 million based upon a discount rate of 15%, and a range of $15.3 million to
$27.4 million based upon a discount rate of 17%. Mercer Capital noted that the
implied pricing of the Merger, approximately $25 million, fell towards the upper
end of the range. Mercer Capital further noted that the upper end of the range
assumed that management would achieve robust earnings growth of nearly 25%
compound annual for the next five years in order to grow earnings to nearly $3.0
million by 2002, and that the acquisition market remained favorable such that
acquirors would be paying 20x earnings. Also, it was noted that by delaying a
sale in an effort to realize more value that shareholders of Victory Bancshares
would run the risk of losing value if market and/or economic conditions changed,
if management's projected performance was not achieved, or other such events
occurred.
Future Value Analysis. A future value ("FV") analysis was prepared in
which the implied future value of accepting $25 million of Deposit Guaranty's
stock today was compared with the assumed future value of holding Victory
Bancshares Common Stock for five years. The future value of Deposit Guaranty
Common Stock was derived by assuming that its P/E ratio remains constant,
reported earnings for 1997 and 1998 equal the median analysts' consensus and
earnings for the following three years increase at 9% per annum, and cash
dividends are reinvested into Deposit Guaranty Common Stock. The assumptions
resulted in a future value of approximately $44 million of Deposit Guaranty
Common Stock.
The implied future value of holding Victory Bancshares Common Stock was
based upon the product of a range of earnings for Victory Bancshares in 2002 of
$2.2 million to $3.0 million and a range of P/E ratios of 16.0x to 18.0x. The
implied future value for Victory Bancshares given the assumptions was from $35.2
million to $54.0 million, while the implied future value of accepting $25
million of Deposit Guaranty Common Stock fell near the mid-point of the range.
Mercer Capital noted, however, that, essentially two different equity securities
were being compared. Deposit Guaranty Common Stock offered somewhat lower growth
prospects (based upon its expected slower earnings growth) and lower risks,
while Victory Bancshares Common Stock offered the prospect of a higher growth
security, but with added risk.
Review of Deposit Guaranty. Using public and other available
information, Mercer Capital compared the historical financial performance and
current market pricing of Deposit Guaranty with the following: (1) publicly
traded bank holding companies based in Mississippi, Alabama, Arkansas, Louisiana
and Tennessee; (2) publicly traded bank holding companies with $5 billion to $15
billion of assets; and (3) aggregate data for all publicly traded bank holding
companies. None of the companies considered in the comparison analysis are
identical to Deposit Guaranty. Mercer Capital noted that, in general, Deposit
Guaranty could be characterized as more profitable than the comparable group
medians, while its public market price in terms of P/E, P/B and dividend yield
ratios were generally below the median statistics.
A summary of Mercer Capital's comparisons is presented below.
<TABLE>
Market Data Summary
- ------------------------------
<S> <C>
Ticker: DEP Shares Outstanding 40,781
Exchange: NYSE 52 Week High-Low $24-$33
1997 Average Weekly Volume 196,000 Current Market Price $32.50
1997 Average Daily Volume 39,200 Market Capitalization $1,325,000
</TABLE>
<TABLE>
Regional $5-$15B National
DEP Per DEP BHC BHC BHC
Pricing Data Share Multiples Multiples Multiples Multiples
- ------------------------------ ----------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings Per Share (LTM) $2.16 15.0 18.4 19.0 18.0
Earnings Per Share (97E) $2.28 14.3 16.7 17.6 16.9
Earnings Per Share (98E) $2.49 13.1 15.2 15.9 15.1
Book Value Per Share $14.73 221% 226% 274% 214%
Tangible BVPS $11.60 280% 260% 296% 236%
Annualized Qtr Dividend $0.80 2.46% 2.03% 2.08% 1.92%
</TABLE>
18
<PAGE>
<TABLE>
Profitability Summary
- ------------------------------
<S> <C> <C> <C> <C>
Return on Avg Equity 14.68% 13.21% 14.75% 13.24%
(LTM)
Return on Avg Assets 1.35% 1.24% 1.31% 1.20%
(LTM)
Efficiency Ratio 61.1% 59.7% 58.5% 59.6%
Payout Ratio 35% 34% 37% 33%
<FN>
(*) Pricing as of 9/19/97
</FN>
</TABLE>
Other Factors. Other factors considered by Mercer Capital in rendering
its opinion included the possibility that shareholders of Victory Bancshares may
benefit from an acquisition of Deposit Guaranty given the ongoing industry
consolidation. Mercer Capital made no representation or warranty, however, that
such an event would occur, or if it did occur, that it would occur on favorable
terms.
Mercer Capital also noted that two other institutions made overtures to
a director of Victory Bancshares during the time with which it was negotiating
with Deposit Guaranty; however, the offer made by Deposit Guaranty was superior
to any other offers being discussed with other institutions.
Victory Bancshares has agreed to indemnify Mercer Capital and its
partners, employees, consultants, agents and representatives against certain
liabilities, including liabilities under the federal securities laws.
Subsequent Event. Subsequent to the rendering of its oral fairness
opinion on September 23, 1997 and prior to the date of the Proxy
Statement/Prospectus, Deposit Guaranty entered into an agreement to be acquired
by First American, a Nashville, Tennessee based bank holding company with $10.6
billion of assets and banking operations in Tennessee, Kentucky and Virginia.
Under the terms of the agreement, Deposit Guaranty shareholders will receive
1.17 shares of First American in a tax-free exchange. Deposit Guaranty will have
the right to terminate the agreement if the 20 day closing average price for
First American declines by more than 25% from $54.75 per share; or declines by
more than 20% and more than 15% relative to a specified bank index immediately
prior to the consummation of the merger.
First American's closing stock price on the day before the announcement
was $54.75 per share. On the day of the announcement, December 8, 1997, First
American's stock closed at $49.56 per share, which would be equivalent to $57.98
per Deposit Guaranty share.
Mercer Capital noted that the First American acquisition is expected to
close sometime during the second quarter of 1998, after the expected closing of
the Deposit Guaranty acquisition of Victory Bancshares. Mercer Capital further
noted that Victory Bancshares' shareholders cannot be assured that the First
American transaction will be consummated.
Effective Date
The Merger will be consummated and become effective at the time the
Certificate of Merger is filed with the Secretary of State of the State of
Tennessee and the Secretary of State of the State of Mississippi, or as of such
later date or time to which Deposit Guaranty and Victory Bancshares agree, which
may be specified in the Certificate of Merger. Unless Deposit Guaranty and
Victory Bancshares otherwise agree, the Merger will be consummated as soon as
practicable following receipt of Victory Bancshares' shareholder and necessary
regulatory approvals and satisfaction or waiver of the other conditions to the
Merger. It is expected that the Effective Date will occur on February 28, 1998;
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 --
Regulatory Approvals" and "The Merger -- Other Conditions to the Merger."
Regulatory Approvals
It is a condition to the consummation of the Merger that all required
regulatory approvals be obtained. The only required regulatory approval is the
approval of the OCC, which was obtained on November 21, 1997. In addition,
filings required to be made with the Federal Reserve Bank of Atlanta and the
Tennessee Commissioner of Financial Institutions have been made.
Other Conditions to the Merger
The respective obligations of each party under the Merger Agreement are
subject to the following conditions, which may not be waived: (i) approval of
the Merger Agreement by the requisite vote of the holders of Victory Bancshares
Common Stock, (ii) approval of the Merger by the OCC, (iii) the absence of any
order, decree or injunction of a court or agency of competent jurisdiction
enjoining or prohibiting consummation of the Merger, (iv) receipt of an opinion
of Watkins Ludlam Winter & Stennis, P.A. 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.
The obligations of Deposit Guaranty under the Merger Agreement are also
subject to the following conditions, which may be waived: (i) each of the
obligations of the Bank and Victory Bancshares required to be performed by it at
or prior to the closing pursuant to the terms of the Merger Agreement shall have
been duly performed and complied with and the representations and warranties of
Victory Bancshares contained in the Merger Agreement shall be true and correct
in all material respects as of the date of the Merger Agreement
19
<PAGE>
and as of the Effective Date as though made at and as of the Effective Date
(except as otherwise contemplated by the Merger Agreement), (ii) all action
required to be taken by, or on the part of, the Bank and Victory Bancshares to
authorize the execution, delivery and performance of the Merger Agreement by the
Bank and Victory Bancshares and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Boards of
Directors of the Bank and Victory Bancshares, (iii) any and all permits,
consents, waivers, clearances, approvals and authorizations (in addition to OCC
approval) of all third parties and governmental bodies shall have been obtained
by Victory Bancshares, which are necessary in connection with the consummation
of the Merger by Victory Bancshares, (iv) the receipt of customary legal
opinions from counsel to Victory Bancshares, (v) there shall not have occurred
any material adverse change in the financial condition, results of operations,
or business of Victory Bancshares or the Bank, (vi) Victory Bancshares shall
have used its best efforts to cause all affiliates of Victory Bancshares to
execute and deliver to Deposit Guaranty written agreements to comply with the
applicable resale restrictions set forth in Rule 145 under the Securities Act,
and with such restrictions as are necessary to permit the Merger to be treated
for accounting purposes as a pooling of interests, (vii) Deposit Guaranty shall
have received an opinion of KPMG Peat Marwick LLP, in form and substance
satisfactory to Deposit Guaranty, and substantially to the effect that on the
basis of a review of the Merger Agreement and all of the circumstances related
thereto, in the opinion of KPMG Peat Marwick LLP under Accounting Principles
Board Opinion No. 16, the Merger may be accounted for as a pooling of interests,
and (viii) Victory Bancshares and the Bank, on or before the Effective Date,
shall have caused each member of the Board of Directors of Victory Bancshares
and the Bank to have entered into a non-solicitation agreement with Deposit
Guaranty providing for a term of one (1) year.
The obligations of Victory Bancshares under the Merger Agreement are
also subject to the following conditions, which may be waived: (i) each of the
obligations of Deposit Guaranty required to be performed by it at or prior to
the closing pursuant to the terms of the Merger Agreement shall have been duly
performed and complied with and the representations and warranties of Deposit
Guaranty contained in the Merger Agreement shall be true and correct in all
material respects as of the date of the Merger Agreement and as of the Effective
Date as though made at and as of the Effective Date (except as otherwise
contemplated by the Merger Agreement), (ii) all action required to be taken by,
or on the part of, Deposit Guaranty to authorize the execution, delivery and
performance of the Merger Agreement by Deposit Guaranty and the consummation of
the transactions contemplated hereby shall have been duly and validly taken by
the Board of Directors of Deposit Guaranty, (iii) the receipt of customary legal
opinions from counsel to Victory Bancshares, and (iv) there shall not have
occurred any material adverse change in the financial condition, results of
operations or business of Deposit Guaranty.
Interests of Certain Persons in the Merger
Indemnification. The Merger Agreement provides that Deposit Guaranty
shall indemnify the former directors, officers, employees and agents of Victory
Bancshares against all claims to which they become subject arising out of
actions or omissions occurring at or prior to the Effective Date of the Merger,
including the transactions contemplated by the Merger Agreement, to the full
extent permitted by Tennessee law or by Victory Bancshares' Charter and Bylaws.
Employee Benefits. The Merger Agreement provides that, after the
Effective Date of the Merger, Deposit Guaranty will, subject to compliance with
applicable legal and regulatory requirements, provide coverage for all employees
of the Bank under Deposit Guaranty's employee benefit plans for which they are
eligible, as soon as practicable after the Effective Date. All prior years of
service of Bank employees will be counted for vesting and eligibility purposes
under all applicable Deposit Guaranty employee benefit plans to the extent
permitted by applicable law. Any Bank employee who, immediately prior to the
Effective Date, is covered by or is a participant in a Bank employee benefit
plan, shall, on the Effective Date, be covered by or participate in the
comparable Deposit Guaranty employee benefit plan if a comparable plan otherwise
is maintained by Deposit Guaranty and if the eligibility requirements of the
Deposit Guaranty plan are met. The Bank employees, except for Frank Cianciola
and Ken McNeil, shall be entitled to receive severance benefits according to the
current DGNB severance policy. The terms and conditions of the severance
benefits to be provided to Frank Cianciola, who is President and CEO of the Bank
, Ken McNeil, who is Executive Vice President of the Bank, and Michael McCarver,
Senior Vice President of the Bank, shall be governed by the terms and conditions
of those certain Performance Compensation Agreements, by and between the Bank
and Messrs. Frank Cianciola dated April 27, 1995, as amended May 15, 1997, Ken
McNeil dated October 1, 1996, and Michael McCarver dated July 20, 1995. Under
the Performance Compensation Agreements, upon consummation of the Merger, Mr.
Cianciola will receive $768,342, Mr. McNeil will receive $441,437 and Mr.
McCarver will receive $287,243. Under the terms of agreements between
the Bank and Mr. Cianciola, Mr. McNeil and Mr. McCarver, these officers could
also receive severance benefits if there employment is terminated by Deposit
Guaranty. The amount of severance benefits that would be received depends on
when employment is terminated. The maximum severance benefit would be received
if employment is terminated on the date the Merger is consummated; this amount
would be $130,000 for Mr. Cianciola, $158,333 for Mr. McNeil and $34,500 for Mr.
McCarver. The executive officers and directors of Victory Bancshares will also
receive shares of Deposit Guaranty Common Stock in the Merger with an aggregate
value of $16,776,102, based on the closing price of Deposit Guaranty Common
Stock on the New York Stock Exchange on January 16, 1998 of $53.50 per share.
Non-Solicitation Agreements. Pursuant to the Merger Agreement, the
directors of Victory Bancshares will enter into a non- solicitation agreement
whereby the directors will agree that for a period of one year following the
Effective Date, the director will not solicit for employment any employee
currently employed by Victory Bancshares. The non-solicitation agreement also
provides that Deposit
20
<PAGE>
Guaranty will have the option of appointing the directors of Victory Bancshares
as advisory directors of Deposit Guaranty and will pay said directors a fee of
$400 for each director per month for a minimum of 12 months.
Exchange of Victory Bancshares' Certificates
On the Effective Date, each holder of Victory Bancshares Common Stock
will cease to have any rights as a shareholder of Victory Bancshares and his or
her sole rights will pertain to the shares of Deposit Guaranty Common Stock to
which such holder's shares of Victory Bancshares Common Stock shall have been
converted pursuant to the Merger, except for the right to receive cash for any
fractional shares and except for any such shareholder who exercises statutory
dissenters' rights.
As soon as practicable after the Effective Date, the Exchange Agent for
the Deposit Guaranty Common Stock will mail to each holder of record of Victory
Bancshares Common Stock a letter of transmittal and instructions for effecting
the surrender of the stock certificates which, immediately prior to the
Effective Date, represented outstanding shares of Victory Bancshares Common
Stock in exchange for certificates representing shares of Deposit Guaranty
Common Stock. Shareholders of Victory Bancshares are requested not to surrender
their Victory Bancshares' 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 such letter of
transmittal, duly executed, the holder of such certificate shall be entitled to
receive in exchange therefor: (i) a certificate representing that number of
whole shares of Deposit Guaranty Common Stock, as defined below, to which such
holder of Victory Bancshares Common Stock shall have become entitled pursuant to
the provisions hereof, and (ii) a check representing the amount of cash in lieu
of fractional shares, if any, which such holder has the right to receive in
respect of the certificates surrendered, and such certificates shall forthwith
be canceled.
Deposit Guaranty will not pay former shareholders of Victory Bancshares
who become holders of Deposit Guaranty Common Stock pursuant to the Merger any
dividends or other distributions that may have become payable to holders of
record of Deposit Guaranty Common Stock following the Effective Date until they
have surrendered their certificates evidencing ownership of shares of Victory
Bancshares Common Stock along with a properly completed letter of transmittal.
Shareholders of Victory Bancshares who cannot locate their certificates
are urged to promptly contact Jane Ellen Jones, Executive Secretary of Victory
Bancshares at 5350 Poplar Avenue, Memphis, Tennessee, 38119, telephone number
(901) 818-2223. A new certificate will be issued to replace the lost
certificate(s) only upon execution by the shareholder of an affidavit certifying
that his or her certificate(s) cannot be located and an agreement to indemnify
Victory Bancshares and Deposit Guaranty and their transfer agents and registrars
against any claim that may be made against Victory Bancshares or Deposit
Guaranty by the owner of the certificate(s) alleged to have been lost or
destroyed. Victory Bancshares or Deposit Guaranty may also require the
shareholder to post a bond in such sum as is sufficient to support the
shareholders' agreement to indemnify Victory Bancshares and Deposit Guaranty.
Amendment; Waiver; Termination
The Merger Agreement may be amended at any time before or after its
approval by the shareholders of Victory Bancshares by written agreement of
Victory Bancshares and Deposit Guaranty, except that no amendment may be made
after Victory Bancshares' shareholder approval that changes the consideration to
be received by Victory Bancshares' shareholders or that by law would require
further shareholder approval unless such further shareholder approval is
obtained.
The Merger Agreement provides that either party may (i) extend the time
for performance of any of the obligations or other acts of the other parties,
(ii) waive any inaccuracies in the representations and warranties contained in
the Merger Agreement or in any document delivered pursuant to the Merger
Agreement or (iii) waive compliance with any of the agreements or conditions
contained in the Merger Agreement other than the satisfaction of all
requirements prescribed by law for consummation of the Merger and receipt of the
tax opinion required by the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the
Effective Date (i) by mutual written consent of the parties, properly authorized
by their respective Boards of Directors; (ii) by Deposit Guaranty and DGNB, if
at the time of such termination there shall have been any material adverse
change in the financial condition, results of operations, or business of Victory
Bancshares or the Bank since June 30, 1997; (iii) by Victory Bancshares and the
Bank, if at the time of such termination there shall have been any material
adverse change in the financial condition, results of operations, or business of
Deposit Guaranty since June 30, 1997; (iv) by any party to the Merger Agreement,
if a United States District Court shall rule upon application of the Department
of Justice after a full trial on the merits or a decision on the merits based on
a stipulation of facts that the Merger violates the antitrust laws of the United
States; (v) by any party to the Merger Agreement, if at the Meeting, the Merger
Agreement shall not have been approved by the required vote; (vi) by Deposit
21
<PAGE>
Guaranty and DGNB, in the event there are dissenting shareholders who hold more
than 10% of the shares of Victory Bancshares Common Stock; or (vii) by any party
to the Merger Agreement if closing shall not have occurred by June 30, 1998.
Conduct of Business Pending the Merger
The Merger Agreement provides that the Bank and Victory Bancshares will
conduct their businesses and engage in transactions only in the ordinary course
and consistent with prudent banking practice. Without the prior consent of
Deposit Guaranty, neither the Bank nor Victory Bancshares shall (i) increase by
more than 10% the compensation payable by the Bank or Victory Bancshares to any
of its directors, officers, agents, consultants, or any of its employees whose
total compensation after such increase would be in excess of $35,000 per annum,
grant or pay any extraordinary bonus, percentage compensation, service award or
other like benefit to any such director, officer, agent, consultant or employee,
or make or agree to any extraordinary welfare, pension, retirement or similar
payment or arrangement for the benefit of any such director, officer, agent,
consultant or employee (other than the Bank's regular annual performance bonuses
as set forth in the Merger Agreement), (ii) sell or dispose of material assets
except in the ordinary course of business, (iii) enter into any new capital
commitments or make any capital expenditures, except commitments or expenditures
within existing operating and capital budgets or otherwise in the ordinary
course of business or (iv) authorize or issue any additional shares of any class
of its capital stock or any securities exchangeable for or convertible into any
such shares or any options or rights to acquire any such shares, or otherwise
authorize or affect any change in its capitalization. In addition, no dividends
shall be paid by Victory Bancshares, without the consent of Deposit Guaranty.
Deposit Guaranty has consented to the payment by Victory Bancshares of two
dividends in the amounts set forth in the Merger Agreement provided that the
first of such dividend shall only be paid in the event that the Effective Date
shall be after the Record Date for cash dividends on Deposit Guaranty Common
Stock for the first quarter of 1998 and the second of such dividends shall only
be paid in the event that the Effective Date shall be after the Record Date for
cash dividends on Deposit Guaranty Common Stock for the second quarter of 1998.
In addition, Victory Bancshares has agreed that, without the prior
approval of Deposit Guaranty, it will not solicit or encourage inquiries or
proposals with respect to, or, furnish any information relating to or
participate in any negotiations or discussions concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or of a substantial
equity interest in, Victory Bancshares or any subsidiary thereof, or any
business combination with Victory Bancshares or any subsidiary thereof, and
shall instruct its officers, directors, agents and affiliates to refrain from
doing any of the above; provided, however, that this restriction shall not
prohibit the Victory Bancshares Board from, after providing written notice to
Deposit Guaranty, furnishing information in response to unsolicited inquiries
from third parties and/or engaging in discussions or negotiations with third
parties if, in each case, the Victory Bancshares Board determines in good faith
on the advice of legal counsel that such action is required for the Victory
Bancshares Board to comply with its fiduciary duties to shareholders. If Victory
Bancshares furnishes information to or enters into discussions or negotiations
with another party prior to June 30, 1998, and enters into a definitive
agreement with such party prior to December 31, 1998, then Victory Bancshares
shall pay Deposit Guaranty a fee of $500,000.
Resales of Deposit Guaranty Common Stock
The shares of Deposit Guaranty Common Stock to be issued to the holders
of Victory Bancshares Common Stock pursuant to the Merger Agreement have been
registered under the Securities Act pursuant to a Registration Statement on Form
S-4, of which this Proxy Statement/Prospectus is a part, thereby allowing such
shares to be freely transferred without restriction by persons who will not be
"affiliates" of Deposit Guaranty or who were not "affiliates" of Victory
Bancshares within the meaning of Rule 145 under the Securities Act. In general,
affiliates of Victory Bancshares include its executive officers and directors
and any person who controls, is controlled by or is under common control with
Victory Bancshares. Holders of Victory Bancshares Common Stock who are
affiliates of Victory Bancshares will not be able to resell the Deposit Guaranty
Common Stock received by them in the Merger unless the Deposit Guaranty Common
Stock is registered for resale under the Securities Act, is sold in compliance
with Rule 145 under the Securities Act or is sold in compliance with another
exemption from the registration requirements of the Securities Act.
Pursuant to Rule 145 under the Securities Act, the sale of Deposit
Guaranty Common Stock held by former affiliates of Victory Bancshares will be
subject to certain restrictions. Such persons may sell Deposit Guaranty Common
Stock under Rule 145 only if (i) Deposit Guaranty has filed all reports required
to be filed by it under Section 13 or 15(d) of the Exchange Act during the
preceding twelve months, (ii) such Deposit Guaranty Common Stock is sold in a
"broker's transaction," which is defined in Rule 144 under the Securities Act as
a sale in which (a) the seller does not solicit or arrange for orders to buy the
securities, (b) the seller does not make any payment other than to the broker,
(c) the broker does no more than execute the order and receive a normal
commission and (d) the broker does not solicit customer orders to buy the
securities and (iii) such sale and all other sales made by such person within
the preceding three months do not exceed the greater of (x) 1% of the
outstanding shares of Deposit Guaranty Common Stock or (y) the average weekly
trading volume of Deposit Guaranty Common Stock on the New York Stock Exchange
during the four-week period preceding the sale. Any affiliate of
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Victory Bancshares who is not an affiliate of Deposit Guaranty after the Merger
may sell Deposit Guaranty Common Stock without restriction one year after the
Effective Date; provided that Deposit Guaranty has filed all reports required to
be filed by it under Section 13 or 15(d) of the Exchange Act during the
preceding twelve months.
Victory Bancshares has agreed to use its best efforts to cause each of
its directors and executive officers and each person who is a beneficial owner
of 5% or more of the outstanding Victory Bancshares Common Stock (each of whom
may be deemed to be an affiliate under the Securities Act) to enter into an
agreement not to sell shares of Deposit Guaranty Common Stock received by him or
her in violation of the Securities Act or the rules and regulations of the
Commission thereunder, with such restrictions as are necessary to permit the
Merger to be treated for accounting purposes as a pooling of interests.
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, regardless of whether the Merger is
consummated.
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 Victory
Bancshares will be combined with those of Deposit Guaranty and carried forward
at book values. In addition, the statements of operations of Victory Bancshares
will be combined with the statements of operations of Deposit Guaranty on a
retroactive basis. The obligation of Deposit Guaranty to consummate the Merger
is conditioned, among other matters, upon receipt of a letter from KPMG Peat
Marwick LLP in which they concur with management's conclusion that the Merger
may be accounted for as a pooling of interests under generally accepted
accounting principles.
This condition may be waived 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 Code, the regulations
thereunder, judicial authority, and administrative rulings and practice as of
the date hereof, any of which is subject to change. Consummation of the Merger
is conditioned on the receipt by Deposit Guaranty, DGNB, Victory Bancshares and
the Bank of an opinion of Watkins Ludlam Winter & Stennis, P.A., 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 shareholder of Victory Bancshares who, pursuant to the Merger,
exchanges all of the Victory Bancshares 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 Victory Bancshares Common Stock will
equal such holder's tax basis in the Victory Bancshares Common Stock
surrendered. If such shares of Victory Bancshares Common Stock are held as
capital assets at the Effective Date, the holding period of the Deposit Guaranty
Common Stock received will include the holding period of the Victory Bancshares
Common Stock surrendered therefor. Shareholders of Victory Bancshares 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.
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 shareholder of Victory Bancshares 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 the provisions and limitations of Section 302 of
the Code. 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.
Shareholders of Victory Bancshares who perfect dissenters' rights and
receive cash in exchange for their Victory Bancshares Common Stock will be
treated, under Code Sections 302(a) and 302(b)(3), as receiving such payment in
complete redemption of the Victory Bancshares Common Stock subject to the
proceeding, provided that such shareholder does not actually or constructively
own (under Code Section 318) any Victory Bancshares Common Stock after the
redemption. Such deemed redemption may also be subject to Section 302(a) of the
Code if such deemed redemption is "substantially disproportionate" with respect
to the Victory Bancshares
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shareholder who exercises dissenters' rights, or is "not essentially equivalent
to a dividend," with the result that a shareholder who exercises dissenters'
rights will recognize gain or loss equal to the difference between the amount
realized and such shareholder's tax basis in the Victory Bancshares 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 Victory Bancshares Common Stock
with respect to which dissenters' rights were exercised were held as capital
assets. Each Victory Bancshares shareholder who contemplates exercising
dissenters' rights should consult a tax advisor as to the possibility that all
or a portion of the payment received pursuant to the dissenters' rights
proceeding will be treated as dividend income.
Unless an exemption applies under the applicable law and regulations,
the Exchange Agent will be required to withhold 31% of any cash payments to
which a shareholder or other payee is entitled pursuant to the Merger unless the
shareholder or other payee provides its taxpayer identification number (social
security number or employer identification number) and certifies that such
number is correct. Each shareholder and, if applicable, each other payee should
complete and sign the substitute Form W-9 included as part of the letter of
transmittal 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 IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH VICTORY BANCSHARES SHAREHOLDER. SHAREHOLDERS OF VICTORY
BANCSHARES 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.
DISSENTERS' RIGHTS
The following summary of applicable provisions of Tennessee state law
governing the rights of Victory Bancshares' shareholders is qualified in its
entirety by reference to Exhibit C. Any shareholder of Victory Bancshares
entitled to vote on the Merger Agreement has the right to receive payment of the
fair value of his shares of Victory Bancshares Common Stock upon compliance with
Sections 48-23-202 and 48-23-204 of the Tennessee BCA.
Filing Written Objection and Vote Against the Merger
A Victory Bancshares shareholder may not dissent as to less than all of
the shares that he beneficially owns. A nominee or fiduciary may not dissent on
behalf of any beneficial owner as to less than all of the shares of such
beneficial owner held of record by such nominee or fiduciary. A beneficial owner
asserting dissenters' rights to shares held on his behalf must submit to Victory
Bancshares written consent of the record shareholder of Victory Bancshares to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights. Any Victory Bancshares shareholder intending to enforce this
right must not vote in favor of the Merger Agreement and must file written
notice of his intent to demand payment for his shares (the "Objection Notice")
with the Corporate Secretary of Victory Bancshares either before the Meeting or
before the vote is taken at the Meeting. The Objection Notice must state that
the Victory Bancshares shareholder intends to demand payment for his shares of
Victory Bancshares Common Stock if the Merger is effected. A vote against
approval of the Merger Agreement will not, in and of itself, constitute an
Objection Notice satisfying the requirements of Section 48-23-202 of the
Tennessee BCA. A failure to vote will not constitute a waiver of appraisal
rights as long as the requirements of Sections 48-23-101 through 48-23-302 of
the Tennessee BCA are complied with. However, any Victory Bancshares shareholder
who executes a proxy card and who desires to effect his appraisal rights must
mark the proxy card "Against" the proposal relating to the Merger because if the
proxy card is left blank, it will be voted "For" the proposal relating to the
Merger.
Notice of the Effective Date
If the Merger Agreement is approved, each Victory Bancshares
shareholder who has filed an Objection Notice will be notified by Victory
Bancshares of such approval within ten days of the shareholder Meeting (the
"Dissenters' Notice"). The Dissenters' Notice will (i) state where dissenting
shareholders must (a) send the Payment Demand (as defined below) and where and
when they must (b) deposit their Victory Bancshares Common Stock certificates,
(ii) inform holders of uncertificated shares of the extent of any restrictions
on the transferability of such shares, (iii) be accompanied by a form for
demanding payment that includes the date of the first announcement to the news
media or to Victory Bancshares' shareholders of the terms of the proposed
Merger, (iv) set a date by which Victory Bancshares must receive the Payment
Demand, which may not be fewer than one or more than two months after the date
the Dissenters' Notice is delivered, and (v) be accompanied by a copy of
Sections 48-23-101 through 48-23-302 of the Tennessee BCA.
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Written Demand
Within the time prescribed in the Dissenters' Notice, a Victory
Bancshares shareholder electing to dissent must make a demand for payment (the
"Payment Demand"), certify whether he acquired beneficial ownership of the
shares before September 24, 1997 (the date of the first public announcement of
the principal terms of the Merger Agreement), and deposit his Victory Bancshares
Common Stock certificates in accordance with the terms of the Dissenters'
Notice. Upon filing the Payment Demand and depositing the Victory Bancshares
Common Stock certificates, the Victory Bancshares shareholder will retain all
other rights of a Victory Bancshares shareholder until these rights are canceled
or modified by consummation of the Merger. A Payment Demand may not be withdrawn
unless Victory Bancshares consents to such withdrawal. Failure to comply with
these procedures will cause the Victory Bancshares shareholder to lose his
dissenters' rights to payment for the shares. Consequently, any Victory
Bancshares shareholder who desires to exercise his rights to payment for his
shares is urged to consult his legal advisor before attempting to exercise such
rights.
As soon as the Merger is consummated, or upon receipt of a Payment
Demand, Victory Bancshares shall, pursuant to Section 48-23-206, pay to each
dissenting Victory Bancshares shareholder who has complied with the requirements
of Section 48-23-294 of the Tennessee BCA the amount that Victory Bancshares
estimates to be the fair value of the shares of common stock, plus accrued
interest. Section 48-23-206 of the Tennessee BCA requires the payment to be
accompanied by (i) certain financial statements of Victory Bancshares, (ii) a
statement of Victory Bancshares' estimate of fair value of the shares and
explanation of how the interest was calculated, (iii) notification of rights to
demand payment and (iv) a copy of Sections 48-23-101 through 48-23-302 of the
Tennessee BCA. As authorized by Section 48-23-208, Victory Bancshares intends to
delay any payments with respect to any shares (the "after-acquired shares") held
by a dissenting Victory Bancshares shareholder which were not held by such
Victory Bancshares shareholder on September 24, 1997, the date of the first
public announcement of the terms of the Merger Agreement. When payments are so
withheld, Sections 48-23-208(b) and 48-23-209(a) will require Victory
Bancshares, after the Merger, to send to the holder of the after-acquired shares
an offer to pay the holder an amount equal to Victory Bancshares' estimate of
their fair value plus accrued interest, together with an explanation of the
calculation of interest and a statement of the holder's right to demand payment
under Section 48-23-209.
If the Merger is not consummated within two months after the date set
for demanding payment and depositing the Victory Bancshares Common Stock
certificates, Victory Bancshares shall return the deposited Victory Bancshares
Common Stock certificates and release the transfer restrictions imposed on
uncertificated shares. If, after returning deposited Victory Bancshares Common
Stock certificates and releasing transfer restrictions, the Merger is
consummated, Victory Bancshares must send a new Dissenters' Notice and repeat
the procedure set forth above.
If the dissenting Victory Bancshares shareholder believes that the
amount paid by Victory Bancshares pursuant to Section 48-23-206 or offered under
Section 48-23-208 is less than the fair value of his shares or that the interest
due is calculated incorrectly, or if Victory Bancshares fails to make payment
(or, if the Merger has not consummated, Victory Bancshares does not return the
deposited Victory Bancshares Common Stock certificates or release the transfer
restrictions imposed on uncertificated shares) within two months after the date
set in the Dissenters' Notice, then the dissenting Victory Bancshares
shareholder may, within one month after (i) Victory Bancshares made or offered
payment for the shares or failed to pay for the shares or (ii) Victory
Bancshares failed to return deposited Victory Bancshares Common Stock
certificates or release restrictions on uncertificated shares timely, notify
Victory Bancshares in writing of his own estimate of the fair value of such
shares (including interest due) and demand payment of such estimate (less any
payment previously received). Failure to notify Victory Bancshares in writing of
a demand for payment within one month after Victory Bancshares made or offered
payment for such shares will constitute a waiver of the right to demand payment.
Appraisal
If Victory Bancshares and the dissenting Victory Bancshares shareholder
cannot agree on a fair price two months after Victory Bancshares receives such a
demand for payment, the statute provides that Victory Bancshares will institute
judicial proceedings in a court of record with equity jurisdiction in Shelby
County, Tennessee, (the "Court") to fix (i) the fair value of the shares
immediately before consummation of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, and (ii) the accrued interest. The
"fair value" of the common stock could be more than, the same as, or less than
that produced by the Exchange Ratio as described herein. Victory Bancshares must
make all dissenters whose demands remain unsettled parties to the proceeding and
all such parties must be served with a copy of the petition. The Court may, in
its discretion, appoint an appraiser to receive evidence and recommend a
decision on the question of fair value. The Court is required to issue a
judgment for the amount, if any, by which the fair value of the shares, as
determined by the Court, plus interest, exceeds the amount paid by Victory
Bancshares or for the fair value, plus accrued interest, of his after-acquired
shares for which Victory Bancshares elected to withhold payment. If Victory
Bancshares does not institute such proceeding within such
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two month period, Victory Bancshares shall pay each dissenting Victory
Bancshares shareholder whose demand remains unsettled the respective amount
demanded by each Victory Bancshares shareholder.
Payment and Costs
The Court will assess the costs and expenses of such proceeding
(including reasonable compensation for and the expenses of the appraiser by
excluding fees and expenses of counsel and experts) against Victory Bancshares,
except that the Court may assess such costs and expenses as it deems appropriate
against any or all of the dissenting Victory Bancshares shareholders if it finds
that their demand for additional payment was arbitrary, vexatious or otherwise
not in good faith. The Court may assess fees and expenses of counsel and experts
in amounts the Court finds equitable: (i) against Victory Bancshares if the
Court finds that Victory Bancshares did not substantially comply with the
relevant requirements of the Tennessee BCA or (ii) against either Victory
Bancshares or any dissenting Victory Bancshares shareholder, if the Court finds
that the part against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith. If the Court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters and
that the fees of such counsel should be assessed against Victory Bancshares, the
Court may award reasonable fees to such counsel to be paid out of amounts
awarded to benefitted dissenters.
The foregoing is a summary of all applicable provisions of the
Tennessee BCA which shareholders must comply with to exercise their dissenters'
rights. This summary is not intended to be a complete statement of such
provisions, and is qualified in its entirety by reference to such sections,
which are included as Exhibit C hereof.
Notices
Prior to the Effective Date, dissenting shareholders of Victory
Bancshares should send any communications regarding their rights to Jane Ellen
Jones, Executive Secretary, Victory Bancshares, 5350 Poplar Avenue, Memphis,
Tennessee, 38119. On or after the Effective Date, dissenting Victory Bancshares
shareholders should send any communications regarding their rights to J.
Clifford Harrison, Secretary, Deposit Guaranty Corp., 210 East Capitol Street,
Jackson, Mississippi 39201. All such communications should be signed by or on
behalf of the dissenting Victory Bancshares shareholder in the form in which his
or her shares are registered on the books of Victory Bancshares. Deposit
Guaranty and DGNB have the right to terminate the Merger Agreement if the number
of shares of Victory Bancshares Common Stock as to which holders thereof are
legally entitled to assert Dissenters' Rights exceeds ten percent (10%) of the
outstanding shares of Victory Bancshares Common Stock. See "The Merger --
Amendment; Waiver; Termination."
ANY VICTORY BANCSHARES SHAREHOLDER WHO DESIRES TO EXERCISE DISSENTERS' RIGHTS
SHOULD CAREFULLY REVIEW THE TENNESSEE BCA AND IS URGED TO CONSULT SUCH
SHAREHOLDER'S LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH
RIGHTS.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Victory Bancshares is incorporated in the State of Tennessee and
Deposit Guaranty is incorporated in the State of Mississippi. If the Merger is
consummated, holders of Victory Bancshares Common Stock, whose rights as
shareholders are currently governed by Tennessee law and by the Victory
Bancshares Charter and Bylaws, will, upon consummation of the Merger, become
shareholders of Deposit 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 holders of
Victory Bancshares Common Stock and holders of Deposit Guaranty Common Stock 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 Tennessee BCA and the Mississippi BCA and by the Charter and
Bylaws of Victory Bancshares and the Articles and Bylaws of Deposit Guaranty,
respectively, to which holders of Victory Bancshares Common Stock are referred.
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Cumulative Voting Rights
Victory Bancshares. Pursuant to the Tennessee BCA shareholders do not
have a right to cumulate their votes for directors unless the articles of
incorporation so provide. Shareholders of Victory Bancshares do not have the
right to so cumulate their votes.
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 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.
Limitations on Directors' and Officers' Liability
Victory Bancshares. Victory Bancshares' Charter and Bylaws contain
provisions limiting the personal liability of Victory Bancshares' directors and
officers for monetary damages resulting from breach of fiduciary duty to the
maximum extent authorized by the Tennessee BCA.
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.
Supermajority Voting Requirements; Business Combinations
Victory Bancshares. The Tennessee BCA provides that the approval of the
Victory Bancshares Board and the holders of a majority of the outstanding shares
of Victory Bancshares entitled to vote thereon would generally be required to
approve a merger or to sell, lease or exchange or otherwise dispose of
substantially all of Victory Bancshares' assets.
Tennessee's Business Combination Act provides that a party owning 10%
or more of stock in a "resident domestic corporation" (such party is called an
"interested shareholder") cannot engage in a business combination with the
resident domestic corporation unless the combination (i) takes place at least
five years after the interested shareholder first acquired 10% or more of the
resident domestic corporation, and (ii) either (a) is approved by at least
two-thirds of the non-interested voting shares of the resident domestic
corporation or (b) satisfies certain fairness conditions as specified in the
Business Combination Act.
These provisions of the Business Combination Act apply unless one of
two events occurs. A business combination with an entity can proceed without
delay when approved by the target corporation's board of directors before that
entity becomes an interested shareholder, or the resident corporation may enact
an amendment to the articles of incorporation or bylaws to remove itself
entirely from the Business Combination Act. This amendment to the articles of
incorporation or bylaws must be approved by a majority of the shareholders who
have held shares for more than one (1) year prior to the vote. It may not take
effect for at least two (2) years after the vote. Victory Bancshares has not
adopted an amendment to the Victory Bancshares Charter or Bylaws removing
Victory Bancshares from coverage under the Business Combination Act.
The Business Combination Act provides an exemption from liability for
officers and directors of the resident domestic corporation who do not approve
proposed business combinations or amendments to the articles of incorporation or
bylaws removing their corporations from the Business Combination Act's coverage
so long as the officers and directors act in "good faith belief" that the
proposed business combination would adversely affect their corporation's
employees, customers, suppliers, or the communities in which their corporation
operates and such factors are permitted to be considered by the board of
directors under the articles of incorporation.
Deposit Guaranty. The Mississippi BCA states that in the absence of a
greater requirement in the articles of incorporation, a sale, lease, exchange,
or other disposition of all, or substantially all, a corporation's property
requires approval by a majority of the shares entitled to vote on the
transaction. The Deposit Guaranty Articles do not provide for a greater than
majority vote on such a transaction.
The Deposit Guaranty 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
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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 10% or more of the voting
stock of Deposit Guaranty, or (b) is an affiliate or associate of Deposit
Guaranty who has, within the past two years, been the beneficial owner of 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 5% of the book value of the total assets (in the case of transactions
involving assets or commitments other than capital stock) or 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 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, or increasing an
Interested Shareholder's proportionate share of the outstanding capital stock of
Deposit Guaranty or a subsidiary.
A "Continuing Director" means: (a) any member of the Deposit Guaranty
Board of Directors who is not affiliated with an Interested Shareholder and who
either (i) was a Deposit Guaranty director prior to the time the Interested
Shareholder became an Interested Shareholder, or (ii) was a Deposit Guaranty
director on April 30, 1986 and has been a Deposit Guaranty director continuously
since; and (b) 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
Victory Bancshares. Victory Bancshares' Bylaws provide that any
director may be removed without cause by a majority vote of the shareholders of
Victory Bancshares. A director may be removed for cause by a majority of the
entire Victory Bancshares Board.
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 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.
Board of Directors
Victory Bancshares. All members of the Victory Bancshares Board are
elected annually.
Deposit Guaranty. The Board of Directors of Deposit Guaranty is divided
into three (3) classes - Class A, Class B, and Class C. Class A and Class C each
consists of four (4) directors. Class B consists of three (3) directors. The
term of the Class A directors will expire at the 1999 Annual Meeting, the term
of the Class B directors will expire at the 1997 Annual Meeting, and the term of
the Class C directors will expire at the 1998 Annual Meeting.
Vacancies in the Board of Directors
Victory Bancshares. Under Victory Bancshares' Bylaws, any vacancy may
be filled by a vote of a majority of the remaining members of the Victory
Bancshares Board.
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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
Victory Bancshares. Under the Tennessee BCA, most amendments of the
Victory Bancshares Charter require the vote of the holders of a majority of the
outstanding shares of Victory Bancshares Common Stock. The Victory Bancshares
Bylaws may be altered, amended or repealed and new bylaws may be adopted at any
meeting of the Victory Bancshares Board by a majority vote of the directors
present at the meeting or at any meeting of the Victory Bancshares shareholders
if the votes cast in favor of the amendment exceed the votes cast opposing the
amendment.
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 shares present at a
meeting where a quorum is present.
Special Meetings of Shareholders
Victory Bancshares. Victory Bancshares' Bylaws authorize a majority of
the Victory Bancshares Board or one or more shareholders who hold at least 10%
of the issued and outstanding shares of Victory Bancshares Common Stock to call
a special meeting of shareholders. Such a call shall state the purpose or
purposes of the proposed 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, or 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.
Shareholder Proposals and Nominations
Victory Bancshares. The Victory Bancshares Bylaws do not contain any
provisions regarding shareholder proposals and nominations.
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.
Authorized Capital
Victory Bancshares. The authorized capital stock of Victory
Bancshares consists of 1,500,000 shares of Victory Bancshares Common Stock,
$1.00 par value.
Deposit Guaranty. Deposit Guaranty has 100,000,000 shares of authorized
common stock having no par value, 25,000,000 Class A Voting Preferred Stock
having no par value and 25,000,000 Class B Non-Voting Preferred having no par
value. Holders of Preferred Stock shall be entitled to receive dividends subject
to statutory restrictions, when and as declared by the Board of Directors, and
at such periods as shall be fixed by the Board of Directors. The Board of
Directors has the power to establish the number of shares of each series,
29
<PAGE>
redemption rights, dividend rights, conversion rights, and other preferences of
such preferred stock. No shares of preferred stock are currently issued and
outstanding.
Indemnification
Victory Bancshares. The Tennessee BCA provides in certain situations
for mandatory and permissible indemnification of directors and officers. The
Tennessee BCA provides that statutory indemnification is not to be deemed
exclusive of any other rights to which a director seeking indemnification may be
entitled. No such indemnification may be made if a final adjudication adverse to
the director or officer establishes his liability: (i) for any breach of loyalty
to the corporation or its shareholders; (ii) for act of omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; or
(iii) for unlawful distributions. Victory Bancshares' Bylaws provide that
Victory Bancshares shall indemnify an individual made a party to a proceeding
because he is or was a director or officer of Victory Bancshares against
liability (i) in any civil proceeding if he conducted himself in good faith and
in the case of conduct in his official capacity, he reasonably believed that his
conduct was in the best interests of Victory Bancshares, or in all other cases
he reasonably believed that his conduct was at least not opposed to the best
interests of Victory Bancshares, or (ii) in any criminal proceeding if he had no
reasonable cause to believe his conduct was unlawful.
Victory Bancshares may pay expenses incurred in advance of the final
disposition of an action, if the Victory Bancshares Board approves and if the
person seeking indemnification undertakes to repay Victory Bancshares if it is
ultimately determined that he is not entitled to indemnification.
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 of Deposit
Guaranty, 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 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.
INFORMATION CONCERNING VICTORY BANCSHARES
General
Victory Bancshares, a Tennessee corporation and a registered bank
holding company under the Federal Bank Holding Company Act of 1956 (the "BHC
Act"), commenced operations in 1989. Its principal asset is the capital stock of
the Bank. At September 30, 1997, Victory Bancshares had total assets of $117.9
million and stockholders' equity of $8.6 million. The Bank, Victory Bancshares'
wholly-owned subsidiary, is a Tennessee banking corporation. The Bank provides a
variety of banking and financial services to businesses and individuals. The
Bank's headquarters and principal banking office is located at 5350 Poplar
Avenue, Memphis, Tennessee 38119. In addition, the Bank has three branch offices
located in Shelby County, Tennessee.
30
<PAGE>
Employees
As of September 30, 1997, Victory Bancshares had approximately 60
full-time employees. The employees are not represented by a collective
bargaining unit. Victory Bancshares believes its relationship with its employees
to be good.
Customers
It is the opinion of management of Victory Bancshares that there is no
single customer or affiliated group of customers whose deposits, if withdrawn,
would have a material adverse effect on the business of Victory Bancshares.
Properties
Victory Bancshares leases its main office and three branch locations as
well as an operations center. The management of Victory Bancshares believes its
facilities are adequate for its operations.
Competition
All phases of Victory Bancshares' banking activities are highly
competitive. The Bank competes actively with 15 commercial banks in its market
area, as well as finance companies, credit unions and other financial
institutions located in its service area, which includes Shelby County,
Tennessee.
Legal Proceedings
The nature of its business generates a certain amount of litigation
against Victory Bancshares and the Bank involving matters arising in the
ordinary course of business. None of the legal proceedings currently pending or
threatened to which Victory Bancshares or the Bank is a party or to which any of
their properties are subject will have, in the opinion of management of Victory
Bancshares, a material adverse effect on the business or financial condition of
Victory Bancshares or the Bank.
Banking
The Bank conducts its business as a commercial bank, with special
emphasis in retail banking, including the acceptance of checking and savings
deposits, and the making of commercial, real estate, personal, home improvement,
automobile and other installment and term loans. It also offers collections,
notary public services and other customary bank services to its customers.
Market Prices and Dividends
Market Prices. The Victory Bancshares Common Stock is not listed,
traded or quoted on any securities exchange or in the over-the-counter market,
and no dealer makes a market in the Victory Bancshares Common Stock, although
isolated transactions between individuals occur from time to time. To Victory
Bancshares' management's knowledge, the most recent transactions with respect to
Victory Bancshares Common Stock were at $16.00 per share.
As of the Record Date, there were 394 shareholders of Victory
Bancshares.
Cash Dividends. Victory Bancshares has never paid a cash dividend.
Victory Bancshares has agreed in the Merger Agreement that it will not pay any
dividend prior to the closing of this Merger without the consent of Deposit
Guaranty; provided that Deposit Guaranty has consented to the payment by Victory
Bancshares of two dividends in the amounts set forth in the Merger Agreement
provided that the first of such dividend shall only be paid in the event that
the Effective Date shall be after the Record Date for cash dividends on Deposit
Guaranty Common Stock for the first quarter of 1998 and the second of such
dividends shall only be paid in the event that the Effective Date shall be after
the Record Date for cash dividends on Deposit Guaranty Common Stock for the
second quarter of 1998.
31
<PAGE>
Supervision and Regulation
Victory Bancshares is a bank holding company within the meaning of the
BHC Act, and is registered with the Board of Governors of the Federal Reserve
System (the "Board"). Victory Bancshares is required to file with the Board
annual reports and such additional information as the Board may require pursuant
to the BHC Act. The Board may also make examinations of Victory Bancshares and
its subsidiaries. The following summary of the BHC Act and of the other acts
described herein is qualified in its entirety by express reference to each of
the particular acts.
The BHC Act requires every bank holding company to obtain the prior
approval of the Board before acquiring direct or indirect ownership or control
of more than 5% of the voting shares of any bank which is not majority owned by
Victory Bancshares. The BHC Act prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company which is not a bank and from
engaging in any business other than banking or furnishing services to or
performing services for its subsidiaries. The 5% limitation is not applicable to
ownership of shares in any company the activities of which the Board has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
Subject to limited exceptions, the BHC Act prohibits the direct or
indirect acquisition by a bank holding company or any of its subsidiaries of
more than 5% of the voting shares or substantially all of the assets of a bank
located outside the state in which the operations of its banking subsidiaries
are principally conducted, unless the acquisition is specifically authorized by
a statute of the state in which the bank to be acquired is located. The
Tennessee Reciprocal Banking Act was amended, effective January 1, 1991,
generally to permit nationwide reciprocal interstate banking.
The Bank is an "affiliate" of Victory Bancshares within the meaning of
the Federal Reserve Act. This act places restrictions on a bank's loans or
extensions of credit to, purchases of or investments in the securities of, and
purchases of assets from an affiliate, a bank's loans or extensions of credit to
third parties collateralized by the securities or obligations of an affiliate,
the issuance of guarantees, acceptances, and letters of credit on behalf of an
affiliate, and certain bank transactions with an affiliate, or with respect to
which an affiliate acts as agent, participates, or has a financial interest.
Furthermore, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
Under Federal Reserve Board policy, Victory Bancshares is expected to
act as a source of financial strength to its subsidiary bank and to commit
resources to support its subsidiary. This support may be required at times when,
absent such Federal Reserve Board policy, Victory Bancshares may not be inclined
to provide it. Under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC
can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (a) the default of
a commonly controlled FDIC-insured depository institution or (b) any assistance
provided by the FDIC to any commonly controlled FDIC-insured depository
institution "in danger of default." "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is defined
generally as the existence of certain conditions indicating that a default is
likely to occur in the absence of regulatory assistance. Under FDICIA (see
discussion below) a bank holding company may be required to guarantee the
capital plan of an undercapitalized depository institution. Any capital loans by
a bank holding company to any of its subsidiary banks are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
The Bank is a member of the FDIC and is subject to examination and
regulation by that authority. The Bank is chartered under the banking laws of
the State of Tennessee and is subject to the supervision of, and regular
examination by, the Tennessee Department of Financial Institutions.
The Tennessee Reciprocal Banking Act requires the filing of an
application with and the approval of the Tennessee Commissioner of Financial
Institutions to acquire a Tennessee bank or bank holding company.
Tennessee law was amended in 1990 to permit branch banking in any
county in the state. Prior to the amendment, statewide branching was possible
pursuant to a May 1988 federal court decision.
In December 1991, a major banking bill entitled the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted, which
substantially revises the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and makes
32
<PAGE>
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of depository institutions that do not meet minimum capital
requirements. The Bank has capital levels well above the minimum requirements.
In addition, an institution that is not well capitalized is generally prohibited
from accepting brokered deposits and offering interest rates on deposits higher
than the prevailing rate in its market and also may not be able to "pass
through" insurance coverage for certain employee benefit accounts. FDICIA also
requires the holding company of any undercapitalized depository institution to
guarantee, in part, certain aspects of such depository institution's capital
plan for such plan to be acceptable. FDICIA contains numerous other provisions,
including new accounting, audit and reporting requirements, termination of the
"too big to fail" doctrine except in special cases, limitations on the FDIC's
payment of deposits at foreign branches, new regulatory standards in such areas
as asset quality, earnings and compensation and revised regulatory standards
for, among other things, powers of state banks, real estate lending and capital
adequacy. FDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches.
Effect of Governmental Policies
Victory Bancshares and the Bank are affected by the policies of
regulatory authorities, including the Federal Reserve System. An important
function of the Federal Reserve System is to regulate the national money supply.
Among the instruments of monetary policy used by the Federal Reserve are:
purchases and sales of U.S. Government securities in the marketplace; changes in
the discount rate, which is the rate any depository institution must pay to
borrow from the Federal Reserve; and changes in the reserve requirements of
depository institutions. These instruments are effective in influencing economic
and monetary growth, interest rate levels and inflation.
The monetary policies of the Federal Reserve System and other
governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of changing conditions in the national economy and in the money
market, as well as the result of actions by monetary and fiscal authorities, it
is not possible to predict with certainty future changes in interest rates,
deposit levels, loan demand or the business and earnings of Victory Bancshares
or whether the changing economic conditions will have a positive or negative
effect on operations and earnings.
Bills are pending before the United States Congress and the Tennessee
General Assembly which could affect the business of Victory Bancshares and the
Bank, and there are indications that other similar bills may be introduced in
the future. It cannot be predicted whether or in what form any of these
proposals will be adopted or the extent to which the business of Victory
Bancshares and the Bank may be affected thereby.
33
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION OF VICTORY BANCSHARES
Investment Securities
The following table sets forth the carrying amounts of held-to-maturity
securities at the dates indicated (In thousands):
<TABLE>
September 30, December 31,
- ---------------------------------------------------------------- ------- ---------------- -------- ---------------------------------
1997 1996 1995
- ---------------------------------------------------------------- ------- ---------------- -------- ---------------- ------- --------
<S> <C> <C> <C>
U.S. Treasury securities and obligations of other U.S. government
agencies and corporations $ 4,740 $ 8,941 $ 12,885
Obligations of state and political subdivisions 880 975 1,575
Mortgage-backed securities and collateralized mortgage obligations 1,656 480 1,905
- ---------------------------------------------------------------- --- --- ---------------- -------- -------- --- --- ----------------
Total $ 7,276 $ 10,396 $ 16,365
================================================================ === === ================ ======== ======== === === ================
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the carrying amounts for available for sale
securities at the dates indicated (In thousands):
September 30, December 31,
- ---------------------------------------------------------------- ------- ---------------- -------- -------------------------------
1997 1996 1995
- ---------------------------------------------------------------- ------- ---------------- -------- ---------------- --------------
<S> <C> <C> <C>
U.S. Treasury securities and obligations of other U.S. government
agencies and corporations $ 7,809 $ 3,999 $ -
Mortgage-backed securities and collateralized mortgage obligations 229 - -
Other - 707 -
- ---------------------------------------------------------------- --- --- ---------------- -------- -------- --- --- ------
Total $ 8,038 $ 4,706 $ -
================================================================ === === ================ ======== ======== === === ======
</TABLE>
Risk Elements
The following table summarizes nonperforming assets at December 31, 1996
and 1995 (In thousands):
December 31,
- ---------------------------------------- -----------------------------
1996 1995
- ---------------------------------------- --- ---------- --- ----------
Nonaccrual loans $ 179 $ 175
Accruing loans past 90 days or more 1 -
Restructured loans not included above - -
Other real estate 55 55
Deposits
<TABLE>
<CAPTION>
The average deposits are summarized for the period indicated in the
following tables (Dollars in thousands):
December 31,
- -------------------------------------- --- ------------------------------------------------------------
1996 1995
- -------------------------------------- --- ---------------------------- --- ---------------------------
Amount Rate Amount Rate
- -------------------------------------- --- ----------- --- ------------ --- -------------- ------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 10,731 - % $ 7,703 - %
Interest-bearing demand deposits 4,195 2.05 2,813 2.42
Money market deposits 13,314 4.54 9,362 4.03
Savings deposits 1,732 2.48 1,323 2.50
Time deposits 54,299 6.01 41,960 6.04
- -------------------------------------- --- ----------- --- ------- ---- --- -------------- ----- ------
Total $ 84,271 4.75 % $ 63,161 4.77 %
====================================== === =========== === ======= ==== === ============== ===== ======
</TABLE>
Maturities of time deposits of $100,000 or more outstanding as of December
31, 1996 are summarized as follows (In thousands):
3 months or less $ 5,455
Over 3 through 12 months 8,417
Over 12 months 3,024
- --------------------------------- ----------------
Total $ 16,896
================================= ================
34
<PAGE>
Earning Asset/Interest-Bearing Liabilities Yields and Rates
The following table shows the average balances and yields for
interest-earning assets and interest-bearing liabilities for 1996 and 1995 on a
tax-equivalent basis (Dollars in thousands):
<TABLE>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------- -- -------------------------------------------- -- ------------------------------------
Average Interest Average Average Interest Average
Balance Income/ Yield/ Rate Balance Income/ Yield/ Rate
Expense Expense
- --------------------------------------- -- ------------- ----------------------- -- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real Estate loans $ 50,767 $ 4,997 9.84 % $ 36,243 $ 3,624 10.00 %
Installment loans 2,204 192 8.71 1,268 125 9.86
Commercial and industrial loans 17,328 1,682 9.71 10,807 1,162 10.75
U.S. Treasury and government agency
securities 18,396 1,161 6.31 16,241 1,047 6.45
Municipal securities 1,071 71 6.63 1,690 118 6.98
Other securities 1,656 123 7.43 184 13 7.07
Federal funds sold and securities
purchased under agreements to resell 2,100 110 5.24 1,872 114 6.09
Interest-bearing deposits with other
financial institutions 1,061 34 3.20 523 26 4.97
- --------------------------------------- -- --- --------- -- ---------------- --- -- --- --------- ------------------------- ---
Total earning assets $ 94,583 $ 8,370 8.85 % $ 68,828 $ 6,229 9.05 %
- --------------------------------------- -- --- --------- -- ---------------- --- -- --- --------- ------------------------- ---
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 4,195 $ 86 2.05 % $ 2,813 $ 68 2.42 %
Money market deposits 13,314 605 4.54 9,362 377 4.03
Savings deposits 1,732 43 2.48 1,323 33 2.50
Time deposits 54,299 3,266 6.01 41,960 2,535 6.04
Federal funds purchased and securities
sold under agreements to repurchase 1,151 59 5.13 523 26 4.97
Other borrowed funds 5,039 306 6.07 1,180 68 5.76
- --------------------------------------- -- --- --------- -- ---------------- --- -- --- --------- ------------------------- ---
Total interest-bearing liabilities $ 79,730 $ 4,365 5.47 % $ 57,161 $ 3,107 5.44 %
- --------------------------------------- -- --- --------- -- ---------------- --- -- --- --------- ------------------------- ---
Net interest income, tax equivalent $ 4,005 $ 3,122
======================================= == === ========= == ================ === == === ========= ========================= ===
Net interest margin, tax equivalent 4.23 % 4.54 %
======================================= == === ========= == ================ === == === ========= ========================= ===
Net interest spread 3.38 % 3.61 %
======================================= == === ========= == ======================= === == === ========= ======================
</TABLE>
Volume/Rate Analysis
The following table shows the changes in components of net interest caused
by changes in average earning asset liability volumes and changes in rates for
1996 and 1995 (In thousands):
<TABLE>
1996 Compared to 1995 1995 Compared to 1994
- --------------------------------------- -- ----------------------------------------- -------------------------------------------
Volume Rate Net Volume Rate Net
- --------------------------------------- -- ------------- --------------------------- ------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real Estate loans $ 1,452 $ (79) $ 1,373 $ 607 $ 354 $ 961
Installment loans 92 (25) 67 40 1 41
Commercial and industrial loans 701 (181) 520 347 94 441
U.S. Treasury and government agency
securities 139 (25) 114 413 93 506
Municipal securities (43) (4) (47) (58) 5 (53)
Other securities 104 6 110 1 5 6
Federal funds sold and securities
purchased under agreements to resell 14 (18) (4) 25 34 59
</TABLE>
35
<PAGE>
<TABLE>
1996 Compared to 1995 1995 Compared to 1994
- --------------------------------------- -- ----------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
- --------------------------------------- -- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with other
financial institutions 27 (19) 8 26 - 26
- --------------------------------------- -- --- --------- --- ------------- ------------ --------------------------- ---------
Total earning assets $ 2,486 $ (345) $ 2,141 $ 1,401 $ 586 $ 1,987
- --------------------------------------- -- --- --------- --- ------------- ------------ --------------------------- ---------
Interest-bearing liabilities:
Interest-bearing transaction accounts $ (33) $ 15 $ (18) $ (4) $ 1 $ (3)
Money market deposits (159) (69) (228) 7 (93) (86)
Savings deposits (10) - (10) (2) - (2)
Time deposits (745) 14 (731) (716) (702) (1,418)
Federal funds purchased and securities
sold under agreements to repurchase (31) (2) (33) 2 (2) -
Other borrowed funds (222) (16) (238) (32) (12) (44)
- --------------------------------------- -- --- --------- --- ------------- ------------ --------------------------- ---------
Total interest-bearing liabilities $ (1,200) $ (58) $ (1,258) $ (745) $ (808) $ (1,553)
- --------------------------------------- -- --- --------- --- ------------- ------------ --------------------------- ---------
Change in net income, tax equivalent $ 1,286 $ (403) $ 883 $ 656 $ (222) $ 434
======================================= == === ========= === ============= ============ =========================== =========
</TABLE>
The increase (decrease) due to changes in average balances reflected above
was calculated by applying the preceding year's rate to the current year's
change in the average balance. The increase (decrease) due to changes in average
rates was calculated by applying the current year's change in the average rates
to the current year's average balance. Using this method of calculating
increases (decreases), an increase or decrease due to both changes in average
balances and rates is reflected in the changes attributable to average rate
changes.
Return on Equity and Assets
Years Ended December 31,
- --------------------------------------- ------------------------------------
1996 1995
- --------------------------------------- --- ----------- ---------------- ---
Return on average assets 0.58 % 0.94 %
Return on average equity 7.72 10.04
Average equity to average assets 7.51 9.39
Loan Portfolio
The following table sets forth the Bank's loan distribution at September
30, 1997 and at the end of each of the last two years (In thousands):
<TABLE>
September 30, December 31,
- -------------------------------------------- ---------------- -------- -----------------------------------------
1997 1996 1995
- -------------------------------------------- ---------------- -------- ---------------- ------- ----------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 25,568 $ 17,963 $ 14,176
Real estate - mortgage 39,059 37,492 25,781
Real estate - construction 24,526 24,314 16,253
Installment 7,766 7,174 3,642
- -------------------------------------------- ---------------- -------- ---------------- --- --- ----------------
Total $ 96,919 $ 86,943 $ 59,852
============================================ ================ ======== ================ === === ================
</TABLE>
The following table shows the maturity or repricing frequency of loans
outstanding as of December 31, 1996 (In thousands):
Maturity of fixed rate loans:
Within one year $ 5,093
After one but within five years 31,528
After five years 3,928
- ---------------------------------------------------------- ----------------
Total fixed rate loans 40,549
Variable rate loans repricing at least quarterly 46,215
Nonaccrual loans 179
- ---------------------------------------------------------- ----------------
Total loans $ 86,943
========================================================== ================
36
<PAGE>
Summary of Loan Loss Experience
The following table summarizes the Bank's loan loss experience for each of
the two years ended (In thousands):
<TABLE>
December 31,
- --------------------------------------------------------------- ----------------------
1996 1995
- --------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Balance at beginning of period $ 740 $ 677
Charge-offs:
Commercial, financial and agricultural - 15
Installment 28 -
- --------------------------------------------------------------- -------- ---- ------
Total charge-offs 28 15
Recoveries:
Commercial, financial and agricultural - -
Installment 3 -
- --------------------------------------------------------------- -------- ---- ------
Total recoveries 3 -
- --------------------------------------------------------------- -------- ---- ------
Net charge-offs 25 15
Provision charged to operations 355 78
- --------------------------------------------------------------- -------- ---- ------
Balance at end of period $ 1,070 $ 740
=============================================================== ======== ==== ======
Ratio of net charge-offs to average loans outstanding .04% .03%
=============================================================== ======== ==== ======
</TABLE>
37
<PAGE>
VICTORY BANCSHARES' MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Victory Bancshares should be read in conjunction with
the consolidated financial statements, accompanying footnotes and other
supplemental financial information appearing elsewhere in this Proxy
Statement/Prospectus.
1996 Compared with 1995
Balance Sheet
Total assets increased $30.0 million or 36% from December 31, 1995 to
December 31, 1996. The asset growth from 1995 to 1996 has been consistent with a
5-year trend. Most of the asset growth in the past year has been in the loan
portfolio with only a small percentage of growth occurring in non-earning
assets. Real estate loans make up the largest portion of the loan portfolio at
28% of total loans and have been the fastest growing segment of the portfolio in
terms of volume. Installment loans have experienced the largest growth rate in
terms of percentage change from December 31, 1996 to 1995. The securities
portfolio, the second largest of Victory Bancshares' asset categories,
experienced a $1.26 million decline from December 31, 1995 to 1996 due to the
increase in loan volumes. The securities portfolio is heavily weighted toward U.
S. Treasury notes and U. S. Government agency securities. At December 31, 1996,
such securities comprised 86% of the combined securities portfolio.
Victory Bancshares relies heavily on deposits to fund its continuing
demand for loans. From December 31, 1995 to December 31, 1996, deposit volumes
increased $30.0 million, or 44%. The largest volume increase in deposits from
1995 to 1996 occurred in time deposits; however on a percentage basis,
interest-bearing demand deposits increased most dramatically due to the
promotion of a new higher-rate product offered to customers with larger account
balances. Victory Bancshares has actively pursued the development of its demand
deposit base in order to reduce its dependence on time deposits to fund loan
demand.
Net Income
Victory Bancshares' net income for the year ended December 31, 1996
declined slightly from the $675 thousand earned in 1995 to $572 thousand. An
increase in the provision for loan losses and personnel costs contributed most
significantly to the decline in net earnings. The provision for loan losses
increased $277 thousand or 457% due to the significant increase in loan volume.
Credit quality remains stable with nonperforming loans at the same level from
year to year. The increase in personnel costs is directly related to Victory
Bancshares' growth rate. The number of full-time equivalent employees increased
from 37 at December 31, 1995 to 52 at December 31, 1996.
Net Interest Income
Net interest income, the largest component of revenue, increased $900
thousand to $3.98 million. The 29% increase is directly related to the increase
in the volume of interest-earning assets and deposit funding sources. The net
interest margin of 4.23% for the year ended December 31, 1996 shows a slight
decline from the 4.54% reported for 1995 as the result of the combined effect of
a declining rate environment and aggressive deposit gathering efforts to fund
loan demand.
Provision for Possible Loan Losses
The provision for loan losses recorded for the year ended December 31,
1996 of $355 thousand is $277 thousand greater than the provision recorded in
1995. During this period, loan quality indicators remained stable with the ratio
of net charge offs to average loans at .04% for 1996 compared to .03% for 1995.
The balance of nonperforming loans has remained substantially level from year to
year at $180 thousand at December 31, 1996 compared to $175 thousand at December
31, 1995. The increase in the provision for loan
38
<PAGE>
losses from 1995 to 1996 is primarily related to the increase in loan volume. As
a result of the provision recorded in 1996, the allowance for loan losses is
maintained at a level equal to 1.25% of the loan balance at December 31, 1996
and 1995.
Noninterest Income
Noninterest income for 1996 increased $251 thousand from the $249
thousand reported for 1995. In addition to an increase in deposit service
charges relating to the increase in demand deposit volume, Victory Bancshares
recorded a $213 thousand gain from the sale of mortgage loans during 1996.
Partially offsetting the effects of the increase in deposit service charge fees
and the gain from the sale of mortgage loans is the effect of securities sales
during the two-year period. In 1995, Victory Bancshares recorded $12 thousand in
gains from securities sales compared to $18 thousand in losses in 1996.
Noninterest Expense
Victory Bancshares' noninterest expense increased $971 thousand or 44%
from 1995 to 1996. Approximately two-thirds of the increase occurred in
personnel and related costs. From December 31, 1995 to December 31, 1996, the
number of full-time equivalent employees increased from 37 to 52, which caused
most of the increase in noninterest expense. Other increases occurred in all
expense categories and were directly related to growth in business volume.
Comparison of Nine Months Ended September 30, 1997 and 1996
Balance Sheet
Total assets increased $5.3 million from December 31, 1996 to $117.9
million at September 30, 1997. Over the same period, the loan portfolio
increased $10.1 million, most of which occurred during the third quarter. The
increase in loan demand tightened Victory's liquidity position by moving the
Company from a federal funds sold position of $1.8 million at December 31, 1996,
to a federal funds purchased position of $2.0 million at September 30, 1997. The
balance of cash and due from banks also decreased $3.9 million over the same
period due to the increase in loan volumes. Deposit growth of $1.8 million from
December 31, 1996 to September 30, 1997 funded only a small portion of the
increase in loans. As a result of the significant loan growth, the period end
loan to deposit ratio increased from 88.03% at December 31, 1996 to 96.44% at
September 30, 1997.
Net Income
Net income for the nine months ended September 30, 1997, of $734
thousand represents a substantial increase from the $374 thousand reported for
the same period in 1996. Most of the increase occurred in net interest income
which was $813 thousand or 27% greater for the nine months ended September 30,
1997, than for the same period of 1996. Average earning assets increased 17% and
the net interest margin increased 40 basis points over the same period.
Net Interest Income
Victory Bancshares' net interest income for the nine month period ended
September 30 ,1997, of $3.8 million is 27% greater than the amount reported for
the same period of 1996. A large portion of the increase is due to a 17%
increase in average interest-earning asset volumes. Improvement in the net
interest margin of 40 basis points also contributed to the increase. The
improvement in the net interest margin is due to the combined effect of
improvement in the earning asset mix and lower rates paid on deposits.
Provision for Possible Loan Losses
The provision for loan losses decreased from the $220 thousand charged
to the nine months ended September 30, 1996, to $138 thousand for the same
period in 1997. The reduction in the provision for loan losses is directly
related to a decline in the rate of loan growth. The allowance for loan losses
is maintained at a relatively consistent level as a percentage of outstanding
loans at 1.21% and 1.24% at September 30, 1997, and 1996, respectively. Credit
quality remains substantially unchanged over the same period.
39
<PAGE>
Noninterest Income
Noninterest income increased 56% to $518 thousand for the nine months
ended September 30, 1997, as compared to the same period in 1996. Service
charges on deposit accounts increased 36% and account for one-third of the
increase. Most of the increase occurred in the other income category due to,
among other things, a $52 thousand gain from the sale of other real estate and
an increase of $50 thousand in service release premiums from the mortgage
business.
Noninterest Expense
Noninterest expense increased $492 thousand, or 20%, for the nine
months ended September 30, 1997, as compared to the same period in 1996. An
increase in salaries and employee benefits accounts for 76% of the increase and
is a direct result of an increase in the number of personnel required to support
Victory's continued growth. At September 30, 1996, Victory Bancshares had 47
full-time equivalent employees which increased 28% to 60 at September 30, 1997.
The remaining expense increase occurred at a rate of 11%.
Effects of Inflation and Changing Prices
Inflation generally increases the cost of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. At the beginning of 1996, the Federal
Reserve Board decreased interest rates 75 basis points in an effort to enhance
growth in the economy through monetary policy. The prime rate remained unchanged
through 1996, increased 25 basis points in the first quarter of 1997, and has
remained unchanged since the first quarter. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase and can reduce earnings from such activities.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information as of December 31,
1997 concerning the beneficial ownership (as defined by certain rules of the
Commission) of Victory Bancshares Common Stock by (a) directors and executive
officers and (b) officers and directors of Victory Bancshares as a group. Except
as set forth below, no other shareholders beneficially own greater than 5% of
the outstanding Victory Bancshares Common Stock.
<TABLE>
Amount and Number of
Nature of Shares of ty
Beneficial Deposit Guaranty
Name of Beneficial Owner (a) Ownership1 Percent of Class2 to be Received3
- ---------------------------- ---------- ----------------- ---------------
<S> <C> <C> <C>
Frank J. Cianciola 22,420 4 2.72% 15,274
President,
Chief Executive Officer
Harold E. Crye 23,794 2.91% 23,794
Edward C. Duke 48,312 5 5.91% 48,312
Vice Chairman
40
<PAGE>
Thomas W. Hart 3,113 * 3,113
Jack C. Johnson
Secretary 25,898 3.17% 25,898
Charles D. Kilpatrick 22,006 2.69% 22,006
David F. Leake 52,638 6.44% 52,638
Chairman of the Board
Richard H. Leike 22,005 2.69% 22,005
Ken C. McNeil 2,968 * 2,968
Executive Vice President
Marlin L. Mosby, Jr. 22,693 2.78% 22,693
David C. Peck 22,006 2.69% 22,006
Bruce C. Taylor 23,718 2.90% 23,718
Assistant Secretary
F. O. ("Buddy") Wittichen 22,001 6 2.69% 22,001
Officers and Directors as a Group 313,572 4 38.03%
(13 persons) (b)
- ---------------------------------------------------
<FN>
* Less than 1%.
1 Includes shares as to which such person, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares voting power and/or
investment power. Of the shares shown, none represent shares
which may be acquired within sixty (60) days through the
exercise of an option. Unless otherwise indicated, a shareholder
possesses sole voting and investment power with respect to all
of the shares shown opposite his name.
2 Based upon 817,419 shares outstanding.
3 Based on an assumed Exchange Ratio of .9043.
4 Includes 7,146 shares that Mr. Cianciola has the right to
acquire through the exercise of options.
5 Includes 31,974 shares owned by Mr. Duke's wife and children,
for which Mr. Duke disclaims voting and investment power.
6 Includes 10,475 shares owned by Mr. Wittichen's wife and
children, for which Mr. Wittichen disclaims voting and
investment power.
</FN>
</TABLE>
41
<PAGE>
LEGAL OPINION
Watkins Ludlam Winter & Stennis, P.A., of Jackson, Mississippi has
rendered its opinion that the shares of Deposit Guaranty Common Stock to be
issued in connection with the Merger have been duly authorized and, if and when
issued pursuant to the terms of the Merger Agreement, will be validly issued,
fully paid and non-assessable.
EXPERTS
The consolidated financial statements of Deposit Guaranty as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, 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 and
equity securities.
With respect to the unaudited interim financial information for the
periods ended March 31, 1997 and 1996, June 30, 1997 and 1996, and September 30,
1997 and 1996, incorporated by reference herein, KPMG Peat Marwick LLP has
reported that they applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
included in the Deposit Guaranty's quarterly reports on Form 10-Q for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
incorporated by reference herein, state that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of section 11 of the Securities Act
of 1933 for their reports on the unaudited interim financial information because
those reports are not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of sections 7 and 11
of the Act.
The consolidated financial statements of Victory Bancshares as of
December 31, 1996 and 1995, and for each of the years in the two-year period
ended December 31, 1996, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, also included herein, and upon the authority of
said firm as experts in accounting and auditing.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Victory
Bancshares Board 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 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, except that, with respect to shares voting against approval of the
Merger Agreement, this discretionary authority will not be used to vote for
adjournment of the meeting in order to permit further solicitation of proxies.
42
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
VICTORY BANCSHARES
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets at September 30, 1997 (unaudited) and December 31,
1996 and 1995 (audited) F-3
Consolidated Statements of Income for the Nine Month Periods Ended September 30, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996 and 1995 (audited) F-4
Consolidated Statements of Stockholders' Equity for the Nine Month Period
Ended September 30, 1997 (unaudited) and the Years Ended December 31,
1996 and 1995 (audited) F-5
Consolidated Statements of Cash Flows for the Nine Month Periods Ended
September 30, 1997 and 1996 (unaudited) and the Years Ended December 31,
1996 and 1995 (audited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Victory Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Victory
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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 of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Victory Bancshares,
Inc. and subsidiary at December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
March 31, 1997
Memphis, Tennessee
<PAGE>
<TABLE>
<CAPTION>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
Assets 1997 1996 1995
------ ---- ---- ----
<S> <C> <C> <C>
Cash and due from banks $ 2,275,487 6,171,860 2,919,265
Held-to-maturity securities (fair value of $7,315,363 in 1997,
$10,462,988 in 1996 and $16,497,696 in 1995) (note 2) 7,276,298 10,395,631 16,364,707
Available-for-sale securities (amortized cost of
$8,017,980 in 1997 and $4,698,482 in 1996) (note 3) 8,037,522 4,705,963 -
Federal funds sold - 1,845,000 2,000,000
Stock in Federal Home Loan Bank 1,043,800 989,900 236,800
Loans receivable, net (notes 4, 6 and 10) 93,483,167 84,609,898 58,460,776
Mortgage loans - held for sale 2,363,255 1,248,168 545,150
Premises and equipment, net (note 5) 1,833,733 1,057,608 698,752
Deferred taxes (note 8) 436,256 437,157 275,000
Other assets 1,139,176 1,122,259 1,165,243
-------------- ------------ -----------
$117,888,694 112,583,444 82,665,693
============ =========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand:
Non-interest bearing $ 14,895,626 14,894,731 10,196,428
Interest-bearing 26,313,742 28,868,142 18,830,165
Other time (note 7) 58,174,206 53,768,908 38,745,011
------------ ------------ ----------
Total deposits 99,383,574 97,531,781 67,771,604
Securities sold under agreement to repurchase 1,629,452 588,401 161,940
Federal funds purchased 1,975,000 - 4,500,000
Federal Home Loan Bank advances (note 6) 5,027,994 5,415,200 2,289,192
Other liabilities 1,271,208 1,360,162 798,446
------------ ------------ -----------
Total liabilities 109,287,228 104,895,544 75,521,182
----------- ----------- ----------
Stockholders' equity (note 12):
Common stock, $1.00 par value. Authorized 1,500,000
shares; issued 824,446, 786,283 and 735,912 shares
in 1997, 1996 and 1995, respectively 824,446 786,283 735,912
Paid-in capital 6,863,282 6,274,000 5,645,088
Retained income 984,335 824,525 877,057
Unrealized gain on available-for-sale securities, net of tax 6,108 4,638 -
Treasury stock, at cost; 7,020, 18,445 and 12,213 shares
in 1997, 1996 and 1995, respectively (76,705) (201,546) (113,546)
------------- -------------- ------------
Total stockholders' equity 8,601,466 7,687,900 7,144,511
-------------- --------------- -------------
Commitments (notes 5 and 11)
$117,888,694 112,583,444 82,665,693
============ ============= ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Nine Months Ended Years Ended
September 30, December 31,
------------------------------ ------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,462,430 5,033,106 6,870,678 4,910,576
Federal funds sold 59,121 88,359 144,327 139,982
Investments - held-to-maturity:
Taxable 409,239 676,576 920,501 1,054,076
Exempt from federal taxes 28,196 34,135 43,968 78,630
Investments - available-for-sale 371,010 334,653 362,869 -
-------- -------- --------- ------------
Total interest income 7,329,996 6,166,829 8,342,343 6,183,264
--------- --------- --------- ---------
Interest expense:
Deposits (note 7) 3,211,710 2,920,559 3,999,258 3,013,110
Other borrowed funds 322,473 263,871 366,936 93,658
--------- --------- --------- ----------
Total interest expense 3,534,183 3,184,430 4,366,194 3,106,768
--------- --------- --------- ---------
Net interest income 3,795,813 2,982,399 3,976,149 3,076,496
Provision for possible losses (note 4) 137,807 220,127 354,742 77,634
----------- ---------- --------- ----------
Net interest income after
provision for possible
losses 3,658,006 2,762,272 3,621,407 2,998,862
--------- --------- --------- ---------
Non-interest income:
Service charges on deposit accounts 234,452 171,908 243,432 200,365
Gain (loss) on sale of investments
(notes 2 and 3) (1,622) (16,805) (17,727) 12,148
Other 285,210 176,447 274,323 36,607
---------- ----------- ---------- -----------
Total non-interest income 518,040 331,550 500,028 249,120
---------- --------- ---------- ----------
Non-interest expenses:
Compensation, payroll taxes and benefits 1,736,346 1,364,344 1,639,165 1,021,499
Occupancy expense 274,781 195,575 245,398 170,003
Professional services 111,941 108,725 134,415 150,051
Office supplies, postage and telephone 165,464 155,975 222,458 138,670
Advertising 35,671 120,707 152,572 110,440
Depreciation 159,967 157,129 214,121 147,339
Other 511,550 402,104 586,275 485,261
---------- ---------- ---------- ----------
Total non-interest expenses 2,995,720 2,504,559 3,194,404 2,223,263
--------- --------- --------- ---------
Income before income taxes 1,180,326 589,263 927,031 1,024,719
Income tax expense (note 8) 445,416 211,460 354,592 349,387
---------- ------------ ---------- ----------
Net income $ 734,910 377,803 572,439 675,332
========= =========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
and Nine Months ended September 30, 1997 (unaudited)
Common stock Paid-in Retained Unrealized Treasury
Shares Amount capital income gains, net stock Total
------ ------ ------- ------ ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 672,564 $672,564 4,941,700 815,618 - (122,843) 6,307,039
Stock dividend (note 12) 47,079 47,079 564,954 (613,893) - - (1,860)
Issuance of common stock (note 12) 16,269 16,269 133,731 - - - 150,000
Reissuance of treasury stock (note 12) - - 4,703 - - 9,297 14,000
Net income - - - 675,332 - - 675,332
------------ ----------- ---------- ---------- -------- --------- ----------
Balances, December 31, 1995 735,912 735,912 5,645,088 877,057 - (113,546) 7,144,511
Stock dividend (note 12) 44,371 44,371 578,692 (624,971) - - (1,908)
Issuance of common stock (note 12) 6,000 6,000 50,220 - - - 56,220
Repurchase of treasury stock (note 12) - - - - - (88,000) (88,000)
Net income - - - 572,439 - - 572,439
Change in market valuation of
available-for-sale securities, net of tax - - - - 4,638 - 4,638
--------------------- ---------- ---------- -------- --------- ------------
Balances, December 31, 1996 786,283 786,283 6,274,000 824,525 4,638 (201,546) 7,687,900
Stock dividend 38,163 38,163 534,276 (575,100) - - (2,661)
Reissuance of treasury stock - - 55,006 - - 124,841 179,847
Net income - - - 734,910 - - 734,910
Change in market valuation of available-
for-sale securities, net of tax - - - - 1,470 - 1,470
------------ ------------------------- ---------- ------ ------------------------
Balances, September 30, 1997 824,446 $824,446 $6,863,282 $984,335 $6,108 $(76,705) $8,601,466
======== ========= ========== ========= ====== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended Years Ended
September 30, December 31,
------------------------- ---------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net cash flows from operating activities:
Net income $ 734,910 377,803 572,439 675,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (gain) on sales of investments 1,622 16,805 17,727 (12,148)
Amortization of goodwill 13,389 13,389 17,852 17,852
Depreciation of premises and equipment 159,967 157,129 214,121 147,339
Provision for possible losses 137,807 220,127 354,742 77,634
Net accretion of premiums and discounts
on securities (59,534) (61,784) (55,689) (27,002)
Deferred income tax expense (benefit) - - (165,000) 26,000
Net increase in mortgage loans held for sale (1,115,087) (1,344,984) (703,018) (545,150)
Proceeds from the sale of other real estate 107,644 - - -
Gain from the sale of other real estate (52,384) - - -
Decrease (increase) in other assets 148,299 (195,082) 25,132 (563,411)
Decrease in deferred loan fees, net (6,975) (45,373) (91,268) (8,034)
Increase (decrease) in other liabilities (88,954) 322,034 561,716 292,652
----------- ----------- ------------ ----------
Net cash provided (used) by operating
activities (19,296) (539,936) 748,754 81,064
--------- -------------- ------------ -----------
Cash flows from investing activities:
Net decrease (increase) in federal funds sold 1,845,000 1,730,000 155,000 (2,000,000)
Purchases of held-to-maturity securities (1,511,290) (5,965,000) (7,705,641) (11,474,408)
Purchases of available-for-sale securities (7,583,793) (11,751,258) (13,777,725) -
Maturities and calls of held-to-maturity securities 4,166,823 5,984,550 11,227,542 7,592,177
Maturities and calls of available-for-sale securities 3,780,770 - 1,000,000 -
Proceeds from sales of held-to-maturity securities 499,531 1,694,549 2,497,362 1,503,906
Proceeds from sales of available-for-sale securities 496,016 3,598,871 8,067,018 -
Net increase in loans (9,237,966) (16,049,022) (26,412,596) (16,952,152)
Capital expenditures (936,092) (547,470) (572,977) (213,817)
Purchases of stock in Federal Home Loan Bank (53,900) (736,000) (753,100) (71,500)
------------- -------------- ------------ ------------
Net cash used in investing activities (8,534,901) (22,040,780) (26,275,117) (21,615,794)
------------ ------------ ---------- -----------
Cash flows from financing activities:
Net increase in deposit accounts 1,851,793 24,442,800 29,760,177 16,563,989
Net (decrease) increase in federal funds purchased
and securities sold under agreement to repurchase 3,016,051 (4,455,720) (4,073,539) 3,086,940
Cash paid for fractional shares on stock dividends (2,661) (1,908) (1,908) (1,860)
Issuance of common stock - 56,220 56,220 150,000
Repurchase of treasury stock - (88,000) (88,000) -
Reissuance of treasury stock 179,847 - - 14,000
Federal Home Loan Bank advances - 6,680,000 6,680,000 2,062,000
Repayments of Federal Home Loan Bank advances (387,206) (1,427,485) (3,553,992) (231,939)
------- --------- ---------- ----------
Net cash provided by financing activities 4,657,824 25,205,907 28,778,958 21,643,130
----------- ---------- ---------- ----------
Net increase (decrease) in cash and due from banks (3,896,373) 2,625,191 3,252,595 108,400
Cash and due from banks at beginning of year 6,171,860 2,919,265 2,919,265 2,810,865
----------- ----------- ----------- -----------
Cash and due from banks at end of year $2,275,487 5,544,456 6,171,860 2,919,265
========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of
Victory Bancshares, Inc. (the Company) and its wholly-owned subsidiary,
Victory Bank and Trust Company (the Bank). The Company is a one-bank
holding company.
The consolidated financial statements of the Company are
prepared in conformity with generally accepted accounting principles
and prevailing practices within the banking industry. Management of the
Company is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the
balance sheets and income and expenses for the periods reported. Actual
results could differ significantly from these estimates. The Company is
engaged in the business of banking and bank-related activities. The
Bank is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by those regulatory
agencies. The following is a summary of the significant accounting and
reporting policies used in preparing the consolidated financial
statements.
All significant intercompany accounts and transactions have
been eliminated in consolidation.
Securities
The Company classifies investment securities as either (1)
held-to-maturity securities, (2) trading securities or (3) securities
available-for-sale. If the Company has the ability and management has
the positive intent to hold securities to maturity, they are classified
as held-to- maturity and are recorded at cost adjusted for amortization
of premiums and accretion of discounts. Securities bought and held
principally for the purpose of selling them in the near term would be
classified as trading securities and would be reported at fair value,
with unrealized gains and losses included in earnings. Securities not
classified as either held-to- maturity or trading securities are
classified as securities available-for-sale and are recorded at fair
value, with unrealized gains and losses excluded from earnings and
reported net of tax as a separate component of stockholders' equity
until realized.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Gains or losses from the sale of securities are recorded using
the specific identification method. Amortization of premiums and
accretion of discounts are amortized using the interest method.
A decline in market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
Income Recognition on Loans
Loans are reported at the principal amount outstanding, net of
unearned income and the allowance for possible losses. Management does
not accrue interest on loans when it is determined that the borrower is
unable to meet the contractual obligation or where interest or
principal is 90 days or more past due, unless the loan is adequately
secured and in process of collection. A loan may be designated as
restructured when the rate of interest has been reduced because the
borrower has experienced financial difficulties. Interest income on
such loans is recognized at the reduced interest rate.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and amortized using the interest method
over the contractual life of the loans.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the period.
Allowance for Possible Losses
Provisions for possible losses on loans receivable and real
estate owned are charged to operations when the loss becomes probable
based upon management's judgment. The provision for losses is based on
management's evaluation of the loan portfolio. Factors considered in
management's evaluation are current and anticipated future economic
conditions, previous loan loss experience, industry concentrations, and
the overall quality of the loan portfolio. While management uses
available information to recognize losses on loans and real estate
owned, future additions to the allowances may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the allowances for losses on loans and real estate
owned. Such agencies may require the Company to recognize additions to
the allowances based on their judgments about information available to
them at the time of their examination.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the initial term of the
tenant lease.
Other Assets
Real estate acquired through foreclosure is recorded at the
lower of cost or fair value less estimated selling costs. Costs of
developing or improving properties are capitalized. Operating
income or expenses are recognized when earned or incurred.
Income Taxes
The Company accounts for income taxes under the asset and
liability method of SFAS No. 109, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Excess of Cost Over Fair Value of Net Assets Acquired
Excess of cost over fair value of net assets acquired is
amortized on the straight-line method over 15 years.
Cash and Cash Equivalents
The Company considers cash equivalents to include all cash on
hand, certificates of deposit with original maturities of three months
or less and amounts due from banks.
The Company paid interest of approximately $4,024,000 and
$2,778,000 during 1996 and 1995, respectively, and taxes of
approximately $260,000 and $453,000, respectively.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Benefit Plan
The Company has a 401(k) benefit plan for all employees who
are 21 years or older and have at least six months of service. The
Company matches 50% of contributions by employees up to a maximum of
6%. Employees become vested in employer contributions based on their
length of service. During 1996 and 1995, the Company contributed
$16,000 and $10,000, respectively, to the Plan.
Mortgages Held for Sale
Mortgages held for sale are recorded at lower of aggregate
cost or market.
Reclassification
Certain 1995 amounts have been reclassified to conform to
their 1996 presentation.
Interim Unaudited Financial Information
The accompanying interim unaudited financial information for
the six month periods ended June 30, 1997 and 1996 has been
prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations, although management believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments,
necessary to present fairly the results of the Company's
operations and cash flows for the six month periods ended June
30, 1997 and 1996 have been included. The results of
operations for such interim periods are not necessarily
indicative of the results for the full year.
(2) Held-to-Maturity Securities
The amortized cost and estimated fair value of
held-to-maturity securities by major security type at December
31, 1996 and 1995 are as follows:
<TABLE>
1996
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
<S> <C> <C> <C>
U.S. Treasury notes $ 2,475,502 21,936 - 2,497,438
U.S. Government agencies 6,464,629 43,570 2,408 6,505,791
Municipal securities 975,341 2,114 3,567 973,888
Mortgage-backed securities 480,159 6,208 496 485,871
------------ ------- ------ ------------
$10,395,631 73,828 6,471 10,462,988
========== ====== ===== ==========
</TABLE>
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
1995
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 4,208,684 63,482 660 4,271,506
U.S. Government agencies 8,676,090 98,619 15,775 8,758,934
Municipal securities 1,575,258 2,151 6,081 1,571,328
Mortgage-backed securities 1,904,675 9,165 17,912 1,895,928
----------- --------- ------ -----------
$16,364,707 173,417 40,428 16,497,696
========== ======= ====== ==========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the rights to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized fair
cost value
-------------- -------------
Due in less than 1 year $ 2,844,448 2,846,713
Due after 1 year through 5 years 7,211,897 7,271,322
Due after 5 years through 10 years 153,380 154,275
Due after 10 years 185,906 190,678
------------ ------------
$ 10,395,631 10,462,988
============ ==========
Proceeds from maturities of held-to-maturity securities during
1996 and 1995 were approximately $11,228,000 and $7,592,000,
respectively. Proceeds from sales of held-to- maturity securities were
approximately $2,497,000 and $1,504,000 in 1996 and 1995, respectively.
Gross gains of approximately $3,000 and $12,000, respectively, were
recognized on the sale of securities during 1996 and 1995. All
securities sold were within three months of maturity.
Securities with a book value of approximately $4,725,000 at
December 31, 1996 were pledged to secure a repurchase agreement, a
federal funds line of credit, public funds and Federal Home Loan Bank
advances.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Available-for-Sale Securities
The amortized cost and estimated fair value of
available-for-sale securities by major security type at
December 31, 1996 is as follows:
<TABLE>
1996
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
----------- -------- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 496,342 508 - 496,850
U.S. Government agencies 3,493,941 8,244 - 3,502,185
Mutual funds 708,199 - 1,271 706,928
---------- -------- ----- ----------
$4,698,482 8,752 1,271 4,705,963
========= ===== ===== =========
</TABLE>
There were no available-for-sale securities at December 31, 1995.
The amortized cost and estimated fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the rights to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized fair
cost value
Due after 1 year through 5 years $3,990,283 3,999,035
========= =========
Proceeds from the sale of available-for-sale securities during
1996 were approximately $8,067,000. Gross losses of approximately
$20,000 were recognized on the sale of securities during 1996.
Available-for-sale securities with a book value of
approximately $496,000 at December 31, 1996 were pledged to secure a
federal funds line of credit.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Loans Receivable and Allowance for Possible Losses
Major categories of loans at December 31, 1996 and 1995
follow:
1996 1995
---- ----
Real estate $60,558,045 41,488,519
Commercial 17,963,365 14,175,835
Installment 7,173,682 3,642,384
----------- -----------
85,695,092 59,306,738
Less:
Deferred loan origination fees (14,918) (106,186)
Allowance for possible losses (1,070,276) (739,776)
------------ -----------
$84,609,898 58,460,776
============ ===========
The activity in the allowance for possible losses during 1996
and 1995 was as follows:
Loans
1996 1995
---- ----
Balance at beginning of period $ 739,776 677,086
Provision for possible losses 354,742 77,634
Charge-offs (27,742) (15,444)
Recoveries 3,500 500
----------- ----------
Balance at end of period $1,070,276 739,776
========= =======
Non-accrual loans totaled approximately $179,000 and $175,000 at
December 31, 1996 and 1995, respectively. Interest income not
recognized by the Company on non-accrual loans approximated $8,000 and
$10,000 at December 31, 1996 and 1995, respectively.
The recorded investment in loans considered impaired at December
31, 1996 and 1995, under Statement of Financial Accounting Standards
(SFAS) No. 114 was $179,000 and $105,000 with a valuation reserve of
$2,238 and $1,313, respectively. Interest income of approximately
$8,000 and $6,000 was recognized on these impaired loans in 1996 and
1995, respectively. There were no impaired loans without an allowance
at December 31, 1996 or 1995.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 are as
follows:
1996 1995
---- ----
Leasehold improvements $ 626,110 347,449
Furniture, fixtures and equipment 1,250,838 928,059
Automobiles 22,000 -
Construction in progress 260 50,697
----------- -----------
1,899,208 1,326,205
Less accumulated depreciation
and amortization (841,600) (627,453)
----------- ----------
$1,057,608 698,752
=========== ==========
The Company rents, from related parties, branch and office
facilities under operating lease arrangements. Rent expense was
approximately $238,000 and $165,000 for the years ended December 31,
1996 and 1995, respectively. Approximate future minimum rental
commitments for operating leases with renewal options as of December
31, 1996, are as follows:
1997 $ 264,412
1998 262,263
1999 264,321
2000 259,844
2001 and thereafter 1,084,097
----------
$2,134,937
==========
(6) Federal Home Loan Bank Advances
The Company has entered into a blanket floating lien security
agreement with the Federal Home Loan Bank. Under the terms of this
agreement, the Company is required to maintain unencumbered, qualifying
first mortgage loans in the amount equal to the book value for current
outstanding advances, letters of credit and other credit products from
the Federal Home Loan Bank.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 1996, the following FHLB fixed term advances were
repayable in monthly installments as follows:
Final Interest
due date rate Amount
-------- ------ ------
1997 6.15% $ 45,000
1998 4.25% - 6.25% 329,560
1999 6.0% 88,058
2000 6.05% - 6.35% 841,887
2001 and thereafter 5.60% - 7.30% 4,110,695
---------
$5,415,200
==========
(7) Deposits
Interest expense relating to certificate and other time
deposits of $100,000 or more totaled approximately $806,000 and
$640,000 for the years ended December 31, 1996 and 1995, respectively.
For time deposits with a remaining maturity of more than one
year at December 31, 1996, the aggregate amount of maturities for each
of the following four years is presented in the following table.
Maturing in Amount
1998 $ 6,745,626
1999 1,408,306
2000 2,831,564
2001 811,237
2002 and thereafter 41,658
------------
Total $ 11,838,391
============
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Income Taxes
Income tax expense for the years ended December 31, 1996 and
1995 consists of:
1996 1995
---- ----
Current:
Federal $440,592 263,387
State 79,000 60,000
-------- --------
Total current 519,592 323,387
Deferred:
Federal (148,000) 23,000
State (17,000) 3,000
-------- ---------
Total income tax expense $354,592 349,387
========= =========
Income tax expense for the years ended December 31, 1996
and 1995 differed from the amounts computed by applying the U.S.
federal income tax rate of 34% as a result of the following:
1996 1995
---- ----
Computed "expected" tax expense $315,191 348,404
Increase (reduction) in income taxes
resulting from:
Tax exempt income (11,205) (26,734)
State income taxes, net of federal
income tax benefit 36,710 40,579
Amortization of goodwill 6,070 6,070
Other, net 7,826 (18,932)
-------- --------
$354,592 349,387
======== ========
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1996 and 1995 are presented below:
1996 1995
---- ----
Deferred tax assets:
Loans, principally due to allowance for possible
losses and interest income recognition $440,000 313,000
Accrued interest payable due to cash basis
reporting for income tax purposes 367,000 237,000
Other liabilities due to cash basis reporting
for income tax purposes 42,000 65,000
Other 15,000 10,000
-------- -------
Total gross deferred tax assets 864,000 625,000
Less valuation allowance - -
-------- -------
Net deferred tax assets 864,000 625,000
-------- -------
Deferred tax liabilities:
Investments, principally due to discount
accretion and stock dividends deferred for
tax purposes (79,000) (38,000)
Accrued interest receivable due to cash basis
reporting for income tax purposes (286,000) (254,000)
Unrealized gains on available-for-sale
securities (2,843) -
Other assets due to cash basis reporting
for income tax purposes (59,000) (58,000)
-------- --------
Total deferred tax liabilities (426,843) (350,000)
--------- --------
Net deferred tax asset $437,157 275,000
======== ========
(9) Fair Value 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. Fair value estimates,
methods and assumptions are set forth below for the Company's financial
instruments.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Securities
The carrying amounts for short-term cash equivalents
approximate fair value because of their short-term maturity (90 days or
less). The fair value of most longer-term securities is estimated based
on market prices or dealer quotes. See notes 2 and 3, Securities, for
fair values.
Loans
Fair values are estimated for portfolios of loans
with similar financial characteristics. Loans are segregated by type
such as real estate, commercial and installment. The fair value of
performing loans is calculated by discounting scheduled cash flows
through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan.
Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined using available market information and specific
borrower information.
The following table presents information for loans,
as classified on the Call Report, at December 31, 1996 and 1995:
1996 1995
---- ----
Book Fair Book Fair
value value value value
(in thousands) (in thousands)
--------------------- ---------------------
Commercial $15,706 15,662 17,298 17,505
Consumer and installment 8,479 8,431 3,672 3,811
Real estate 62,488 62,210 38,355 38,774
------ ------ ------ ------
Total $86,673 86,303 59,325 60,009
======= ====== ====== ======
Average maturity represents the expected average cash flow
period, which in some instances is different than the stated maturity.
Management has made estimates of fair value discount rates that is
believed to be reasonable. However, because there is no market for many
of these financial instruments, management has no basis to determine
whether the fair value presented above would be indicative of the value
negotiated in an actual sale. New loan rates were used as the discount
rate on new loans of the same type, credit quality and maturity. For
lower graded loans, the discount rate was based on yields of bonds of
similar credit risk and maturity.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Deposit Liabilities
Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, savings, and
NOW accounts, and money market and checking accounts, is equal to the
amount payable on demand as of December 31, 1996 and 1995. The fair
value of fixed-rate 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. The
following presents information for certificates of deposit at December
31, 1996 and 1995:
1996 1995
---- ----
Carrying Fair Carrying Fair
value value value value
---------------------- ---------------------
(in thousands (in thousands)
Certificates of deposit $59,302 59,824 38,745 39,238
====== ====== ====== ======
(10) Related Party Transactions
The Company has had, and expects in the future to continue to
have in the ordinary course of business, lending transactions with
directors and executive officers of the Company and their affiliates.
Management believes these transactions are made on substantially the
same terms as those prevailing at the time for comparable transactions
with other persons and do not involve more than a normal risk of
collectibility or present any other unfavorable features.
Loans totaling approximately $1,786,000 and $1,836,000 were
outstanding to directors, executive officers, or parties and businesses
deemed to be related to them at December 31, 1996 and 1995,
respectively. Management believes that these loans were made in the
ordinary course of business.
The Company leases branch and office facilities from related
parties. See note 5.
(11) Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and
interest rates risk in excess of the amount recognized in the statement
of financial position.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit and financial guarantees written
is represented by the contractual notional amount of those instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk as
of December 31, 1996 were as follows:
Commitments to extend credit $16,560,296
Standby letters of credit and financial
guarantees written 1,047,909
Commitments to extend credit are agreements to lend
to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payments
of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension
of credit is based on management's credit evaluation of the
counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees
written are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Company holds
collateral supporting those commitments for which collateral is deemed
necessary.
(12) Stockholders' Equity
In April 1996, the Company issued a 6% stock dividend
to all stockholders of record as of April 1, 1996. Based on the number
of common shares outstanding on the record date, the Company issued
44,371 new shares.
In March 1996, the Company issued 6,000 new common
shares to an officer at a cost of $56,220. Also in September 1996, the
Company repurchased 5,500 of treasury shares at a cost of $88,000, from
a former officer.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
In March 1995, the Company issued a 7% stock dividend to all
stockholders of record as of March 16, 1995. Based on the number of
common shares outstanding on the record date, the Company issued 47,079
new shares.
In July 1995, the Company issued 16,269 of new common
shares to an officer at a cost of $150,000. Also, in December 1995, the
Company reissued 1,000 shares of treasury stock at a cost of $14,000,
to a Director.
Dividends to shareholders, other than stock
dividends, are provided from dividends received from the Bank. Banking
regulations limit the amount of dividends that may be paid without
prior approval of the agencies which regulate the Bank. The Company did
not pay nor declare cash dividends in 1996 or 1995.
(13) Deferred Compensation
Two key employees of the Company have been granted
12,000 stock appreciation rights (SARs) under a deferred compensation
plan. SARs granted were 12,000 in 1996 and 8,120 in 1995. All SARs
granted have been at book value at the date of grant and vest over a
three to six year period. The Company recorded compensation expense of
$3,720 and $1,000 in 1996 and 1995, respectively.
(14) Regulatory Matters
The Company is subject to various regulatory capital
requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory-and possibly additional discretionary-actions by regulators
that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company must
meet specific capital guidelines that involve quantitative measures of
the Company's assets, liabilities and certain off- balance sheet items
as calculated under regulatory accounting practices. The Company's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors. Quantitative measures established by the Federal Reserve Board
(FRB) to ensure capital adequacy require the Company to maintain
minimum capital amounts and ratios (risk-based capital ratios). All
banking companies are required to have core capital (Tier 1) of at
least 4% of risk-weighted assets, total capital of at least 8% of
risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of
adjusted average assets. The regulations also define adequately
capitalized levels of Tier 1, total capital and Tier 1 leverage as 4%,
8% and 4%, respectively. The Company had Tier 1, total capital and
leverage above the adequately capitalized levels at December 31, 1996
and 1995, respectively, as set forth in the following table.
(Continued)
<PAGE>
VICTORY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1996 1995
---- ----
Amount Ratio Amount Ratio
---------- ------ --------- ------
Tier 1 leverage capital $7,580,000 7.0% 7,126,000 9.2%
Tier 1 risk-based capital 7,580,000 8.2% 7,126,000 10.2%
Total risk-based capital 8,651,000 9.3% 7,866,000 11.3%
(Continued)
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
By and Among
DEPOSIT GUARANTY CORP.,
DEPOSIT GUARANTY NATIONAL BANK
VICTORY BANCSHARES, INC.
And
VICTORY BANK AND TRUST COMPANY
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Article I. THE HOLDING COMPANY MERGER....................................................................A-1
1.01 Holding Company Merger...............................................................A-1
1.02 Effective Date of the Holding Company Merger.........................................A-1
1.03 Effect of the Holding Company Merger.................................................A-1
1.04 Additional Actions...................................................................A-1
1.05 Conversion of Victory Shares.........................................................A-1
1.06 Exchange of Shares...................................................................A-2
1.07 DGC to Make Shares Available.........................................................A-3
1.08 Shares of DGC........................................................................A-3
1.09 Tax Consequences.....................................................................A-3
Article II. THE BANK MERGER...............................................................................A-3
2.01 The Bank Merger......................................................................A-3
Article III. REPRESENTATIONS AND WARRANTIES OF
VICTORY BANK AND VICTORY .....................................................................A-4
3.01 Corporate Organization...............................................................A-4
3.02 Capitalization.......................................................................A-4
3.03 Investments; No Subsidiaries.........................................................A-4
3.04 Loan Portfolio.......................................................................A-4
3.05 Authority; No Violation..............................................................A-5
3.06 Consents and Approvals...............................................................A-5
3.07 Financial Statements.................................................................A-5
3.08 Brokers and Finders..................................................................A-6
3.09 Title to Properties; Encumbrances....................................................A-6
3.10 No Undisclosed Liabilities...........................................................A-6
3.11 Absence of Certain Changes or Events.................................................A-6
3.12 Leases...............................................................................A-8
3.13 Trademarks; Trade Names..............................................................A-8
3.14 Compliance with Applicable Law.......................................................A-8
3.15 Absence of Questionable Payments.....................................................A-8
3.16 Insurance............................................................................A-8
3.17 Powers of Attorney; Guarantees.......................................................A-9
3.18 Tax Matters..........................................................................A-9
3.19 Benefit and Employee Matters.........................................................A-9
3.20 Material Contracts; No Default......................................................A-10
3.21 Disclosure..........................................................................A-11
3.22 Litigation..........................................................................A-11
3.23 Environmental Matters...............................................................A-11
3.24 Contract Termination Provisions.....................................................A-12
Article IV. REPRESENTATIONS AND WARRANTIES OF DGC AND DGNB...............................................A-12
4.01 Corporate Organization..............................................................A-12
4.02 Capitalization......................................................................A-12
4.03 Authority; No Violation.............................................................A-13
4.04 Consents and Approvals..............................................................A-13
4.05 Legality of DGC Common Stock........................................................A-13
4.06 SEC Documents; Financial Statements.................................................A-13
4.07 Compliance with Applicable Law......................................................A-14
4.08 Brokers and Finders.................................................................A-14
4.09 Disclosure..........................................................................A-14
Article V. COVENANTS OF THE PARTIES.....................................................................A-14
5.01 Conduct of Business.................................................................A-14
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5.02 Limitation on Actions...............................................................A-15
5.03 Current Information.................................................................A-15
5.04 Due Diligence; Access to Properties and Records; Confidentiality....................A-15
5.05 Interim Financial Statements........................................................A-16
5.06 Regulatory Matters..................................................................A-16
5.07 Approval of Shareholders............................................................A-17
5.08 Compliance with SEC Rules 144 and 145...............................................A-17
5.09 Further Assurances..................................................................A-17
5.10 Public Announcements................................................................A-17
5.11 Benefits............................................................................A-17
5.12 Indemnification.....................................................................A-17
5.13 Listing Application.................................................................A-18
5.14 Reports of DGC......................................................................A-18
5.15 Schedules...........................................................................A-18
Article VI. CLOSING CONDITIONS...........................................................................A-18
6.01 Conditions to Each Party's Obligations under this Agreement.........................A-18
6.02 Conditions to the Obligations of DGC and DGNB under this Agreement..................A-19
6.03 Conditions to the Obligations of Victory Bank and Victory under this Agreement......A-20
Article VII. CLOSING......................................................................................A-22
7.01 Time and Place......................................................................A-22
7.02 Deliveries at the Closing...........................................................A-23
Article VIII. TERMINATION..................................................................................A-23
8.01 Termination.........................................................................A-23
8.02 Effect of Termination...............................................................A-23
Article IX. MISCELLANEOUS................................................................................A-23
9.01 Expenses............................................................................A-23
9.02 Notices.............................................................................A-24
9.03 Parties in Interest.................................................................A-24
9.04 Amendment, Extension and Waiver.....................................................A-24
9.05 Complete Agreement..................................................................A-25
9.06 Non-Survival of Representations and Warranties......................................A-25
9.07 Counterparts........................................................................A-25
9.08 Governing Law.......................................................................A-25
9.09 Headings............................................................................A-25
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 24, 1997, by and among Victory Bancshares, Inc. ("Victory"), a
corporation organized under the laws of the State of Tennessee, and its
wholly-owned subsidiary Victory Bank and Trust Company ("Victory Bank"), a state
banking corporation organized under the laws of Tennessee, and Deposit Guaranty
Corp. ("DGC"), a corporation organized under the laws of the State of
Mississippi and DGC's wholly-owned subsidiary Deposit Guaranty National Bank
("DGNB"), a banking association organized under the laws of the United States,
each acting pursuant to a resolution of its Board of Directors.
In consideration of the mutual covenants, representations, warranties
and agreements herein contained, the parties agree that Victory shall be merged
into DGC (the "Holding Company Merger") on the terms and subject to the
conditions set forth in this Agreement.
Article I.
THE HOLDING COMPANY MERGER
1.01 Holding Company Merger. In accordance with the applicable
provisions of the Tennessee Business Corporation Law ("TBCL") and the
Mississippi Business Corporation Law ("MBCL"), Victory shall be merged with and
into DGC pursuant to a certificate of merger and articles of merger
substantially in the form attached as Exhibit A and Exhibit B, respectively, and
executed and acknowledged in the manner required by law; the separate existence
of Victory shall cease; and DGC shall be the corporation surviving the Holding
Company Merger.
1.02 Effective Date of the Holding Company Merger. The Holding
Company Merger shall become effective on the date (the "Effective Date") set
forth in the certificate of merger or articles of merger filed in the office
of the Secretary of the State of Mississippi and Tennessee, respectively.
1.03 Effect of the Holding Company Merger. On the Effective Date, (i)
the separate existence of Victory shall cease and Victory shall be merged with
and into DGC, (ii) DGC shall continue to possess all of the rights, privileges
and franchises possessed by it and shall, on the Effective Date, become vested
with and possess all rights, privileges and franchises possessed by Victory,
(iii) DGC shall be responsible for all of the liabilities and obligations of
Victory in the same manner as if DGC had itself incurred such liabilities or
obligations, and the Holding Company Merger shall not affect or impair the
rights of the creditors or of any persons dealing with Victory, (iv) the Holding
Company Merger will not of itself cause a change, alteration or amendment to the
Articles of Incorporation or the Bylaws of DGC, (v) the Holding Company Merger
will not of itself affect the tenure in office of any officer or director of DGC
and no such person will succeed to such positions solely by virtue of the
Holding Company Merger, and (vi) the Holding Company Merger shall, from and
after the Effective Date, have all the effects provided by applicable
Mississippi law.
1.04 Additional Actions. If, at any time after the Effective Date, DGC
shall consider or be advised that any further assignments or assurances in law
or any other acts are necessary or desirable (i) to vest, perfect or confirm, of
record or otherwise, in DGC, title to or the possession of any property or right
of Victory acquired or to be acquired by reason of, or as a result of, the
Holding Company Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Victory and its proper officers and directors shall be deemed to have
granted to DGC an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such property or
rights in DGC and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of DGC are fully authorized in the name of Victory
to take any and all such action.
1.05 Conversion of Victory Shares. Each share of common stock,
$1.00 par value, of Victory (the "Victory Common Stock") issued and outstanding
immediately prior to the Effective Date other than shares of Victory Common
Stock owned by stockholders who, pursuant to the provisions of Sections
48-23-201 et. seq. of the TBCL, perfect
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dissenters' rights ("Dissenting Shares"), shall, by virtue of this Agreement and
without any action on the part of the holder thereof, be converted into and
exchangeable for the number of shares of common stock, no par value, of DGC (the
"DGC Common Stock") equal to the Exchange Ratio, as defined below, subject to
adjustment as provided herein and, in respect of fractional shares, subject to
Section 1.06 hereof. The "Exchange Ratio" shall be determined as follows:
(a) In the event the Average Market Price of DGC Common Stock is in the
range from $29.74 per share to $34.92 per share the Exchange Ratio shall be
determined by dividing 773,275 by the total number of shares of Victory Common
Stock outstanding.
(b) In the event the Average Market Price of DGC Common Stock is less
than $29.74 per share and greater than $28.45 the Exchange Ratio shall be
determined by dividing $23,000,000 by the Average Market Price and then dividing
the result by the total number of shares of Victory Common Stock outstanding.
(c) In the event the Average Market Price of DGC Common Stock is
greater than $34.92 per share and less than $36.21 the Exchange Ratio shall be
determined by dividing $27,000,000 by the Average Market Price and then dividing
the result by the total number of shares of Victory Common Stock outstanding.
(d) In the event the Average Market Price of DGC Common Stock is $36.21
per share or greater the Exchange Ratio shall be determined by dividing 745,650
by the total number of shares of Victory Common Stock outstanding.
(e) In the event the Average Market Price of DGC Common Stock is $28.45
per share or less the Exchange Ratio shall be determined by dividing 808,435 by
the total number of shares of Victory Common Stock outstanding.
As used in this Section, the term "Average Market Price" of DGC Common
Stock shall be the average of the closing per share trading prices of DGC Common
Stock as reported by the New York Stock Exchange on the New York Stock Exchange
composite transactions tape (adjusted for any stock split or similar
transaction) on the twenty (20) consecutive trading days ending on the third
business day prior to the Effective Date.
Subsequent to the date of this Agreement but prior to the Effective
Date and subject to the provisions of Section 6.03(g) herein, if the outstanding
shares of DGC Common Stock shall be increased, decreased, changed into or
exchanged for a different number or class of shares by reason of any
reclassification, recapitalization, stock split or reverse stock split, split-up
or if a stock dividend thereon shall be declared with a record date within such
period, or by reason of a combination or exchange of share in a transaction in
which DGC is effectively acquired, or other like changes in DGC's capitalization
shall have occurred, the terms and provision of this Section 1.05 shall be
adjusted accordingly. This paragraph does not apply to a transaction in which
DGC or one of its subsidiaries is effectively the acquiring entity.
1.06 Exchange of Shares. (a) As soon as practicable after the Effective
Date, DGNB, acting as exchange agent (the "Exchange Agent"), shall mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Date represented issued and outstanding shares of Victory Common Stock
(the "Certificates"), a form 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 in exchange
for certificates representing DGC Common Stock. Upon surrender of a Certificate
for exchange and cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of shares
of DGC Common Stock to which such holder of Victory Common Stock shall have
become entitled pursuant to the provisions hereof, and the Certificate so
surrendered shall forthwith be canceled. Lost Certificates shall be treated in
accordance with the existing procedures of Victory.
(b) No dividends or other distributions declared after the Effective
Date with respect to DGC Common Stock and payable to the holders of record
thereof after the Effective Date shall be paid to the holder of any
unsurrendered Certificate until the holder thereof shall surrender such
Certificate. Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of a Certificate, the record holder thereof
shall be entitled
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to receive any such dividends or other distributions, without any interest
thereon, which theretofore had become payable with respect to the shares of DGC
Common Stock into which the shares represented by such certificate have been
converted.
(c) If any certificate representing shares of DGC Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an 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 certificate representing shares of DGC Common Stock in any name other than
that of the registered holder of the 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.
(d) After the Effective Date there shall be no transfers on the stock
transfer books of Victory of the shares of Victory Common Stock which are
outstanding immediately prior to the Effective Date. If, after the Effective
Date, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for Certificates
representing shares of DGC Common Stock as provided herein.
(e) No certificates or scrip representing fractional shares of DGC
Common Stock shall be issued upon the surrender for exchange of such
Certificates, no dividend or distribution with respect to DGC Common Stock shall
be payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of DGC. In lieu of any such fractional share, DGC shall pay to
each former stockholder of Victory who otherwise would be entitled to receive a
fractional share of DGC Common Stock an amount in cash determined by multiplying
(i) the closing price of DGC Common Stock on the trading day immediately
preceding the Effective Date as quoted on the New York Stock Exchange, by (ii)
the fraction of a share of DGC Common Stock to which such holder would otherwise
be entitled.
1.07 DGC to Make Shares Available. DGC shall make available a
sufficient number of shares for conversion and exchange in accordance with
Section 1.05, by transferring such shares to the Exchange Agent for the benefit
of the stockholders of Victory.
1.08 Shares of DGC. The shares of capital stock of DGC Common Stock
outstanding immediately prior to the Effective Date shall not be changed or
converted by virtue of the Holding Company Merger.
1.09 Tax Consequences. It is intended that the Holding Company Merger
shall constitute a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" within the meaning of
Section 368 of the Code.
Article II.
THE BANK MERGER
2.01 The Bank Merger. Immediately following the execution and delivery
of this Agreement, Victory Bank and DGNB intend to enter into a merger agreement
providing that on the Effective Date immediately following the consummation of
the Holding Company Merger, Victory Bank shall be merged with and into DGNB (the
"Bank Merger") under the Articles of Association of DGNB, as amended, existing
under Charter No. 13648, pursuant to the provisions of, and with the effect
provided in, 12 U.S.C ss.215a-1, 12 U.S.C ss.1831u and 12 U.S.C ss.1828(c) and
the Tennessee Banking Act ("TBA").
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Article III.
REPRESENTATIONS AND WARRANTIES OF
VICTORY BANK AND VICTORY
As of the date hereof and as of the Effective Date, Victory Bank and
Victory hereby make the following representations and warranties to DGC and
DGNB:
3.01 Corporate Organization. (a) Victory Bank is a banking
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee. Victory Bank has the power and authority to
own or lease all of its properties and assets and to carry on its business as
it is now being conducted.
(b) Victory is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee. Victory has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary.
3.02 Capitalization. (a) The authorized capital stock of Victory Bank
consists of 1,000,000 shares of common stock, $1.00 par value (the "Victory Bank
Common Stock"). At the close of business on August 31, 1997, there were 230,271
shares of Victory Bank Common Stock issued and outstanding and no shares held in
Victory Bank's treasury. All issued and outstanding shares of Victory Bank
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights with no personal liability attaching
to the ownership thereof. Victory Bank has not issued any additional shares of
Victory Bank Common Stock since December 31, 1996, and does not have and is not
bound by any outstanding subscription, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Victory Bank Common Stock or any security representing the right to purchase
or otherwise receive any Victory Bank Common Stock. Victory has good, valid and
marketable title to, the Victory Bank Common Stock, and on the Effective Date
the same will be free and clear of all liens, encumbrances, pledges, claims,
options, charges and assessments of any nature whatsoever.
(b) The authorized capital stock of Victory consists of 1,500,000
shares of Victory Common Stock. At the close of business on August 31, 1997,
there were 817,419 shares of Victory Common Stock issued and outstanding and
8,200 shares held in Victory's treasury. Except as set forth on Schedule 3.02
hereto, all issued and outstanding shares of Victory Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights with no personal liability attaching to the ownership thereof.
Except as set forth on Schedule 3.02 hereof, Victory has not issued any
additional shares of Victory Common Stock since August 31, 1997, and does not
have and is not bound by any outstanding subscription, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Victory Common Stock or any security representing the right to
purchase or otherwise receive any Victory Common Stock.
3.03 Investments; No Subsidiaries. The "Victory Consolidated Group," as
such term is used in this Agreement, consists of Victory and Victory Bank.
Except as set forth on Schedule 3.03 hereof, neither Victory Bank nor Victory
has any active or inactive subsidiaries or equity interest or other investment,
direct or indirect, in any corporation, partnership, joint venture or other
entity except for such equity interest or other investment which Victory Bank
may have acquired as a result of foreclosure and is as of the date hereof
holding subject to sale.
3.04 Loan Portfolio. All loans, discounts and financing leases (in
which any member of the Victory Consolidated Group is lessor) reflected on the
Victory Latest Balance Sheet (as defined in Section 3.07) (a) were, at the time
and under the circumstances in which made, made for good, valuable and adequate
consideration in the ordinary course of business of the Victory Consolidated
Group, (b) are evidenced by genuine notes, agreements or other evidences of
indebtedness and (c) to the extent secured, have been secured by valid liens and
security interests which have been perfected. Set forth in Schedule 3.04 hereto
is a true and complete list of all real property in which Victory Bank has an
interest as creditor or mortgagee in an amount greater than $50,000. Except as
set forth in Schedule 3.04 hereto, there
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are no outstanding loans held by Victory Bank with an unpaid balance of $50,000
or more in which a material default has occurred and is continuing on the date
hereof. A material default for purposes of this Section 3.04 includes, without
limitation, the failure to pay indebtedness or an installment thereof more than
sixty (60) days after it is due and payable.
3.05 Authority; No Violation. (a) Each of Victory Bank and Victory has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
Victory Bank have been duly and validly approved by the Board of Directors of
Victory Bank, and, except for approval by Victory as the sole shareholder of
Victory Bank, no other corporate proceedings on the part of Victory Bank are
necessary to consummate the transactions so contemplated. The Board of Directors
of Victory has duly and validly approved this Agreement and the transactions
contemplated hereby and has authorized the execution and delivery of this
Agreement by Victory, and, except for the approval of this Agreement by its
shareholders, no other corporate proceedings on the part of Victory are
necessary to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Victory Bank and Victory and
constitutes a valid and binding obligation of Victory Bank and of Victory
enforceable against each in accordance with its terms, except that enforcement
may be limited by bankruptcy, reorganization, insolvency and other similar laws
and court decisions relating to or affecting the enforcement of creditors'
rights generally and by general equitable principles.
(b) Neither the execution and delivery of this Agreement by Victory or
Victory Bank nor the consummation by Victory or Victory Bank of the transactions
contemplated hereby, nor compliance by Victory or Victory Bank with any of the
provisions hereof, will (i) violate any provision of the Articles of
Incorporation or Bylaws of Victory, or the Articles of Incorporation or Bylaws
of Victory Bank, (ii) to the best knowledge of Victory and Victory Bank violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Victory or Victory Bank, or any of their subsidiaries
or any of their respective properties or assets, or (iii) to the best knowledge
of Victory or Victory Bank, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with or without due
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the respective properties or assets of Victory and Victory Bank, or any of their
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Victory or Victory Bank, or any of their
respective subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such conflicts,
breaches or defaults which either individually or in the aggregate will not have
a material adverse effect on the business, operations, properties, assets or
financial condition of Victory or Victory Bank.
3.06 Consents and Approvals. No permit, consent, approval or
authorization of, or declaration, filing or registration with, any public body
or authority, or to the knowledge of Victory Bank and Victory, any third party
is necessary in connection with (i) the execution and delivery by Victory Bank
or Victory of this Agreement, or (ii) the consummation by Victory or Victory
Bank of the Holding Company Merger and the other transactions contemplated
hereby, except for the approval of: (a) the prior approval of the Office of the
Comptroller of the Currency (the "OCC"); (b) the required filings with the
Commissioner of the Tennessee Department of Financial Institutions (the
"Commissioner"); (c) the prior approval of the Federal Reserve Board, unless an
exemption from such approval is obtained; (d) the filing of a registration
statement with the Securities and Exchange Commission (the "SEC"); (e) any
required Blue Sky filings (the "Governmental Approvals") and (f) the approval of
the shareholders of Victory.
3.07 Financial Statements. (a) Victory has previously delivered to DGC
and DGNB copies of the consolidated balance sheets of Victory as of June 30,
1997 and for each of the three fiscal years 1994 through 1996, inclusive, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the periods then ended (the "Victory Financial Statements").
The financial statements for the fiscal years 1994 through 1996 have been
audited by KPMG Peat Marwick LLP, certified public accountants, whose report
accompanies such financial statements. The June 30, 1997, consolidated balance
sheet of Victory (the "Victory Latest Balance Sheet") (including the related
notes, where applicable) fairly presents the consolidated financial position of
Victory and its subsidiaries as of the date thereof, and the other financial
statements referred to herein (including the related notes, where applicable)
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fairly present the results of the consolidated operations, changes in
shareholders' equity and cash flows of Victory and its subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth.
(b) Each of the financial statements above is true and correct in all
material respects, and has been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with other periods, except
as otherwise noted.
3.08 Brokers and Finders. Neither Victory Bank, Victory nor any of
their officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
3.09 Title to Properties; Encumbrances. Except as set forth in Schedule
3.09 hereto, Victory Bank and Victory have good, valid and marketable title to,
or a valid leasehold interest in, (a) all their real properties and (b) all
other properties and assets reflected in the Victory Latest Balance Sheet, other
than any of such properties or assets which have been sold or otherwise disposed
of since the date of the Victory Latest Balance Sheet in the ordinary course of
business and consistent with past practice. Except as set forth in Schedule 3.09
hereto, all of such properties and assets are free and clear of all title
defects, mortgages, pledges, liens, claims, charges, security interests or other
encumbrances of any nature whatsoever, including, without limitation, leases,
options to purchase, conditional sales contracts, collateral security
arrangements and other title or interest retention arrangements, and are not, in
the case of real property, subject to any easements, building use restrictions,
exceptions, reservations or limitations of any nature whatsoever, except, with
respect to all such properties and assets, liens for current taxes and
assessments not in default, minor imperfections of title, and encumbrances, if
any, which have arisen in the ordinary course of business, which are not
substantial in character, amount or extent and which do not detract from the
value of or interfere with the present or contemplated use of any of the
properties subject thereto or affected thereby or otherwise impair the business
operations conducted or contemplated by Victory Bank or Victory. All personal
property material to the business, operations or financial condition of Victory
Bank or Victory, and all buildings, structures and fixtures used by Victory Bank
or Victory in the conduct of their businesses, are in good operating condition
and repair. Except as set forth in Schedule 3.09 hereto, neither Victory Bank
nor Victory has received any notification of any violation (which has not been
cured) of any building, zoning or other law, ordinance or regulation in respect
of such property or structures or Victory Bank's or Victory's use thereof.
3.10 No Undisclosed Liabilities. Except as set forth in Schedule 3.10
hereto, as of the date hereof neither Victory Bank nor Victory has any
liabilities or obligations of any nature (whether absolute, accrued, contingent
or otherwise and whether due or to become due), except liabilities and
obligations (i) fully reflected or reserved against in the Victory Latest
Balance Sheet or disclosed in the notes thereto or (ii) incurred since the date
of the Victory Latest Balance Sheet in the ordinary course of business and
consistent with past practice, which liabilities or obligations are,
individually or in the aggregate, material to Victory and Victory Bank on a
consolidated basis.
3.11 Absence of Certain Changes or Events. (a) Except as set
forth in Schedule 3.11 hereto, since the date of the Victory Latest Balance
Sheet, there has not been:
i) any material adverse change in the business, operations,
properties, assets or financial condition of Victory Bank or Victory, or any
event which has had or will have a material adverse effect on any of the
foregoing;
ii) any loss, damage, destruction or other casualty materially and
adversely affecting any of the properties, assets or business of Victory Bank or
Victory or any of their subsidiaries (whether or not covered by insurance);
iii) any increase of more than ten percent (10%) in the compensation
payable by Victory Bank or Victory to any of their directors, officers, agents,
consultants, or any of their employees whose total compensation after such
increase was in excess of $35,000 per annum, or any extraordinary bonus,
percentage compensation, service award or other like benefit granted, made or
accrued to the credit of any such director,
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officer, agent, consultant or employee, or any extraordinary welfare, pension,
retirement or similar payment or arrangement made or agreed to by Victory Bank
or Victory for the benefit of any such director, officer, agent, consultant or
employee;
iv) any change in any method of accounting or accounting practice
of Victory Bank or Victory;
v) any loan in excess of $50,000 or portion thereof rescheduled
as to payments thereon, subject to a moratorium on payment thereof or written
off by Victory Bank or Victory as uncollectible; or
vi) any agreement or understanding, whether in writing or
otherwise, of Victory Bank or Victory to do any of the foregoing.
(b) Except as set forth in Schedule 3.11 hereto, since the date of the
Victory Latest Balance Sheet, neither Victory Bank nor Victory has:
i) issued or sold any promissory note, stock, bond or other
corporate security of which it is the issuer in an amount greater than $25,000;
ii) discharged or satisfied any lien or encumbrance or paid or
satisfied any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) in an amount greater than $25,000 as
to each such lien, encumbrance, obligation or liability other than current
liabilities shown on the Victory Latest Balance Sheet and current liabilities
incurred since the date of the Victory Latest Balance Sheet in the ordinary
course of business and consistent with past practice and other than any such
lien, encumbrance, obligation or liability of the nature (regardless of amount)
required to be disclosed pursuant to Section 3.11(a)(iii) hereto;
iii) declared, paid or set aside for payment any dividend or other
distribution (whether in cash, stock or property) except for dividends by
Victory Bank to Victory to the extent necessary to pay necessary and routine
expenses of Victory and except that in the event that the Effective Date is
after the record date for cash dividends on DGC Common Stock for the first
quarter of 1998, Victory may declare a cash dividend in an amount up to forty
percent (40%) of Victory's earnings for the first quarter of 1998, and in the
event that the Effective Date is after the record date for cash dividends on DGC
Common Stock for the second quarter of 1998, Victory may declare a cash dividend
in an amount up to forty percent (40%) of Victory's earnings for the second
quarter of 1998;
iv) split, combined or reclassified any shares of its capital
stock, or redeemed, purchased or otherwise acquired any shares of its capital
stock or other securities;
v) sold, assigned or transferred any of its assets (real,
personal or mixed, tangible or intangible) canceled any debts or claims or
waived any rights of substantial value, except, in each case, in the ordinary
course of business and consistent with past practice;
vi) sold, assigned, transferred or permitted to lapse any patents,
trademarks, trade names, copyrights or other similar assets, including
applications or licenses therefor;
vii) paid any amounts or incurred any liability to or in respect of, or
sold any properties or assets (real, personal or mixed, tangible or intangible)
to, or engaged in any transaction (other than any transaction of the nature
(regardless of amount) required to be disclosed pursuant to Section 3.11(a)(iii)
hereof) or entered into any agreement or arrangement with, any corporation or
business in which Victory Bank, Victory or any of their officers or directors,
or any "affiliate" or "associate" (as such terms are defined in the rules and
regulations promulgated under the Securities Act), of any such person, has any
direct or indirect interest;
viii) entered into any collective bargaining agreements; or
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ix) entered into any other transaction other than in the ordinary
course of business and consistent with past practice or in connection with the
transactions contemplated by this Agreement.
3.12 Leases. Set forth in Schedule 3.12 hereto is an accurate and
complete list of all leases calling for annual rent payments in excess of
$10,000 pursuant to which Victory Bank or Victory, as lessee, leases real or
personal property, including, without limitation, all leases of computer or
computer services and all arrangements for time-sharing or other data processing
services, describing for each lease Victory Bank's or Victory's financial
obligations under such lease its rental payments, expiration date and renewal
terms. Except as set forth in Schedule 3.12 hereto: (a) all such leases are in
full force and effect in accordance with their terms; (b) there exists no event
of default or event, occurrence, condition or act which with the giving of
notice, the lapse of time or the happening of any further event or condition
would become a default under any such lease; and (c) neither Victory Bank nor
Victory is a lessee under a lease having an unexpired term greater than
thirty-six (36) months that requires Victory Bank or Victory to make payments
for the use of any property at rates currently higher than prevailing market
rates for similar properties in the localities where such properties are
located.
3.13 Trademarks; Trade Names. Set forth in Schedule 3.13 hereto is an
accurate and complete list and brief description of all trademarks (either
registered or common law), trade names and copyrights (and all applications and
licenses therefor) owned by Victory Bank or Victory or in which they have any
interest. Victory Bank and Victory own, or have the rights to use, all
trademarks, trade names and copyrights used in or necessary for the ordinary
conduct of their existing businesses as heretofore conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. Except as set forth in Schedule 3.13 hereto, no claims are
pending by any person for the use of any trademarks, trade names or copyrights
or challenging or questioning the validity or effectiveness of any license or
agreement relating to the same, nor is there any valid basis for any such claim,
challenge or question, and use of such trademarks, trade names and copyrights by
Victory Bank or Victory does not infringe on the rights of any person.
3.14 Compliance with Applicable Law. Victory Bank and Victory hold, and
have at all times held, all licenses, franchises, permits and governmental
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied in all material respects with and
are not in default in any respect under any, applicable statutes, laws,
ordinances, rules, regulations, and orders of all federal, state and local
governmental bodies, agencies and subdivisions having, asserting or claiming
jurisdiction over them or over any part of their operations (to the extent that
such default could result in a material limitation on the conduct of Victory
Bank's or Victory's business, or could cause Victory Bank or Victory to incur a
substantial financial penalty); neither Victory Bank nor Victory has received
notice of a violation of, and does not know of any violation of or of any valid
basis for any claim of a violation of, any of the above.
3.15 Absence of Questionable Payments. Victory Bank and Victory have
not, and, to the knowledge of Victory Bank or Victory, no director, officer,
agent, employee, consultant or other person acting on behalf of, Victory Bank or
Victory has, (a) used any Victory Bank or Victory corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity or (b) made any direct or indirect unlawful payments to
government officials from any Victory Bank or Victory corporate funds, or
established or maintained any unlawful or unrecorded accounts with funds
received from Victory Bank or Victory.
3.16 Insurance. Set forth in Schedule 3.16 hereto is an accurate and
complete list of all policies of insurance, including the amounts thereof, owned
by Victory Bank or Victory or in which Victory Bank or Victory is named as the
insured party. All such policies are valid, outstanding and enforceable and will
remain in full force and effect at least through the consummation of the
transactions contemplated by this Agreement. Such insurance with respect to
Victory Bank's and Victory's property and the conduct of their businesses is in
such amounts and against such risks as are usually insured against by persons
operating similar properties and businesses in the State of Tennessee and are
adequate for the conduct of Victory Bank's and Victory's businesses. Except as
set forth in Schedule 3.16 hereto, neither Victory Bank nor Victory has ever
been refused any insurance nor have their coverages been limited by any
insurance carrier to which they have applied for insurance or with which they
have carried insurance during the last five (5) years other than certain
standard exclusions for certain events or circumstances stated in such policies.
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3.17 Powers of Attorney; Guarantees. Except as set forth in Schedule
3.17 hereto, other than in the ordinary course of business neither Victory Bank
nor Victory has given any power of attorney to any person to act on its behalf,
or has any obligation or liability, either actual, accruing or contingent, as
guarantor, surety, cosigner, endorser, co-maker or indemnitor in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity.
3.18 Tax Matters. Victory Bank and Victory make the following
representations with respect to tax matters:
(a) For purposes of this Section, the following definitions shall
apply:
(1) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, state or local government or
any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including, but not limited to, federal income taxes and state income
taxes), real property gains taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
any member of the Victory Consolidated Group is required to pay, withhold or
collect.
(2) The term "Returns" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns relating to, or required to
be filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties.
(b) To the knowledge of the Victory Consolidated Group, all Returns
required to be filed by or on behalf of members of the Victory Consolidated
Group have been duly filed and, to the knowledge of the Victory Consolidated
Group, such Returns are true, complete and correct in all material respects. All
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto have been paid in full on a timely basis, and no other Taxes are
payable by the Victory Consolidated Group with respect to items or periods
covered by such Returns or with respect to any period prior to the date of this
Agreement. Each member of the Victory Consolidated Group has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of any member of the Victory
Consolidated Group with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that a member of the Victory Consolidated Group is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established.
(c) The Returns of the Victory Consolidated Group have never been
audited by a government or taxing authority, nor to the knowledge of the Victory
Consolidated Group, is any such audit in process, pending or threatened. To the
knowledge of the Victory Consolidated Group, no deficiencies exist or have been
asserted or are expected to be asserted with respect to Taxes of the Victory
Consolidated Group, and no member of the Victory Consolidated Group has received
notice or expects to receive notice that it has not filed a Return or paid Taxes
required to be filed or paid by it. No member of the Victory Consolidated Group
is a party to any action or proceeding for assessment or collection of Taxes,
nor to the knowledge of the Victory Consolidated Group, has such event been
asserted or threatened against any member of the Victory Consolidated Group or
any of its assets. No waiver or extension of any statute of limitations is in
effect with respect to Taxes or Returns of the Victory Consolidated Group.
3.19 Benefit and Employee Matters. (a) Schedule 3.19(a) lists all
pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, employment,
compensation arrangements, consulting, bonus, collective bargaining, group
insurance, severance and other employee benefit, incentive and welfare policies,
contracts, plans and arrangements, and all trust agreements related thereto
established or maintained by Victory or Victory Bank, for the benefit of any of
the present or former directors, officers,
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or other employees of Victory Bank and Victory. Schedule 3.19(a) also identifies
each "employee benefit plan," as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") maintained
or contributed to by any member of the Victory Consolidated Group. Except as set
forth in Schedule 3.19(a) hereto, neither Victory Bank nor Victory maintains or
contributes to any "employee benefit plan," as such term is defined in Section
3(3) of ERISA. Except as set forth in Schedule 3.19(a), all "employee benefit
plans" maintained by Victory Bank or Victory (all such plans being listed in
Schedule 3.19(a) hereto) (collectively, the "Victory Bank Plans") are in
material compliance with the provisions of ERISA and the applicable provisions
of the Code. No member of the Victory Consolidated Group has ever maintained or
become obligated to contribute to any "employee benefit plan" as such term is
defined in Section 3(3) of ERISA, (i) that is subject to Title IV of ERISA or
(ii) that is a multiemployer plan under Title IV of ERISA. To the knowledge of
the Victory Consolidated Group, no "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred that could result
in liability to DGC or DGNB. No member of the Victory Consolidated Group has any
current or projected liability in respect of post-employment welfare benefits
for retired, current or former employees, except as required to avoid excise tax
under Section 4980B of the Code.
(b) During the last five (5) years, neither Victory Bank nor Victory
has been or is a party to any collective bargaining or other labor contract.
During the last five (5) years, there has not been, there is not presently
pending or existing, and there is not threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any proceeding
against or affecting Victory Bank or Victory relating to the alleged violation
of any legal requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting Victory Bank or Victory or their
premises, or (c) any application for certification of a collective bargaining
agent. No event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute. There is no lockout of any
employees by Victory Bank and Victory, and no such action is contemplated.
Victory Bank and Victory have complied in all respects with all legal
requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, and occupational safety and
health. Neither Victory Bank nor Victory is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing legal requirements.
3.20 Material Contracts; No Default. (a) Except as described in the
Victory Financial Statements or as set forth in Schedule 3.20 hereto, no member
of the Victory Consolidated Group is a party to, or is bound or affected by, any
agreement that would (assuming each member of the Victory Consolidated Group
were a reporting company under the Securities Exchange Act of 1934, whether or
not it is so registered) be required to be filed with the Securities and
Exchange Commission as an exhibit to an Annual Report on Form 10-K.
(b) Except as described in the Victory Financial Statements or as set
forth in Schedule 3.20 hereto, no member of the Victory Consolidated Group is a
party to, or is bound or affected by:
i) any contract with or arrangement for directors, officers, employees,
former employees, agents or consultants with respect to salaries, bonuses,
percentage compensation, pensions, deferred compensation or retirement payments,
or any profit-sharing, stock option, stock purchase or other employee benefit
plan or arrangement;
ii) a collective bargaining or union contract or agreement;
iii) a contract, commitment or arrangement (excluding deposits and
other normal banking transactions) for the borrowing of money by a member of the
Victory Consolidated Group or for a line of credit in an amount greater than
$50,000;
iv) a contract, commitment or arrangement (excluding deposits and other
normal banking transactions) for the lending of money or for the granting of a
line of credit in an amount greater than $100,000;
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v) a contract or agreement for the future purchase by it of any
materials, equipment, services, or supplies, which is not in the ordinary
course of business, and has a term of more than twelve (12) months (including
periods covered by any option to renew by either party);
vi) a contract containing covenants purporting to limit its
freedom to compete;
vii) a contract or commitment for the acquisition, construction or
refurbishment of any property, plant or equipment, other than contracts and
commitments for the acquisition, construction or refurbishment of any property,
plant or equipment not in excess of $20,000 for any one establishment or $50,000
in the aggregate.
(c) Victory Bank and Victory have performed all the obligations
required to be performed by them under any contract, agreement, arrangement,
commitment or other instrument to which they are a party (including, without
limitation, any of those described in paragraphs (a) and (b) of this Section
3.20), and there is not, with respect to any such contract, agreement,
commitment or other instrument, (i) any notice of violation, or (ii) any
existing default (or event which, with or without due notice or lapse of time or
both, would constitute a default) on the part of Victory Bank or Victory, which
default would have a material adverse effect on its business, operations,
properties, assets or financial condition, and neither Victory Bank nor Victory
has received notice of any such default, nor has Victory Bank or Victory
knowledge of any facts or circumstances which would reasonably indicate that it
will be or may be in default under, any such contract, agreement, arrangement,
commitment or other instrument subsequent to the date hereof.
3.21 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any schedule or certificate, list or
other writing furnished to DGC or DGNB pursuant to the provisions hereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not misleading.
No information material to this transaction which is necessary to make the
representations and warranties herein contained not misleading has been withheld
from, or has not been delivered in writing to, DGC and DGNB.
3.22 Litigation. Except as listed on Schedule 3.22, there are no
actions, suits, proceedings, arbitrations or investigations pending or, to the
knowledge of Victory or Victory Bank, threatened, before any court, any
governmental agency or instrumentality or any arbitration panel, against or
affecting Victory or Victory Bank or any of their subsidiaries or any of the
directors, officers, or employees of the foregoing, and to the knowledge of
Victory or Victory Bank no facts or circumstances exist that would be likely to
result in the filing of any such action that would have a material adverse
effect on Victory or Victory Bank. Neither Victory nor Victory Bank is subject
to any currently pending judgment, order or decree entered in any lawsuit or
proceeding.
3.23 Environmental Matters. (a) To the best knowledge of Victory and
Victory Bank, Victory and Victory Bank are, and have been, in compliance with
all applicable 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. ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 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, or business of
Victory and Victory Bank.
(b) To the best knowledge of Victory and Victory Bank, all property
owned, leased, operated or managed by Victory or Victory Bank, or in which
Victory or Victory Bank 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 Victory or Victory Bank, a mortgagor,
or any other person), are, and have been, in compliance with all applicable
Environmental Laws, 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, or business of Victory
or Victory Bank.
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(c) To the best knowledge of Victory and Victory Bank, there is no
judicial, administrative, arbitration or other similar proceeding pending or
threatened before any court, governmental agency, authority or other forum in
which Victory or Victory Bank or any prior owner of any Business Property has
been or, with respect to threatened matters, is threatened to be named as a
party relating to (i) alleged noncompliance with any applicable Environmental
Law or (ii) the release or threatened release into the environment of any
Hazardous Substance (as defined below), and relating to 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, or business of Victory
or Victory Bank, and to the knowledge of each 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 the best knowledge of Victory and Victory Bank, there has been
no release or threatened release of a Hazardous Substance in, on, under, or
affecting any of its 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, or
business of Victory or Victory Bank.
3.24 Contract Termination Provisions. Except for those contracts set
forth in Schedule 3.24 hereto, all contracts between Victory Bank or Victory and
any employee thereof or independent contractor thereto shall, by the terms of
such contracts or a written addendum thereto, be terminable by DGC or DGNB
following the Holding Company Merger, upon no more than thirty (30) day's
written notice to the employee or independent contractor.
Article IV.
REPRESENTATIONS AND WARRANTIES OF DGC AND DGNB
As of the date hereof and as of the Effective Date, DGC and DGNB
represent and warrant to Victory Bank and Victory as follows:
4.01 Corporate Organization. DGC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Mississippi
and DGNB is a national banking association duly organized, validly existing and
in good standing under the laws of the United States. DGC and DGNB,
respectively, have the corporate power and authority (and DGNB has received
appropriate authorizations from the OCC) to own or lease all of their properties
and assets and to carry on their businesses as they are now being conducted and
DGC is duly licensed in each jurisdiction in which the failure to be so licensed
would have a material adverse effect on the financial condition, results of
operations or business of DGC and its subsidiaries taken as a whole.
4.02 Capitalization. The authorized capital stock of DGC consists of
100,000,000 shares of DGC Common Stock, 25,000,000 shares of Class A Voting
Preferred Stock, no par value, and 25,000,000 shares of Class B Non-Voting
Preferred Stock, no par value (collectively, "the DGC Preferred Stock"). At the
close of business on August 31, 1997, there were 40,802,301 shares of DGC Common
Stock issued and outstanding and no shares of DGC Preferred Stock had been
issued. In addition, options to acquire 701,670 shares of DGC Common Stock were
outstanding at such date. The authorized capital stock of DGNB consists of
40,000 shares of DGNB Common Stock. At the close of business on June 30, 1997,
there were 40,000 shares of DGNB Common Stock issued and outstanding, one
hundred percent (100%) of which shares were owned by Deposit Guaranty Louisiana
Corp. ("DG Louisiana"). All issued and outstanding shares of DGC Common Stock
have been, and the shares of DGC Common Stock to be issued pursuant to the
Holding Company Merger will be, duly authorized and validly issued, and all such
shares are and will be fully paid. Except as referred to above, DGC does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of DGC Common Stock or any security representing the
right to purchase or otherwise receive any DGC Common Stock.
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4.03 Authority; No Violation. (a) DGC and DGNB, respectively, have full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The respective Boards of
Directors of DGC, DG Louisiana and DGNB, or a majority thereof, and DGC as the
sole shareholder of DG Louisiana, have duly and validly approved and adopted
this Agreement and the transactions contemplated hereby, have executed or
authorized the execution of and have authorized the delivery of this Agreement,
and except for approval by DG Louisiana, as the sole shareholder of DGNB, no
other corporate proceedings on the part of DGC, DG Louisiana, or DGNB are
necessary or desirable to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by DGC and DGNB and
constitutes a valid and binding obligation of each of DGC and DGNB, enforceable
in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by DGC or DGNB
nor the consummation by DGC or DGNB of the transactions contemplated hereby, nor
compliance by DGC or DGNB with any of the provisions hereof, will (i) violate
any provision of the Articles of Incorporation or Bylaws of DGC or the Articles
of Association or Bylaws of DGNB, (ii) to the best knowledge of DGC and DGNB
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to DGC, DGNB, or any of their subsidiaries or
any of their respective properties or assets, or (iii) to the best knowledge of
DGC and DGNB violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with or without due notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of DGC, DGNB, or any of their subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
DGC, DGNB, or any of their respective subsidiaries is a party, or by which they
or any of their respective properties or assets may be bound or affected, except
for such conflicts, breaches or defaults as are set forth in Schedule 4.03
hereto, or which either individually or in the aggregate will not have a
material adverse effect on the business, operations, properties, assets or
financial condition of DGC, DGNB or any of their respective subsidiaries.
4.04 Consents and Approvals. Except for the Governmental Approvals, no
consents or approvals of or filings or registrations with any public body or
authority are necessary in connection with (i) the execution and delivery by DGC
and DGNB of this Agreement or (ii) the consummation of the Holding Company
Merger and the other transactions contemplated hereby.
4.05 Legality of DGC Common Stock. The DGC Common Stock to be issued in
connection with the Holding Company Merger, when issued and delivered in
accordance with the terms hereof, will be duly authorized, validly issued, fully
paid and non-assessable, free of pre-emptive rights and with no personal
liability attaching to the ownership thereof.
4.06 SEC Documents; Financial Statements. DGC has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1994 (the "DGC SEC Documents"), complete copies of which have been
provided to Victory. The DGC SEC Documents complied as to form in all material
respects with the requirements of the Securities Act of 1933 or the Securities
Exchange Act of 1934, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such DGC SEC Documents, and none of the
DGC SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The DGC financial statements included in the DGC SEC
Documents have been audited by KPMG Peat Marwick LLP, certified public
accountants (in the case of the DGC audited financial statements) in accordance
with generally accepted auditing standards, have been prepared in accordance
with generally accepted accounting principles and, except as disclosed therein,
applied on a basis consistent with prior periods, and present fairly the
financial position of DGC and its consolidated subsidiaries at such dates and
the results of operations and cash flows for the periods then ended, except, in
the case of the DGC interim financial statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC. The DGC interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair statement of the results for the interim periods presented therein.
Neither DGC nor any of its consolidated subsidiaries has, nor are any of their
respective assets subject to, any liability, commitment, debt or obligation (of
any kind whatsoever whether absolute or contingent, accrued, fixed, known,
unknown, matured,
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unmatured that is material individually or in the aggregate, except as and to
the extent reflected on the June 30, 1997 balance sheet included in the Form
10-Q filed with the SEC for the second quarter of 1997 (the "DGC Latest Balance
Sheet"), or, as may have been incurred or may have arisen since the date of the
DGC Latest Balance Sheet. Since the date of the DGC Latest Balance Sheet, there
has been no change that has or is likely to have a material adverse effect on
the financial condition, results of operations or business of DGC or its
subsidiaries.
4.07 Compliance with Applicable Law. DGC and DGNB have complied in all
material respects with and are not in default in any respect under any,
applicable statutes, laws, ordinances, rules, regulations, and orders of all
federal, state and local governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over them or over any part of their
operations (to the extent that such default could result in a material
limitation on the conduct of DGC's or DGNB's business, or could cause DGC or
DGNB to incur substantial financial penalty); neither DGC nor DGNB has received
notice of a violation of, and does not know of any violation of or of any valid
basis for any claim of a violation of, any of the above.
4.08 Brokers and Finders. Neither DGC, DGNB nor any of their officers
or directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
4.09 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any schedule or certificate, list or
other writing furnished to Victory or Victory Bank pursuant to the provisions
hereof, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading. No information material to this transaction which is necessary to
make the representations and warranties herein contained not misleading has been
withheld from, or has not been delivered in writing to, Victory or Victory Bank.
Article V.
COVENANTS OF THE PARTIES
5.01 Conduct of Business. Except with the consent of the other parties
hereto, during the period from the date of this Agreement to the Effective Date:
(a) Victory Bank and Victory will conduct their businesses and engage
in transactions only in the ordinary course and consistent with prudent banking
practice.
(b) Neither Victory nor Victory Bank shall (i) increase by more than
ten percent (10%) the compensation payable by Victory Bank or Victory to any of
its directors, officers, agents, consultants, or any of its employees whose
total compensation after such increase would be in excess of $35,000 per annum,
(ii) grant or pay any extraordinary bonus, percentage compensation, service
award or other like benefit to any such director, officer, agent, consultant or
employee, or (iii) make or agree to any extraordinary welfare, pension,
retirement or similar payment or arrangement for the benefit of any such
director, officer, agent, consultant or employee; provided, however, Victory
Bank may pay its regular annual performance bonuses to employees and directors,
which amount is included in monthly accruals and which bonuses will not exceed
$200,000.
(c) Neither Victory nor Victory Bank shall sell or dispose of assets
material to the normal operations of Victory or Victory Bank except in the
ordinary course of business.
(d) Neither Victory nor Victory Bank shall enter into any new capital
commitments or make any capital expenditures, except commitments or expenditures
within existing operating and capital budgets or otherwise in the ordinary
course of business.
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(e) Neither Victory Bank nor Victory shall authorize or issue any
additional shares of any class of its capital stock or any securities
exchangeable for or convertible into any such shares or any options or rights to
acquire any such shares, nor shall Victory Bank or Victory otherwise authorize
or affect any change in its capitalization as set forth in the Articles of
Incorporation of Victory and Victory Bank, as each have been amended, to the
date hereof.
(f) No dividends shall be paid by Victory, except that in the event
that the Effective Date is after the record date for cash dividends on DGC
Common Stock for the first quarter of 1998, Victory may declare a cash dividend
in an amount up to forty percent (40%) of Victory's earnings for the first
quarter of 1998, and in the event that the Effective Date is after the record
date for cash dividends on DGC Common Stock for the second quarter of 1998,
Victory may declare a cash dividend in an amount up to forty percent (40%) of
Victory's earnings for the second quarter of 1998, with such dividends to be
paid to the shareholders of Victory as soon as practical after the end of the
respective quarters. No dividends shall be paid by Victory Bank except dividends
by Victory Bank to Victory to the extent necessary to pay necessary and routine
expenses of Victory and expenses provided for in Section 9.01 hereof.
5.02 Limitation on Actions. Prior to the Effective Date or until
the termination of this Agreement, Victory shall not, without the prior
approval of the chief executive officer of DGC,
(a) solicit or encourage inquiries or proposals with respect to;
or
(b) 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,
Victory or any subsidiary thereof, or any business combination with Victory or
any subsidiary thereof, other than as contemplated by this Agreement; and shall
instruct its officers, directors, agents and affiliates to refrain from doing
any of the above. Notwithstanding the foregoing, Victory, after written notice
to DGC, may furnish information in response to unsolicited inquiries from third
parties and/or engage in discussions or negotiations with third parties if, in
each case, the Board of Directors of Victory determines in good faith based on
the advice of legal counsel that the failure to furnish information in response
to such unsolicited inquiries and/or engage in such discussions or negotiations
is likely to be deemed to constitute a breach of fiduciary duties under
applicable Tennessee law. If (i) Victory furnishes information or enters into
discussions or negotiations with another party prior to June 30, 1998, and (ii)
Victory enters into a definitive agreement with such party prior to December 31,
1998, Victory shall pay DGC a fee of $500,000.
Victory Bank and Victory agree to notify DGC by telephone within
twenty-four (24) hours of receipt of any inquiry with respect to a proposed
merger, consolidation, assets acquisition, tender offer or other takeover
transaction with another person or receipt of a request for information from the
FDIC, OCC or other governmental authority with respect to a proposed acquisition
of Victory Bank or Victory by another party.
5.03 Current Information. During the period from the date of this
Agreement to the Effective Date, Victory Bank and Victory will cause one or more
of its designated representatives to confer on a regular and frequent basis with
representatives of DGC and to report the general status of its ongoing
operations. In addition, separate reporting on matters involving the loan
portfolio will occur monthly and will include, but not be limited to, (i) all
board reports, (ii) new and renewed loans (including loan applications), (iii)
delinquency reports, (iv) loan extensions, (v) to the extent possible, loan
policy exceptions, loan documentation exceptions, and financial statement
exceptions, (vi) watch list reports, (vii) all written communications concerning
problem loan accounts greater than $50,000, (viii) notification and written
details involving new loan products and/or loan programs, and (ix) such other
information regarding specific loans, the loan portfolio and management of the
loan portfolio as may be requested. Victory Bank and Victory will promptly
notify DGC of any material change in the normal course of their business or in
the operation of their properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of litigation involving either
party, and will keep DGC fully informed of such events.
5.04 Due Diligence; Access to Properties and Records;
Confidentiality. (a) DGC shall be entitled to conduct a preliminary due
diligence review of the books, records and operations of the Victory
Consolidated Group, including, but not limited to, a review of Victory
Consolidated Group's loan portfolios, ORE and classified assets,
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investment portfolios and properties; provided, however that any review
conducted by DGC pursuant to the provisions of this Section shall be completed
within thirty (30) days from the date of this Agreement.
(b) For purposes of allowing DGC and DGNB and their counsel to conduct
due diligence and to prepare regulatory submissions, and for other relevant
purposes, Victory Bank and Victory shall permit DGC reasonable access to their
properties during normal business hours, and shall disclose and make available
to DGC and its agents all books, papers and records relating to their assets,
stock ownership, properties, operations, obligations and liabilities, including,
but not limited to: their books of account (including their general ledgers);
tax records; minute books of directors' and shareholders' meetings; charter
documents; bylaws; material contracts and agreements; filings with any
regulatory authority; litigation files; compensatory plans affecting its
employees; and any other materials pertaining to business activities, projects
or programs in which the other parties may have a reasonable interest in light
of the proposed Holding Company Merger. No member of the Victory Consolidated
Group shall be required to provide access to or to disclose information where
such access or disclosure would violate or prejudice the rights of any customer
or other person, would jeopardize the attorney-client privilege of the
institution in possession or control of such information, or would contravene
any law, rule, regulation, order, judgment, decree or binding agreement. The
parties will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(c) All information furnished by any member of the Victory Consolidated
Group pursuant hereto shall be treated as the sole property of the party
furnishing the information until consummation of the Holding Company Merger
contemplated hereby and, if such Holding Company Merger shall not occur, DGC and
DGNB shall return to Victory all documents or other materials containing,
reflecting or referring to such information, shall use its best efforts to keep
confidential all of such information, and shall not directly or indirectly use
such information for any competitive or other commercial purpose. The obligation
to keep such information confidential shall continue for two (2) years from the
date the proposed Holding Company Merger is abandoned and shall not apply to (a)
any information which (i) DGC and DGNB can establish by convincing evidence was
already in its possession prior to the disclosure thereof by Victory or Victory
Bank, (ii) was then generally known to the public or set forth in public
records, (iii) became known to the public through no fault of DGC or DGNB, or
(iv) was disclosed to the party receiving the information by a third party not
bound by an obligation of confidentiality, or (b) disclosures in accordance with
an order of a court of competent jurisdiction.
5.05 Interim Financial Statements. As soon as reasonably available, but
in no event more than fifteen (15) days after the end of each month ending after
the date of this Agreement, Victory Bank and Victory will deliver to DGC copies
of their monthly financial statements.
5.06 Regulatory Matters. (a) DGC shall prepare and file a registration
statement with the SEC on Form S-4 under the Securities Act (the "Registration
Statement"), including a proxy statement (the "Proxy Statement") to be mailed to
Victory shareholders in connection with the meeting to be called to consider the
Holding Company Merger, as soon as reasonably practicable following the date of
this Agreement. The Registration Statement shall comply in all material respects
with the Securities Act and DGC will use its best efforts to cause the
Registration Statement to be declared effective as soon as practicable, to
qualify the DGC 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 transactions contemplated hereby.
(b) DGC will use its best efforts to prepare all necessary
documentation, to effect all necessary filings and to obtain all necessary
permits, consents, approvals and authorizations of all third parties and
governmental bodies necessary to consummate the transactions contemplated by
this Agreement, including those required by the OCC, the Federal Reserve Board,
the FDIC and the Commissioner.
(c) Victory shall cooperate in preparing the Registration Statement and
the Proxy Statement. Victory will promptly furnish all such data and information
relating to it and its subsidiaries as DGC may reasonably request for the
purpose of including such data and information in the Registration Statement.
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5.07 Approval of Shareholders. Victory will (i) take all steps
necessary to call, give notice of, convene and hold a special meeting of its
shareholders as soon as practicable for the purpose of approving this Agreement
and the transactions contemplated hereby and for such other purposes as may be
necessary or desirable, (ii) subject to the fiduciary obligations of its Board
of Directors, recommend to its shareholders the approval of this Agreement and
the transactions contemplated hereby and such other matters as may be submitted
to its shareholders in connection with this Agreement, and (iii) cooperate and
consult with DGC and DGNB with respect to each of the foregoing matters.
5.08 Compliance with SEC Rules 144 and 145. Victory shall identify in a
letter to DGC, after consultation with its counsel and with DGC and its counsel,
persons who may be deemed to be affiliates of Victory as that term is defined in
Rule 145 under the Securities Act and who will become beneficial owners of DGC
Common Stock pursuant to the Holding Company Merger ("Victory Affiliates").
Victory shall use its best efforts to cause all Victory Affiliates to execute
and deliver to DGC written agreements to comply with the applicable resale
restrictions set forth in Rules 144 and 145 under the Securities Act, with such
restrictions as are necessary to permit the Holding Company Merger to be treated
for accounting purposes as a pooling of interests.
5.09 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary or
desirable action.
5.10 Public Announcements. DGC, DGNB, Victory Bank and Victory will
cooperate with each other in the development and distribution of all news
releases and other public information disclosures with respect to this Agreement
or any of the transactions contemplated hereby. No party to this Agreement shall
make any public announcement or otherwise make any disclosure (either public or
private), other than such disclosure to employees or agents of any such party as
may be required to carry out the transactions contemplated by this Agreement and
except as may be required by law, without the express written consent of all
parties hereto. Each party hereto shall undertake such reasonable steps as may
be required to ensure that its employees and agents comply with the provisions
of this Section 5.10.
5.11 Benefits. From and after the Effective Date, DGC will, subject to
compliance with applicable legal and regulatory requirements, provide coverage
for all Victory Bank employees under all DGC employee benefit plans for which
they are eligible, as soon as practicable after the Effective Date. All prior
years of service of Victory Bank employees will be counted for vesting and
eligibility purposes under all applicable DGC employee benefit plans to the
extent permitted by applicable law. Any Victory Bank employee who, immediately
prior to the Effective Date, is covered by or is a participant in a Victory Bank
employee benefit plan listed in Schedule 3.19 of this Agreement, shall, on the
Effective Date, be covered by or participate in the comparable DGC employee
benefit plan if a comparable plan otherwise is maintained by DGC and if the
eligibility requirements of the DGC plan are met. DGC has received copies of
those certain Performance Compensation Agreements, by and between Victory Bank
and Messrs. Frank Cianciola dated April 27, 1995, as amended May 15, 1997, Ken
McNeil dated October 1, 1996, and Mike McCarver dated July 20, 1995, and DGC
further acknowledges that it is aware of Victory Bank's obligations thereunder.
The Victory Bank employees, except for Frank Cianciola, Ken McNeil and Mike
McCarver, shall be entitled to receive severance benefits according to the
current DGNB severance policy.
5.12 Indemnification. (a) From and after the Effective Date, DGC shall
indemnify, defend, and hold harmless the current and former directors, officers,
employees and agents of Victory (each such director, officer, employee or agent
referred to as a "Holding Company Indemnified Party") against all losses,
claims, damages, liabilities, judgments (and related expenses including but not
limited to, attorney's fees and amounts paid in settlement), joint, several or
solidary, and any action or other proceeding in respect thereof, to which the
Holding Company Indemnified Parties or any of them become subject, based upon or
arising out of actions or omissions of such persons occurring at or prior to the
Effective Date (including the transactions contemplated by this Agreement) to
the full extent permitted
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under Tennessee Law or by Victory's Articles of Incorporation and Bylaws as in
effect on the date hereof, whichever is greater.
(b) From and after the Effective Date, DGNB shall indemnify, defend,
and hold harmless the current and former directors, officers, employees and
agents of Victory Bank (each such director, officer, employee or agent referred
to as a "Bank Indemnified Party") against all losses, claims, damages
liabilities, judgments (and related expenses including but not limited to,
attorney's fees and amounts paid in settlement), joint, several or solidary, and
any action or other proceeding in respect thereof, to which the Bank Indemnified
Parties or any of them become subject, based upon or arising out of actions or
omissions of such persons occurring at or prior to the Effective Date (including
the transactions contemplated by this Agreement) to the full extent permitted
under Tennessee Law or by Victory Bank's Articles of Incorporation and Bylaws as
in effect on the date hereof, whichever is greater.
5.13 Listing Application. DGC shall promptly prepare and submit to the
New York Stock Exchange a listing application covering the shares of DGC Common
Stock issuable in the Holding Company Merger, and shall use its best efforts to
obtain, prior to the Effective Date, approval for the listing of such DGC Common
Stock for trading on the New York Stock Exchange upon official notice of
issuance.
5.14 Reports of DGC. DGC shall timely file all reports required to be
filed with the SEC and the New York Stock Exchange between the date of this
Agreement and the Effective Date, and shall deliver to Victory copies of all
such reports promptly after the same are filed. If financial statements are
contained in such reports to the SEC, such financial statements will fairly
present the financial position of DGC on a consolidated basis as of the date
indicated and the results of operations and changes in the financial position of
DGC on a consolidated basis as of the date indicated, and the results of
operations and changes in the financial position of DGC for the period
indicated, in accordance with generally accepted accounting principles
applicable to bank holding companies, applied on a consistent basis. As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the rules and regulations promulgated by the SEC and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statement
therein, in light of the circumstances under which they were made, not
misleading.
5.15 Schedules. Victory and Victory Bank shall, within ten (10) days
after the date of this Agreement, provide Schedule 3.04, Schedule 3.12, Schedule
3.13, Schedule 3.16, and Schedule 3.24 to DGC and DGNB. All other Schedules
referred to in this Agreement are being delivered to DGC and DGNB with the
executed copy of this Agreement.
Article VI.
CLOSING CONDITIONS
6.01 Conditions to Each Party's Obligations under this Agreement. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions,
none of which may be waived:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the affirmative vote of the holders of at least a majority of
the outstanding shares of Victory Common Stock, voted at the special meeting of
shareholders of Victory called pursuant to Section 5.07 hereof.
(b) None of the parties hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Holding Company Merger.
(c) DGC, DGNB, Victory and Victory Bank shall have received an
opinion of Messrs. Watkins Ludlam& Stennis, P.A., dated the Effective Date and
in form and substance reasonably satisfying to counsel for Victory,
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substantially to the effect that the transactions contemplated by this Agreement
will be treated for federal income tax purposes as a tax-free reorganization
under Section 368 of the Code.
(d) A Registration Statement relating to the shares of DGC Common Stock
to be issued pursuant to this Agreement shall have become effective under the
Securities Act and shall not be subject to any stop order or a threatened stop
order. All necessary consents or permits from or registrations or filings with
state securities commissions shall have been obtained or made.
(e) All Governmental Approvals shall have been obtained.
6.02 Conditions to the Obligations of DGC and DGNB under this
Agreement. The obligations of DGC and DGNB under this Agreement shall be further
subject to the satisfaction, at or prior to the Effective Date, of the following
conditions, any one or more of which may be waived by DGC and DGNB:
(a) Each of the obligations of Victory Bank and Victory required to be
performed by it at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with and the
representations and warranties of Victory Bank and Victory contained in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Effective Date as though made at and as of the
Effective Date (except as otherwise contemplated by this Agreement) and DGC and
DGNB shall have received a certificate to that effect signed by the president of
Victory Bank and Victory.
(b) All action required to be taken by, or on the part of, Victory Bank
and Victory to authorize the execution, delivery and performance of this
Agreement by Victory Bank and Victory and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Boards of
Directors of Victory Bank and Victory and DGC and DGNB shall have received
certified copies of the resolutions evidencing such authorization.
(c) Any and all permits, consents, waivers, clearances, approvals and
authorizations (in addition to those referred to in Section 6.01 hereof) of all
third parties and governmental bodies shall have been obtained by Victory Bank
and Victory, which are necessary in connection with the consummation of the
Holding Company Merger by Victory and Victory Bank and the other transactions
contemplated hereby.
(d) DGC and DGNB shall have received an opinion from Messrs. Baker,
Donelson, Bearman & Caldwell, counsel to Victory Bank and Victory, dated the
date of the Closing, in form satisfactory to DGNB and DGC, to the effect that:
i) Victory is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Victory Bank is a state banking corporation
duly organized, validly existing and in good standing under the laws of
Tennessee (a) has all requisite corporate power to own, lease and operate its
properties and to carry on its business as now being conducted, (b) is duly
authorized to conduct a general banking business under the Banking Laws of the
State of Tennessee, and (c) is an insured bank as defined in the Federal Deposit
Insurance Act;
ii) This Agreement has been duly and validly authorized, executed and
delivered by Victory and Victory Bank and is valid and enforceable against each
of them, except that enforcement may be limited by bankruptcy, reorganization,
insolvency and other similar laws and court decisions relating to or affecting
the enforcement of creditors' rights generally and by general equitable
principles;
iii) The authorized capital stock of Victory consists of 1,500,000
shares of Victory Common Stock, of which, as of a date which is within thirty
days of the Effective Date, a specified number of shares have been duly issued,
are presently outstanding and are fully paid and non-assessable;
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iv) The authorized capital stock of Victory Bank consists of 1,000,000
shares of Victory Bank Common Stock of which, as of a date which is within
thirty days of the Effective Date, a specified number of shares are issued and
outstanding; all of such outstanding shares are validly issued, fully paid and
non-assessable;
v) The execution and delivery by Victory and Victory Bank of this
Agreement, consummation by Victory and Victory Bank of the transactions
contemplated hereby and compliance by Victory and Victory Bank with the
provisions hereof will not violate the Articles of Incorporation of Victory or
Victory Bank or violate, result in a breach of, or constitute a default under,
any material lease, mortgage, contract, agreement, instrument, judgment, order
or decree to which Victory or Victory Bank is a party or to which they may be
subject; and
vi) Such counsel has participated in several conferences with
representatives of the parties of this Agreement and their respective
accountants and counsel in connection with the preparation of the Registration
Statement and the Proxy Statement to be filed in connection with the
transactions contemplated by this Agreement and have considered the matters
required to be stated therein and the statements contained therein, and based on
the foregoing (in certain circumstances relying as to materiality on the
opinions of officers and representatives of the parties to this Agreement)
nothing has come to the attention of such counsel that would lead them to
believe that such Registration Statement or the Proxy Statement, as amended or
supplemented if it has been amended or supplemented, at the time it became
effective and as amended or supplemented, (in the case of the Registration
Statement) or at the time distributed to shareholders (in the case of the Proxy
Statement), contained any untrue statement of a material fact or omitted a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except in each such case for the financial statements
and other financial and statistical data included therein, as to which no
opinion need be rendered).
As to matters of fact, counsel to Victory and Victory Bank may rely, to
the extent they deem appropriate, upon certificates of officers of Victory and
Victory Bank, provided, such certificates are delivered to DGC and DGNB prior to
the Closing or attached to the opinion of counsel.
(e) There shall not have occurred any material adverse change in the
financial condition, results of operations, or business of Victory or Victory
Bank from the date of the Victory Latest Balance Sheet to the Closing.
(f) Victory shall have used its best efforts to cause all Victory
Affiliates to execute and deliver to DGC written agreements to comply with the
applicable resale restrictions set forth in Rule 145 under the Securities Act,
with such restrictions as are necessary to permit the Holding Company Merger to
be treated for accounting purposes as a pooling of interests.
(g) DGC shall have received an opinion of KPMG Peat Marwick, LLP, in
form and substance satisfactory to DGC, and substantially to the effect that on
the basis of a review of this Agreement and all of the circumstances related
thereto, in the opinion of KPMG Peat Marwick, LLP under Accounting Principles
Board Opinion No. 16, the Holding Company Merger may be accounted for as a
pooling of interests.
(h) Victory and Victory Bank, on or before the Effective Date, shall
have caused each member of the Board of Directors of Victory and Victory Bank to
have entered into a non-solicitation agreement with DGC and DGNB in the form of
the non-solicitation agreement attached hereto as Schedule 6.02, providing for a
term of one (1) year.
Victory Bank and Victory will furnish DGC and DGNB with such
certificates of their officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.02 as DGC and DGNB may
reasonably request.
6.03 Conditions to the Obligations of Victory Bank and Victory under
this Agreement. The obligations of Victory Bank and Victory under this Agreement
shall be further subject to the satisfaction, at or prior to the Effective Date,
of the following conditions, any one or more of which may be waived by Victory
Bank and Victory:
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(a) Each of the obligations of DGC or DGNB, respectively, required to
be performed by them at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with and the
representations and warranties of DGC and DGNB contained in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the Effective Date as though made at and as of the Effective Date
(except as otherwise contemplated by this Agreement) and Victory Bank and
Victory shall have received certificates to that effect signed by the presidents
of DGC and DGNB, respectively.
(b) All action required to be taken by, or on the part of, DGC and DGNB
to authorize the execution, delivery and performance of this Agreement of DGC
and DGNB and the consummation of the transactions contemplated hereby shall have
been duly and validly taken by the Boards of Directors of DGC and DGNB,
respectively, and Victory Bank and Victory shall have received certified copies
of the resolutions evidencing such authorization.
(c) There shall not have occurred any material adverse change in the
financial condition, results of operations, or business of DGC or DGNB from June
30, 1997, to the Closing.
(d) Victory and Victory Bank shall have received from Messrs. Watkins,
Ludlam and Stennis, P.A., counsel for DGC and DGNB (or as to certain matters
involving Tennessee law from Tennessee counsel to DGC and DGNB), an opinion,
dated as of the Closing, in form and substance satisfactory to Victory and
Victory Bank, to the effect that:
i) DGC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Mississippi and has all
requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. DGNB is a national
bank duly organized, validly existing and in good standing under the
laws of the United States (a) has all requisite corporate power to own,
lease and operate its properties and to carry on its business as now
being conducted, (b) is duly authorized to conduct a general banking
business under the Banking Laws of the United States, and (c) is an
insured bank as defined in the Federal Deposit Insurance Act;
ii) This Agreement has been duly and validly authorized,
executed and delivered by DGC and DGNB and is valid and enforceable,
except that enforcement may be limited by bankruptcy, reorganization,
insolvency and other similar laws and court decisions relating to or
affecting the enforcement of creditors' rights generally and by general
equitable principles;
iii) The authorized capital stock of DGC consists of
100,000,000 shares of DGC Common Stock, 25,000,000 shares of Class A
Voting Preferred Stock, no par value, and 25,000,000 shares of Class B
NonVoting Preferred Stock, no par value of which, as of a date which is
within thirty days of the Effective Date, a specified number of shares
of DGC Common Stock have been duly issued, are presently outstanding
and are fully paid and non-assessable. All shares of DGC Common Stock
to be issued to holders of Victory Common Stock will be, when issued as
described in this Agreement and the Registration Statement, duly
authorized and validly issued, fully paid and non-assessable, free of
liens, security interests, pledges or other encumbrances and all
preemptive or similar rights other than liens, security interests,
pledges or other encumbrances placed thereon by the holders of Victory
Common Stock;
iv) The authorized capital stock of DGNB consists of 40,000
shares of DGNB Common Stock of which, as of a date which is within
thirty days of the Effective Date, a specified number of shares have
been issued and outstanding; all of such outstanding shares are validly
issued, fully paid and non-assessable;
v) The execution and delivery by DGC and DGNB of this
Agreement, consummation by DGC and DGNB of the transactions
contemplated hereby and compliance by DGC and DGNB with the provisions
hereof will not violate the Articles of Incorporation or Association of
DGC and DGNB or violate, result in a breach of, or constitute a default
under, any material lease, mortgage, contract, agreement, instrument,
judgment, order or decree to which DGC and DGNB is a party or to which
they may be subject;
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vi) the Registration Statement has become effective, and to
such counsel's knowledge, no stop order suspending its effectiveness
has been issued nor have any proceedings for that purpose been
instituted;
vii) the Registration Statement and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of
the Securities Act and the rules and regulations promulgated
thereunder, and we do not know of any contracts or documents required
to be filed as exhibits to the Registration Statement which are not
filed as required; it being understood that such counsel need express
no opinion as to the financial statements or other financial or
statistical data contained in or omitted from the Registration
Statement or the Proxy Statement; and
viii) Such counsel has participated in several conferences
with representatives of the parties of this Agreement and their
respective accountants and counsel in connection with the preparation
of the Registration Statement and the Proxy Statement to be filed in
connection with the transactions contemplated by this Agreement and
have considered the matters required to be stated therein and the
statements contained therein, and based on the foregoing (in certain
circumstances relying as to materiality on the opinions of officers and
representatives of the parties to this Agreement) nothing has come to
the attention of such counsel that would lead them to believe that such
Registration Statement or the Proxy Statement, as amended or
supplemented if it has been amended or supplemented, at the time it
became effective and as amended or supplemented, (in the case of the
Registration Statement) or at the time distributed to shareholders (in
the case of the Proxy Statement), contained any untrue statement of a
material fact or omitted a material fact required to be stated therein
or necessary to make the statements therein not misleading (except in
each such case for the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered).
As to matters of fact, counsel to DGC and DGNB may rely, to the extent
they deem appropriate, upon certificates of officers of DGC and DGNB, provided,
such certificates are delivered to Victory and Victory Bank prior to the Closing
or attached to the opinion of counsel.
DGC and DGNB will furnish Victory Bank and Victory with such
certificates of their officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.03 as Victory Bank and
Victory may reasonably request.
(e) Victory shall have received an opinion, dated as of the date of
this Agreement and updated as of a date within ten (10) days prior to the date
of the mailing of the Proxy Statement (the "Mailing Date"), issued to Victory
and its shareholders by Mercer Capital Corporation, or another firm acceptable
to both Victory and DGC, suitable for inclusion in the Proxy Statement, that the
transactions contemplated by this Agreement are fair to the shareholders of
Victory from a financial point of view, and such opinion has not been withdrawn
prior to the Effective Date.
(f) The Registration Statement shall have been declared effective. No
order regarding the sale of the DGC Common Stock in any jurisdiction shall have
been issued or shall be, to DGC's knowledge contemplated. The DGC Common Stock
to be issued to Victory shareholders shall be approved for listing for trading
on the New York Stock Exchange upon official notice of issuance.
(g) During the twenty (20) consecutive trading days prior to the third
business day prior to the Effective Date, DGC shall have not have announced a
stock split or stock dividend, an extraordinary increase in cash dividends, or
the listing of DGC Common Stock on another exchange, unless required by federal
securities laws and regulations.
Article VII.
CLOSING
7.01 Time and Place. Subject to the provisions of Articles VI and VIII
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of DGC, One Deposit Guaranty Plaza, 210 East Capitol Street,
Jackson, Mississippi 39205 at 9:00 A.M., local time, on the last business day of
the month after all of the conditions contained in Section 6.01(a) and Section
6.01(e) are satisfied or at such other place, at such other time, or on such
other date as DGC, DGNB, Victory and Victory Bank may mutually agree upon for
the Closing to take place.
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7.02 Deliveries at the Closing. Subject to the provisions of Articles
VI and VIII hereof, at the Closing there shall be delivered to DGC, DGNB,
Victory and Victory Bank the opinions, certificates, and other documents and
instruments required to be delivered under Article VI hereof.
Article VIII.
TERMINATION
8.01 Termination. This Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval of the Holding Company
Merger by the shareholders of Victory:
(a) by mutual written consent of the parties, properly authorized
by their respective Boards of Directors;
(b) by DGC and DGNB, if at the time of such termination there shall
have been any material adverse change in the financial condition, results of
operations, or business of Victory or Victory Bank from the date of the Victory
Latest Balance Sheet;
(c) by Victory and Victory Bank, if at the time of such termination
there shall have been any material adverse change in the financial condition,
results of operations, or business of DGC from June 30, 1997;
(d) by any party hereto, if a United States District Court shall rule
upon application of the Department of Justice after a full trial on the merits
or a decision on the merits based on a stipulation of facts that the
transactions contemplated by this Agreement violate the antitrust laws of the
United States;
(e) by any party hereto, if at the special meeting of shareholders to
be called by Victory pursuant to this Agreement, this Agreement shall not have
been approved by the affirmative vote of the holders of at least a majority of
the outstanding shares of Victory Common Stock voted at the special meeting of
shareholders of Victory called pursuant to Section 5.07 hereof;
(f) by DGC and DGNB, in the event there are dissenting
shareholders who hold more than ten percent (10%) of the shares of Victory
Common Stock;
(g) by DGC and DGNB, within thirty (30) days from the date of this
Agreement, in the event DGC, based on DGC's opportunity to conduct a preliminary
due diligence review of the books, records and operations of the Victory
Consolidated Group as provided in Section 5.04(a) of this Agreement, in good
faith determines in its sole discretion that the results of the review conducted
by DGC or its agents do not support DGC's expectations prior to the execution
and delivery of this Agreement as to the earnings, financial condition,
liabilities, and business of the Victory Consolidated Group based on the
representations and warranties contained herein as of the date of this Agreement
and the Schedules and other information provided to DGC by Victory prior to the
execution and delivery of this Agreement; or
(h) by any party hereto if Closing shall not have occurred by
June 30, 1998.
8.02 Effect of Termination. In the event of termination of this
Agreement by either DGC, DGNB, Victory or Victory Bank as provided above, this
Agreement shall forthwith become void and except as provided in Section 5.04 and
Section 9.01 hereof there shall be no further liability on the part of Victory
Bank, Victory, DGC, DGNB, or their respective officers or directors.
Article IX.
MISCELLANEOUS
9.01 Expenses. All out-of-pocket costs and expenses incurred in
connection with the Holding Company Merger, including, but not limited to, fees
and expenses of brokers, finders, financial consultants, accountants and
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<PAGE>
counsel shall be paid by the party incurring such expenses. Victory and Victory
Bank agree that aggregate fees paid to brokers, finders and financial
consultants will not exceed $60,000.
9.02 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
registered or certified first class mail (return receipt requested) or by
facsimile, cable, telegram or telex addressed as follows:
(a) If to DGC or DGNB, to:
Deposit Guaranty Corp.
One Deposit Guaranty Plaza
210 East Capitol Street
P.0. Box 730
Jackson, Mississippi 39205
Attention: Thomas M. Hontzas
Fax Number: (601) 354-8288
Copy to:
Watkins Ludlam & Stennis, P.A.
633 North State Street (39202)
Post Office Box 427
Jackson, Mississippi 39205-0427
Attention: L. Keith Parsons, Esq.
Fax Number: (601) 949-4804
(b) If to Victory Bank or Victory, to:
Victory Bank and Trust Company
Mr. David F. Leake, Chairman
c/o Benham-Leake
Suite 401
6000 Poplar Avenue
Memphis, Tennessee 38120
Fax Number: (901) 767-5555
Copy to:
Mr. Robert Walker
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2000
Memphis, Tennessee 38103
Fax Number: (901) 577-2303
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
9.03 Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, and their respective
successors and assigns; provided, however, that neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties, and that nothing
in this Agreement is intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of this Agreement.
9.04 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the consummation of the Holding Company Merger, DGNB, Victory and
Victory Bank may, by action mutually taken by their respective Boards of
Directors (i) amend this Agreement, (ii) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (iii) waive
any inaccuracies in the representations and warranties contained herein or in
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<PAGE>
any document delivered pursuant hereto, or (iv) waive compliance with any of the
agreements or conditions contained in Articles V and VI (other than the
conditions set forth in Section 6.01 hereof); provided, however, that after any
approval of the Holding Company Merger by the shareholders of Victory, there may
not be, without further approval of such shareholders, any amendment, extension
or waiver of this Agreement which changes the amount or form of consideration to
be delivered to shareholders of Victory. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Any agreement on the part of a party hereto to any extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
9.05 Complete Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. There are no restrictions, agreements, promises, warranties, covenants
or undertakings other than those expressly set forth herein or therein. This
Agreement supersedes all prior agreements and understandings between the
parties, both written and oral, with respect to its subject matter.
9.06 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Date, or the earlier termination of this Agreement pursuant to Article VIII
hereof. Each party hereby agrees that its sole right and remedy with respect to
any breach of a representation or a warranty by the other party shall be to not
consummate the transactions described herein if such breach results in the
nonsatisfaction of a condition set forth in Section 6.02(a) or 6.03(a) hereof,
provided, however, that the foregoing shall not be deemed a waiver of any claim
for intentional misrepresentation or fraud.
9.07 Counterparts. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.08 Governing Law. This Agreement shall be governed by the laws of the
State of Mississippi, without giving effect to the principles of conflicts of
laws thereof. Venue for any action brought to enforce this Agreement shall
properly be brought in any court of general jurisdiction in Shelby County,
Tennessee or Hinds County, Mississippi. In the event that an action shall be
brought under this Agreement, all attorneys fees shall be paid to the prevailing
party.
9.09 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, DGC, DGNB, Victory, and Victory Bank have caused
this Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.
[Signatures]
<PAGE>
EXHIBIT B
FAIRNESS OPINION OF MERCER CAPITAL MANAGEMENT, INC.
<PAGE>
January 20, 1998
The Board of Directors
c/o Mr. David F. Leake
Chairman of the Board of Directors
Victory Bancshares, Inc.
894 Germantown Parkway
Cordova, Tennessee 38018
Re: Fairness Opinion Regarding the Proposed Acquisition of Victory Bancshares,
Inc., by Deposit Guaranty Corp.
Dear Directors:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained
by the Board of Directors of Victory Bancshares, Inc. ("Victory ") to issue a
fairness opinion for the proposed merger between Victory and Deposit Guaranty
Corp. ("Deposit Guaranty"). A representative of Mercer Capital previously
presented an oral, preliminary fairness opinion to the Board of Directors on
September 23, 1997. The fairness opinion is issued from a financial point of
view on behalf of Victory shareholders.
Under the terms of the Agreement and Plan of Merger by and among
Deposit Guaranty Corp., Deposit Guaranty National Bank, Victory Bancshares,
Inc., and Victory Bank and Trust Company ("the Agreement"), dated September 24,
1997, Victory will be merged into Deposit Guaranty Corp. and Victory Bank will
be merged into Deposit Guaranty National Bank. Upon consummation of the mergers,
Victory Common Stock will be converted into Deposit Guaranty Common Stock based
upon the following: (a) 773,275 Deposit Guaranty Common Shares will be issued if
the average market price (as defined) of Deposit Guaranty's Common Stock is
between $29.74 per share and $34.92 per share; (b) if the average market price
of Deposit Guaranty's Common Stock is greater than $28.45 per share and less
than $29.74 per share, then the number of shares to be issued will be determined
by dividing $23.0 million by the average market price; (c) if the average market
price of Deposit Guaranty's Common Stock is greater than $34.92 per share and
less than $36.21 per share, then the number of shares to be issued will be
determined by dividing $27.0 million by the average market price; (d) if the
average market price of Deposit Guaranty's Common Stock is equal to or greater
than $36.21 per share, then 745,650 Deposit Guaranty Common Shares shall be
issued; and, (e) if the average market price of Deposit Guaranty's Common Stock
is less than or equal to $28.45 per share, then 808,435 Deposit Guaranty Common
Shares shall be issued.
The exchange ratio shall be determined by dividing the number of
Deposit Guaranty Common Shares issued by the number of outstanding Victory
shares. The average market price is defined in the Agreement as the average
closing price of Deposit Guaranty's Common Stock as reported by the New York
Stock Exchange for the 20 trading days ending three days before the effective
date.
Based upon the terms of the Agreement and the approximate trading value
of Deposit Guaranty's Common Stock as of the date of the opinion ($53.50 per
share), the implied value of the proposed merger is $39.9 million, or $48.38 per
fully diluted share. The implied price represents approximately 464% of
Victory's September 30, 1997 reported book value and 39.9x estimated 1997
consolidated earnings of approximately $1.0 million before giving consideration
to merger related expenses. The ultimate value of the merger to Victory
stockholders, however, will be contingent upon the number of shares issued and
the market value of Deposit Guaranty's Common Stock on the effective date.
As part of the engagement, representatives of Mercer Capital visited
with Victory management in Memphis, Tennessee and with Deposit Guaranty
management in Jackson, Mississippi. Factors considered in rendering the opinion
include:
1. Terms of the Agreement;
2. The process by which the Agreement was negotiated;
3. The valuation analysis of Victory presented by Mercer Capital to the
Board of Directors at the September 23, 1997 meeting;
<PAGE>
4. An analysis of the estimated pro-forma changes in book value per share,
earnings per share, and dividends per share from the perspective of
the Victory shareholders;
5. A review of Deposit Guaranty's historical financial performance,
historical stock pricing, the liquidity of its shares and current
pricing in relation to other publicly traded bank holding companies
based in the U.S.; and,
6. Tax consequences of the merger for Victory shareholders.
Mercer Capital did not compile nor audit Victory's or Deposit
Guaranty's financial statements, nor have we independently verified the
information reviewed. We have relied upon such information as being
complete and accurate in all material respects. We have not made an
independent valuation of the loan portfolio, adequacy of the loan loss
reserve or other assets or liabilities of either institution.
Our opinion does not constitute a recommendation to any shareholder as
to how the shareholder should vote on the proposed merger; nor have we expressed
any opinion as to the prices at which any security of Deposit Guaranty or
Victory might trade in the future.
Based upon our analysis of the proposed transaction, it is our opinion
that the consideration to be received by the holders of Victory Common Stock is
fair, from a financial point of view, to the common shareholders of Victory .
Sincerely yours,
MERCER CAPITAL MANAGEMENT, INC.
/s/ Jeff K. Davis
-----------------------
Jeff K. Davis, ASA, CFA
Vice President
<PAGE>
EXHIBIT C
TITLE 48, CHAPTER 23 OF THE
TENNESSEE CODE
<PAGE>
WEST'S TENNESSEE CODE
TITLE 48. CORPORATIONS AND ASSOCIATIONS
CHAPTER 23. BUSINESS CORPORATIONS--DISSENTERS' RIGHTS
PART 1--RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. Definitions. -- As used in this chapter, unless the context otherwise
requires:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 48-23- 102 and who exercises that right when and in
the manner required by part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. Right to dissent. -- (a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by ss.
48-21-104 or the charter and the shareholder is entitled to vote on the
merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under ss. 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
<PAGE>
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash under
ss. 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors provides
that voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under ss. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. Dissent by nominees and beneficial owners. -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one (1) person and
notifies the corporation in writing of the name and address of each person on
whose behalf the record shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the partial dissenter dissents and the partial dissenter's other shares
were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on the beneficial shareholder's behalf only if
the beneficial shareholder:
(1) Submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(2) Does so with respect to all shares of the same class of which the
person is the beneficial shareholder or over which the person has power to
direct the vote.
PART 2--PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. Notice of dissenters' rights. -- (a) If proposed corporate action
creating dissenters' rights under ss. 48- 23-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under ss. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in ss. 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
<PAGE>
48-23-202. Notice of intent to demand payment. -- (a) If proposed corporate
action creating dissenters' rights under ss. 48-23-102 is submitted to a vote at
a shareholders' meeting, a shareholder who wishes to assert dissenters' rights
must:
(1) Deliver to the corporation, before the vote is taken, written notice
of the shareholder's intent to demand payment for the shareholder's shares if
the proposed action is effectuated; and
(2) Not vote the shareholder's shares in favor of the proposed action. No
such written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by ss. 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
48-23-203. Dissenters' notice. -- (a) If proposed corporate action creating
dissenters' rights under ss. 48-23-102 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ss. 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the principal terms of
the proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person asserting dissenters' rights acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than one (1) nor more than two (2) months after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to ss.
48-23-201.
48-23-204. Duty to demand payment. -- (a) A shareholder sent a dissenters'
notice described in ss. 48-23-203 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to ss. 48-23-203(b)(3), and
deposit the shareholder's certificates in accordance with the terms of the
notice.
(b) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the effectuation of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn
unless the corporation with which it was filed, or the surviving corporation,
consents thereto.
<PAGE>
48-23-205. Share restrictions. -- (a) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is effectuated or the restrictions released
under ss. 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
48-23-206. Payment. -- (a) Except as provided in ss. 48-23-208, as soon as the
proposed corporate action is effectuated, or upon receipt of a payment demand,
whichever is later, the corporation shall pay each dissenter who complied with
ss. 48-23-204 the amount the corporation estimates to be the fair value of each
dissenter's shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under ss.
48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a
copy of this chapter to the shareholder pursuant to ss. 48-23-201 or ss.
48-23-203.
48-23-207. Failure to take action. -- (a) If the corporation does not effectuate
the proposed action that gave rise to the dissenters' rights within two (2)
months after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under ss. 48-23-203 and repeat the payment demand
procedure.
48-23-208. After-acquired shares. -- (a) A corporation may elect to withhold
payment required by ss. 48-23- 206 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under ss.
48- 23-209.
48-23-209. Procedure if shareholder dissatisfied with payment or offer. -- (a) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate (less any payment under ss.
48-23-206), or reject the corporation's offer under ss. 48-23-208 and demand
payment of the fair value of the dissenter's shares and interest due, if:
<PAGE>
(1) The dissenter believes that the amount paid under ss. 48-23-206 or
offered under ss. 48-23-208 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under ss. 48-23-206 within two
(2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within two (2) months after the date set for
demanding payment.
(b) A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within one (1) month after the corporation made
or offered payment for the dissenter's shares.
PART 3--JUDICIAL APPRAISAL OF SHARES
48-23-301. Court action. -- (a) If a demand for payment under ss. 48-23-209
remains unsettled, the corporation shall commence a proceeding within two (2)
months after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the two-month period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under ss. 48-23-208.
48-23-302. Court costs and counsel fees. -- (a) The court in an appraisal
proceeding commenced under ss. 48-23- 301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under ss. 48- 23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable against:
<PAGE>
(1) The corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this chapter; or
(2) Either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Deposit Guaranty 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 Deposit Guaranty who incurs expenses or liability as a
consequence of matters arising out of his activities as a director or officer.
Article Nine of Deposit Guaranty's Articles of Incorporation also provides
for indemnification of officers and directors under certain circumstances.
Deposit Guaranty has purchased a liability policy which, subject to any
limitations set forth in the policy, indemnifies Deposit Guaranty'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.
ITEM 21. EXHIBITS
The following exhibits are furnished (or incorporated by reference) as a
part of this Registration Statement:
Exhibit Number Description
2 Agreement and Plan of Merger dated as of September 24, 1997, as
amended, included as Exhibit A to the Proxy
Statement/Prospectus contained herein
*5 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding
legality of common stock registered hereby
8 Revised Opinion of Watkins Ludlam Winter & Stennis, P.A.
regarding tax matters
*23(a) Consent of KPMG Peat Marwick LLP, independent
auditors, with respect to consolidated financial
statements of Deposit Guaranty Corp.
*23(b) Consent of KPMG Peat Marwick LLP, independent
accountants, with respect to consolidated
financial statements of Victory Bancshares, Inc.
23(c) Consent of Watkins Ludlam Winter & Stennis, P.A.
23(d) Consent of Mercer Capital Management, Inc.
*24 Power of attorney included as part of signature page
*99 Form of Proxy
*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 the information called
for by the applicable
<PAGE>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Deposit
Guaranty has duly caused this Amendment Number Two 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 20th day of January, 1998.
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
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
NAME TITLE DATE
/s/ E. B. Robinson, Jr.* Chairman of the Board January 20, 1998
E. B. Robinson, Jr. and Director (Principal
Executive Officer)
/s/ Howard L. McMillan, Jr.* President and Director January 20, 1998
Howard L. McMillan, Jr.
/s/ Arlen L. McDonald* Executive Vice President January 20, 1998
Arlen L. McDonald (Principal Financial Officer)
/s/ Stephen E. Barker* Controller (Principal January 20, 1998
Stephen E. Barker Accounting Officer)
<PAGE>
/s/ Charles L. Irby* Director January 20, 1998
Charles L. Irby
/s/ Booker T. Jones* Director January 20, 1998
Booker T. Jones
/s/ Richard D. McRae, Jr.* Director January 20, 1998
Richard D. McRae, Jr.
/s/ W.R. Newman, III* Director January 20, 1998
W. R. Newman, III
/s/ John N. Palmer* Director January 20, 1998
John N. Palmer
*By:/s/ J. Clifford Harrison
-----------------------------
J. Clifford Harrison, Esq.,
Attorney-in-Fact
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 1
Exhibit 8
[Date]
Board of Directors: Board of Directors:
Deposit Guaranty Corp. Victory Bancshares, Inc.
One Deposit Guaranty Plaza 5350 Poplar Avenue
210 East Capitol Street Memphis, TN 38119
Post Office Box 730
Jackson, Mississippi 39205-0730
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 Victory Bancshares, Inc., a Tennessee
corporation ("Victory"), with and into Deposit Guaranty Corp., a Mississippi
corporation ("DGC"). The merger of Victory with and into DGC 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 DGC, Deposit Guaranty National Bank
("DGNB"), Victory and Victory Bank and Trust Company ("Victory Bank'), dated as
of September 24, 1997 (the "Merger Agreement"). This opinion is rendered in
satisfaction of the closing condition described in Section 6.01(c) of the Merger
Agreement.
We have examined and are familiar with the Merger Agreement, the Form
S-4 Registration Statement filed by DGC with the United States Securities and
Exchange Commission ("SEC") relating to the DGC stock to be issued in connection
with the Merger, and which was declared effective on November 5, 1997 (the
"Registration Statement"), and such other
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 2
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
Merger, some of which are stated in the Certificates dated as of even date
herewith and attached hereto as Exhibits "A" and "B" regarding certain matters
addressed in this opinion, and the following factual information supplied by the
parties to the Merger.
I. BACKGROUND FACTS CONCERNING PARTIES TO THE MERGER
A. 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 DGNB. DGC is
registered as a bank holding company with the Federal Reserve System.
DGC has an authorized capital structure consisting of 100,000,000
shares of no par value voting common stock ( the "DGC Common Stock"), 25,000,000
shares of no par value Class A voting preferred stock, and 25,000,000 shares of
Class B, no par value, non-voting preferred stock. As of August 31, 1997, DGC
had 40,802,301 shares of Common Stock issued and outstanding (adjusted for the
two-for-one stock split in December, 1996) and no preferred stock outstanding.
DGC is a publicly held company with over 6,000 shareholders of record as of
August 31, 1997, and its stock is currently traded on the New York Stock
Exchange. In addition, as of August 31, 1997, options to acquire approximately
701,670 shares (adjusted for the two-for-one stock split in December, 1996) of
DGC Common Stock were 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.
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, and DGNB.
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 3
B. Victory Bancshares, Inc.
Victory is a Tennessee bank holding company headquartered in Memphis,
Tennessee; it is registered as a bank holding company with the Federal Reserve
System. Victory commenced operations in 1989 for the purpose of holding all of
the outstanding stock of Victory Bank (the "Victory Bank Common Stock"), which
is the sole subsidiary of Victory. Through Victory Bank, Victory provides a
variety of banking and financial services to businesses and individuals in
Shelby County, Tennessee.
The authorized capital stock of Victory consists of 1,500,000 shares of
Victory $1.00 par value common stock (the "Victory Common Stock"). As of August
31, 1997, there were 817,749 shares of Victory Common Stock issued and
outstanding, held by approximately ___ holders of record. As of this same date,
there were 8,200 shares of Victory Common Stock held in treasury.
II. BUSINESS REASONS FOR AND DESCRIPTION
OF THE PROPOSED TRANSACTIONS
A. Victory's Reasons for the Mergers.
(a) The Victory Board's review, based in part on the presentation
by Victory's management regarding its due diligence of DGC, of
the business, operations, earnings and financial conditions of
DGC on both a historical and prospective basis, the enhanced
opportunities for operating efficiencies (particularly in
terms of integration of operations, data processing and
support functions, although the Victory Board did not quantify
such anticipated operating efficiencies) that could result
from the Merger, the enhanced opportunities for growth that
the Merger would make possible and the respective
contributions the parties would bring to a combined
institution;
(b) The Victory Board's belief, based upon an analysis of the
anticipated financial effects of the Merger, that upon
consummation of the Merger, DGC and its banking subsidiary
would continue to be well capitalized institutions, the
financial
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 4
positions of which would be in excess of all applicable
regulatory capital requirements;
(c) The Victory Board's belief that, in light of the reasons
discussed above, DGC was the most attractive choice as a
long-term affiliation partner of Victory;
(d) The expectation that the Merger will generally be a tax-free
transaction of Victory and its shareholders to the extent such
shareholders receive shares of DGC Common Stock;
(e) The current and prospective economic and regulatory
environment and competitive constraints facing the banking and
financial institutions in Victory's market area;
(f) The fact that inquiries of two other financial institutions
regarding a potential business combination did not result in a
more favorable proposal than the DGC proposal; and
(g) The recent business combinations involving financial
institutions, either announced or completed, during the past
year in the United States, the State of Tennessee and
contiguous states and the effect of such combinations on
competitive conditions in Victory's market area.
B. DGC's Reasons for the Mergers.
The DGC Board of Directors believes that by expanding DGC's customer
base into the state of Tennessee, the Merger should enhance DGC'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 DGC Board of Directors believes that the
combination of DGC and Victory will allow DGC and Victory 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 Victory; the compatibility and complimentary
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 5
nature of the respective businesses and managerial philosophies of DGC and
Victory; and the relative prices paid in recent acquisitions of financial
institutions.
C. Description of the Merger.
The Merger will be structured and carried out in accordance with the
Merger Agreement, the descriptions set forth in the Registration Statement, the
laws of the states of Tennessee and Mississippi and the representations of the
parties to the transactions. Following is a summary description of this
transaction:
1. The Exchange. Under the terms of the Merger Agreement,
Victory will merge with and into DGC pursuant to the laws of Tennessee and
Mississippi. DGC will be the surviving corporation. On the Effective Date, each
issued and outstanding share of Victory Common Stock (except shares as to which
statutory dissenters' rights are exercised) will automatically be converted into
and exchangeable solely for a number of shares of DGC Common Stock based on the
Average Market Price of the DGC Common Stock as set forth in the Merger
Agreement (the "Exchange Ratio"), subject to adjustment as provided in the
Merger Agreement, and with respect to fractional shares, subject to subpart (3)
below.
2. Dissenters' Rights. Any dissenters to the Merger who meet
the statutory requirements are granted the right under Tennessee law to receive
the fair cash value of their shares from Victory. Section 8.01(f) of the Merger
Agreement provides that DGC and DGNB may terminate the Merger Agreement if
dissenters' rights are exercised with respect to more than ten percent (10%) of
the Victory Common Stock.
3. Fractional Shares. Under Section 1.06(e) of the Merger
Agreement, no fractional shares of DGC Common Stock will be issued in the
Merger. Any Victory shareholder otherwise entitled to receive a fractional share
of DGC Common Stock will be paid a cash amount in lieu of any such fractional
share determined by multiplying (i) the closing sale price of a share of DGC
Common Stock on the trading day immediately preceding the Effective Date as
quoted on the NYSE, by (ii) the fraction of a share of DGC Common Stock to which
such holder would otherwise be entitled.
4. Effects of the Merger. After the Merger, DGC or
First American Corporation ("First American"), which will succeed DGC as a
result of a tax-free merger (see
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 6
"Subsequent Actions" below) will continue both its and Victory's historical
business in a substantially unchanged manner.
D. Subsequent Actions.
1. The Bank Merger. As noted in Section 2.01 of the Merger
Agreement, Victory Bank and DGNB have entered into a merger agreement providing
that on the Effective Date immediately following the consummation of the Merger,
Victory Bank shall be merged with and into DGNB (the "Bank Merger") in
accordance with applicable state and federal law.
2. The First American Merger. We understand that subsequent to
the date of the Merger Agreement, DGC was approached by First American, a
Tennessee bank holding company unrelated to Victory, regarding the possible
combination of First American and DGC. As a result of negotiations between these
two entities, a definitive merger agreement was reached and executed by First
American and DGC on December 7, 1997. Under the terms of this agreement, DGC
will merge with and into First American in a transaction structured to qualify
as a tax-free reorganization under Code section 368(a)(1)(A). This merger is
expected to close sometime in mid-1998.
III. DISCUSSION OF APPLICABLE CORPORATE
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"). This
Code section describes a statutory merger under which the target corporation
(Victory) is merged into the acquiring corporation (DGC) in exchange for
acquiring corporation stock distributed to the target's historic shareholders.
Following are the criteria for nonrecognition in the case of a
statutory merger (applied in the context of the proposed Merger):
1. The requirements for a statutory merger under the applicable
provisions of Tennessee and Mississippi law must be satisfied.
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 7
2. There must be continuity of shareholder interest ("COSI").
The COSI requirement was established by the courts to ensure that the
consideration furnished by the acquiring corporation in a purported
reorganization represents a proprietary interest in the affairs of the
acquiring corporation and that such consideration represents a substantial part
of the value of the stock or properties transferred. See Helvering v. Minnesota
Tea Co., 296 U.S. 378 (1935); Cortland Specialty Co. v. Commissioner,
60 F.2d 937 (2d Cir. 1932), cert. denied 288 U.S. 599 (1933). The overriding
purpose of the COSI requirement is to ensure that reorganization treatment
applies only to those corporate readjustments of existing interests which were
intended to be covered by the reorganization provisions, as opposed to those
transactions that are, in effect, sales.
The COSI requirement does not require that all shareholders of the
acquired corporation have a proprietary interest in the surviving corporation
after the acquisition; it is not even necessary for a substantial percentage of
such shareholders to have such an interest. Rather, the Service announced in
Rev. Proc. 77-37, 1977-2 C.B. 568, that it would rule that the COSI
requirement is met so long as one or more of the acquired corporation's
shareholders retain a sufficient proprietary interest in the continuing
corporation. The Service indicated in Rev. Proc. 77-37 that a sufficient
proprietary interest is an interest with a value that is at least 50% of the
total equity value of the acquired corporation.
In addition to meeting the COSI requirement immediately after the
reorganization, through the evolution of case law and through rulings of the
Service, it has become well-settled under current law that COSI is not limited
to analyzing merely the proportion of equity consideration to aggregate
consideration received for the transferred assets but, instead, has a
broader reach which focuses also on who receives such consideration (only stock
received by historic shareholders counts) and on what recipients do with the
consideration (the historic shareholders have to demonstrate that they harbor,
at the time of the transaction, no firm and fixed intention to dispose of their
stock in amounts that will violate COSI). See, e.g., McDonalds Restaurants of
Ill., Inc. v. Commissioner, 688 F.2d 520 (7th Cir. 1982); Penrod v.
Commissioner, 88 T.C. 1415 (1987); Rev. Rul. 66-23, 1966-1 C.B. 67, Rev.
Rul. 78-142, 1978-1 C.B. 111; Rev. Rul. 84-30, 1984-1 C.B. 114; Rev. Rul. 95-69,
1995-42 I.R.B. 4. The courts have generally looked to the intent of the
shareholders at the time of the reorganization to dispose of their
interests in determining whether the COSI requirement is violated.
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 8
The satisfaction of the COSI standard will depend upon the actions of
the shareholders with respect to Victory Common Stock before and after the
transaction and their intentions at the time of the Merger. The COSI requirement
will only be satisfied if the actual historic shareholders of Victory in fact do
receive and retain an amount of DGC Common Stock that is sufficient to satisfy
the requirement.1/ In this regard, we note that the consideration for the First
American/DGC merger will consist solely of voting common stock of First
American. Thus, the Victory shareholders who receive DGC Common Stock in the
Merger will soon thereafter exchange their DGC Common Stock for First American
stock (unless they dissent to the First
- --------
1/On December 23, 1996, the Service issued proposed regulations which
would change the scope of the COSI requirement. See 61 Fed. Reg. 67,512. Prop.
Reg. ss.1.368-1(e) provides that COSI is satisfied if the acquiring corporation
furnishes consideration that (a) represents a proprietary interest in the
affairs of the acquiring corporation, and (b) represents a substantial part of
the value of the stock or properties transferred. In determining whether the
acquiring corporation has furnished sufficient consideration, all facts and
circumstances must be considered. Thus, any prearranged plan by the acquiring
corporation or a related party to redeem or acquire the consideration furnished
in the reorganization may indicate that the acquiring corporation furnished too
much nonqualifying consideration in the reorganization, in which case the COSI
requirement would not be met. However, a subsequent sale of the stock received
by the target shareholders to a party unrelated to the acquiring corporation
will generally not be taken into account in determining whether the COSI
requirement has been met, even if the disposition was contemplated at the time
of the reorganization. The Service stated that it believes the adoption of this
approach will refocus the COSI requirement on ensuring that the acquiring
corporation furnishes sufficient qualifying consideration and will also promote
simplicity and administrability in applying the COSI requirement.
The proposed regulation states that the changes to the COSI
requirements would apply to transactions occurring after the regulations are
published as final in the Federal Register, except that they shall not apply to
any transactions occurring pursuant to a written agreement which is (subject to
customary conditions) binding on or before the regulations are published as
final regulations. Therefore, unless this effective date language is changed,
the proposed new COSI regulations would not apply to the Merger because the
Merger Agreement is a binding written agreement now in effect and the
regulations have not yet been published as final.
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 9
American/DGC merger). Based on the representations in the Certificates attached
as Exhibit "A" and Exhibit "B" hereto, the COSI requirement should be met with
respect to the Merger.
3. In addition to the requirements under the Code and the COSI
requirement which have been generally described above, nonrecognition for the
Merger is subject to other nonstatutory rules that have been established through
case law and Treasury Regulations. These requirements involve 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 evaluating whether a transaction,
in substance, qualifies as a valid statutory merger under Code section
368(a)(1)(A).
IV. OPINION
In reliance upon the foregoing facts and the representations of the
parties to the Merger, 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 opinion that the federal
income tax consequences of the proposed Merger will be as follows:
1. The Merger will qualify as a statutory merger within the meaning of
Code section 368(a)(1)(A). Accordingly, the Merger will constitute a
reorganization within the meaning of Code section 368(a)(1)(A). DGC and Victory
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 Victory upon the transfer of
all of its assets to DGC in exchange for DGC Common Stock, cash for dissenting
shareholders, and the assumption by DGC of all of the liabilities of Victory
since the cash, if any, will be distributed to the dissenting shareholders (Code
sections 361(a) and (b), and 357(a)).
3. No gain or loss will be recognized by DGC upon its receipt of the
assets of Victory in exchange for DGC Common Stock and the assumption by DGC of
the liabilities of Victory and the liabilities to which the transferred assets
are subject (Code section 1032(a)).
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 10
4. The basis of the assets of Victory in the hands of DGC will be, in
each instance, the same as the basis of such assets in the hands of Victory
immediately prior to the Merger (Code section 362(b)).
5. The holding period of Victory assets in the hands of DGC will
include, in each case, the period during which the assets were held by Victory
(Code section 1223(2)).
6. No gain or loss will be recognized by the shareholders of Victory
upon their receipt of DGC Common Stock (including fractional share interests to
which they may be entitled) solely in exchange for their Victory Common Stock
(Code section 354(a)(1)).
7. The basis of the DGC Common Stock to be received by the Victory
shareholders (including any fractional share interests to which they may be
entitled) will be, in each instance, the same as the basis of the Victory Common
Stock surrendered in exchange therefor (Code section 358).
8. The holding period of the DGC Common Stock to be received by the
Victory shareholders (including any fractional share interests to which they may
be entitled) will include, in each case, the period during which the Victory
Common Stock surrendered in exchange therefor was held, provided that the
Victory Common Stock is held as a capital asset in the hands of the Victory
shareholder on the date of the exchange (Code section 1223(1)).
9. The payment of cash to Victory 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 redemption of such stock, subject to the provisions
and limitations of section 302 of the Code.
10. Where a dissenting Victory shareholder receives solely cash in
exchange for his or her Victory 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 section 302.
We have qualified our opinions by reference to the Code, the Treasury
Regulations promulgated thereunder, and existing judicial and administrative
interpretations thereof. In so
<PAGE>
Board of Directors:
Deposit Guaranty Corp.
Board of Directors:
Victory Bancshares, Inc.
________________, 1998
Page 11
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. We have also
relied, to some extent, on the oral representations and statements of
representatives of the parties with respect to the foregoing factual
determinations. While we have not been requested nor have we undertaken to make
independent investigations to verify such representations and statements
(including those set forth in the exhibits to this opinion), based upon our
discussions with representatives of the parties and our review of certain
background material, we believe that it is reasonable for us to rely on such
representations and statements.
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. Moreover, by rendering this opinion, we do not obligate
ourselves to update our opinion due to subsequent events which may arise after
this date. We note that the certificates attached hereto as Exhibits "A" and "B"
are an integral part of this opinion letter.
The opinion expressed herein is for the sole benefit of DGC and
Victory, together with their respective shareholders, and is not to be delivered
to or relied upon by any other party without our prior written consent (except
that we have consented to the use of this opinion in the Form S-4, as amended,
as filed with the SEC in connection with the Merger).
Very truly yours,
DRAFT
WATKINS LUDLAM WINTER & STENNIS, P.A.
Exhibit 23(c)
CONSENT OF WATKINS LUDLAM WINTER & STENNIS, P.A.
January 20, 1998
We consent to the filing of our November 3, 1998 opinion as Exhibit 5 to
the Registration Statement and the form of our tax opinion as Exhibit 8 to the
Registration Statement, and to the use of our name in the Proxy Statement
comprising Part I of the Registration Statement.
WATKINS LUDLAM WINTER & STENNIS, P.A.
By: /s/ L. Keith Parsons
---------------------------------
L. Keith Parsons, Shareholder
Exhibit 23(d)
CONSENT OF MERCER CAPITAL MANAGEMENT, INC.
January 20, 1998
Consent of Financial Advisor
We hereby consent to the inclusion of our fairness opinion and references
to our firm in the Proxy Statement/Prospectus included in Deposit Guaranty
Corp.'s Registration Statement on Form S-4.
MERCER CAPITAL MANAGEMENT, INC.
By: /s/ Jeff K. Davis
------------------------------
Jeff K. Davis, ASA, CFA
Vice President
