<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-6198
FIRST AMERICAN CORPORATION
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-0799975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
FIRST AMERICAN CENTER, NASHVILLE, TENNESSEE 37237
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615/748-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common shares outstanding: 29,528,400 as of April 30, 1997.
<PAGE> 2
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
Part I. Financial Information Page
----
<S> <C> <C>
Item 1 Financial Statements (unaudited)
Consolidated Income Statements for the Three
Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets as of March 31, 1997,
March 31, 1996 and December 31, 1996 4
Consolidated Statements of Changes in Shareholders' Equity for
the Three Months Ended March 31, 1997 and March 31, 1996 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis 10
Part II. Other Information
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE> 3
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Quarter Ended
March 31
-------------------------
(dollars in thousands except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $138,702 $132,992
Interest and dividends on securities 40,567 34,079
Interest on federal funds sold and securities purchased under
agreements to resell 888 3,758
Interest on time deposits with other banks and other interest 1,143 501
- -------------------------------------------------------------------------------------------------------------------
Total interest income 181,300 171,330
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 4,515 3,880
Money market accounts 25,390 25,315
Regular savings 1,771 2,202
Certificates of deposit under $100,000 21,970 21,729
Certificates of deposit $100,000 and over 10,142 9,149
Other time and foreign 6,266 6,580
- -------------------------------------------------------------------------------------------------------------------
Total interest on deposits 70,054 68,855
- -------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 13,356 12,211
Interest on long-term debt 4,956 6,446
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 88,366 87,512
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 92,934 83,818
Provision for loan losses - -
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 92,934 83,818
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 14,721 13,589
Commissions and fees on fiduciary activities 4,700 4,427
Investment services income 29,994 3,200
Trading account revenue 369 273
Merchant discount fees 840 769
Net realized gain on sales of securities 147 1,401
Other income 10,980 8,350
- -------------------------------------------------------------------------------------------------------------------
Total non-interest income 61,751 32,009
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 47,295 38,867
Net occupancy expense 6,828 6,025
Equipment expense 4,814 4,080
Systems and processing expense 3,931 3,096
FDIC insurance expense 289 654
Marketing expense 2,656 3,531
Communication expense 3,374 2,793
Supplies expense 1,606 1,266
Foreclosed properties expense (income), net (627) (186)
Subscribers' commissions 17,802 -
Other expenses 11,569 7,562
- -------------------------------------------------------------------------------------------------------------------
Total non-interest expense 99,537 67,688
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 55,148 48,139
Income tax expense 21,118 18,339
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $34,030 $ 29,800
===================================================================================================================
PER COMMON SHARE (RESTATED FOR 2-FOR-1 STOCK SPLIT ON MAY 9, 1997):
Net income $ .58 $ .50
Dividends declared .155 .14
===================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 59,081 59,035
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
-------------------------- -----------
(dollars in thousands) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 476,013 $ 448,183 $ 603,456
Time deposits with other banks 17,863 8,689 53,801
Securities:
Held to maturity (market value $799,205 and $947,061, and $835,192,
respectively) 802,547 946,131 834,547
Available for sale (amortized cost $1,759,072 and $1,438,308, and
$1,685,743, respectively) 1,732,223 1,431,853 1,678,232
- -------------------------------------------------------------------------------------------------------------------
Total securities 2,534,770 2,377,984 2,512,779
- -------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 17,358 167,101 161,677
Trading account securities 59,954 25,361 60,210
Loans:
Commercial 3,099,747 2,843,006 3,010,125
Consumer--amortizing mortgages 1,751,379 1,792,652 1,782,630
Consumer--other 1,362,286 1,319,478 1,334,750
Real estate--construction 175,635 198,543 190,673
Real estate--commercial mortgages and other 364,416 369,465 345,466
- -------------------------------------------------------------------------------------------------------------------
Total loans 6,753,463 6,523,144 6,663,644
Unearned discount and net deferred loan fees 4,618 7,218 5,047
- -------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and net deferred loan fees 6,748,845 6,515,926 6,658,597
Allowance for loan losses 122,551 132,381 123,265
- -------------------------------------------------------------------------------------------------------------------
Total net loans 6,626,294 6,383,545 6,535,332
- -------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 169,219 139,338 162,257
Foreclosed properties 4,530 9,682 7,363
Other assets 302,902 291,490 302,593
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 10,208,903 $ 9,851,373 $10,399,468
===================================================================================================================
LIABILITIES
Deposits:
Demand (noninterest-bearing) $ 1,351,427 $ 1,244,453 $ 1,374,528
NOW accounts 871,799 806,483 830,269
Money market accounts 2,388,446 2,204,996 2,295,112
Regular savings 306,795 367,891 303,691
Certificates of deposit under $100,000 1,672,671 1,724,595 1,665,675
Certificates of deposit $100,000 and over 749,387 610,176 893,794
Other time 363,865 361,306 332,651
Foreign 98,447 122,105 97,257
- -------------------------------------------------------------------------------------------------------------------
Total deposits 7,802,837 7,442,005 7,792,977
- -------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,080,393 1,041,469 1,154,372
Long-term debt 323,262 367,841 331,157
Other liabilities 148,268 174,115 252,255
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,354,760 9,025,430 9,530,761
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value; authorized 100,000,000 shares; issued:
58,643,784 shares at March 31, 1997; 60,016,828 shares at
March 31, 1996 and 59,262,998 shares at December 31, 1996 146,610 150,042 148,158
Capital surplus 134,047 177,849 157,792
Retained earnings 594,648 505,623 569,851
Deferred compensation on restricted stock (4,373) (2,800) (2,066)
Employee stock ownership plan obligation (436) (631) (443)
- -------------------------------------------------------------------------------------------------------------------
Realized shareholders' equity 870,496 830,083 873,292
Net unrealized losses on securities available for sale, net of tax (16,353) (4,140) (4,585)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 854,143 825,943 868,707
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,208,903 $ 9,851,373 $10,399,468
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
THREE MONTHS ENDED MARCH 31, 1996, COMMON DEFERRED EMPLOYEE (LOSSES)
AND MARCH 31, 1997 SHARES COMPENSATION STOCK ON
ISSUED ON OWNERSHIP SECURITIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND COMMON CAPITAL RETAINED RESTRICTED PLAN AVAILABLE
AMOUNTS) OUTSTANDING STOCK SURPLUS EARNINGS STOCK OBLIGATION FOR SALE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 59,079,638 $147,699 $162,254 $483,973 $ (1,263) $ (661) $ 3,530 $795,532
Issuance of shares in connection with
Employee Benefit Plan, net of
discount on Dividend Reinvestment
Plan 199,966 500 3,139 - - - - 3,639
Issuance of restricted stock 77,400 194 1,644 - (1,838) - - -
Repurchase of shares (1,462,344) (3,656) (29,668) - - - - (33,324)
Issuance of shares for First City
Bancorp, Inc. 2,123,362 5,308 40,477 - - - - 45,785
Amortization of deferred
compensation on restricted stock - - - - 301 - - 301
Reduction in employee stock
ownership plan obligation - - - - - 30 - 30
Net income - - - 29,800 - - - 29,800
Cash dividends declared ($.14 per
common share) - - - (8,150) - - - (8,150)
Change in net unrealized gains and
losses on securities available for
sale, net of tax - - - - - - (7,670) (7,670)
Other (1,194) (3) 3 - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 60,016,828 $150,042 $177,849 $505,623 $ (2,800) $ (631) $ (4,140) $825,943
===============================================================================================================================
Balance, January 1, 1997 59,262,998 $148,158 $157,792 $569,851 $ (2,066) $ (443) $ (4,585) $868,707
Issuance of shares in connection with
Employee Benefit Plan, net of
discount on Dividend Reinvestment
Plan 366,812 917 6,445 - - - - 7,362
Issuance of restricted stock 93,672 234 2,595 - (2,829) - - -
Repurchase of shares (1,430,220) (3,575) (42,721) - - - - (46,296)
Issuance of shares for Hartsville
Bancshares, Inc. 350,522 876 9,223 - - - - 10,099
Amortization of deferred
compensation on restricted stock - - - - 522 - - 522
Reduction in employee stock
ownership plan obligation - - - - - 7 - 7
Net income - - - 34,030 - - - 34,030
Cash dividends declared ($.155 per
common share) - - - (9,233) - - - (9,233)
Change in net unrealized gains and
losses on securities available for
sale, net of tax - - - - - - (11,768) (11,768)
Tax benefit from stock option and
award plans - - 712 - - - - 712
Other - - 1 - - - - 1
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 58,643,784 $146,610 $134,047 $594,648 $ (4,373) $ (436) $(16,353) $854,143
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,030 $ 29,800
Adjustments to reconcile net income to net cash provided by operating
activities:
Writedown on foreclosed property 656 -
Depreciation and amortization of premises and equipment 4,437 3,558
Amortization of intangible assets 2,775 1,971
Other amortization, net 551 160
Deferred income tax expense 2,923 4,263
Net realized gain on sales of securities (147) (1,401)
Net loss on sales and writedowns of premises and equipment 5 9
Change in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accrued interest receivable (2,358) 1,535
Increase (decrease) in accrued interest payable 2,954 (7,925)
(Increase) decrease in trading account securities 256 (2,942)
Increase in other assets 14,569 26,561
Increase (decrease) in other liabilities (107,755) 34,812
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (47,104) 90,401
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in time deposits with other banks 35,944 18,582
Proceeds from sales of securities available for sale 121,136 189,886
Proceeds from maturities of securities available for sale 85,883 81,172
Purchases of securities available for sale (257,285) (381,070)
Proceeds from maturities of securities held to maturity 51,293 47,491
Purchases of securities held to maturity (19,106) (59,799)
Net decrease in federal funds sold and securities purchased under
agreements to resell 144,319 159,130
Net (increase) decrease in loans, net of repayments and sales (33,699) 74,555
Acquisition, net of cash acquired 2,763 12,376
Proceeds from sales of premises and equipment 156 3,011
Purchases of premises and equipment (10,027) (9,973)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 121,377 135,361
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (71,733) (267,524)
Net increase (decrease) in short-term borrowings (82,979) 88,739
Advances from (repayment to) Federal Home Loan Bank 528 (55,485)
Net repayment of other long-term debt (78) -
Issuance of common shares under Employee Benefit and Dividend
Reinvestment Plans 7,362 3,639
Cash dividends paid (9,233) (8,150)
Repurchase of common stock (46,296) (33,324)
Tax benefit related to stock options 712 -
Other 1 30
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (201,716) (272,075)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (127,443) (46,313)
Cash and due from banks, January 1 603,456 494,496
- -------------------------------------------------------------------------------------------------------------------
Cash and due from banks, March 31 $476,013 $448,183
===================================================================================================================
Cash paid during the year for:
Interest expense $ 84,920 $ 93,998
Income taxes 1,416 1,606
Non-cash investing activities:
Foreclosures 496 652
Stock issued for acquisition 10,099 45,785
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and general practices within the
banking industry.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
presented in First American Corporation's (the "Corporation" or "First
American") 1996 Annual Report to Shareholders. The quarterly consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. All such adjustments are of a normal recurring nature. Certain prior
year amounts have been reclassified to conform with the current year
presentation. The results for interim periods are not necessarily indicative
of results to be expected for the complete fiscal year.
On April 7, 1997, the Board of Directors authorized a 2-for-1 stock split
of First American's common stock payable on May 9, 1997. Accordingly, the
consolidated financial statements for all periods presented have been restated
to reflect the impact of the stock split.
(2) NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
MARCH 31 December 31
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 11,248 $ 17,161 $ 16,331
Foreclosed properties 4,530 9,682 7,363
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 15,778 $ 26,843 $ 23,694
===============================================================================================================
90 days or more past due on accrual $ 19,038 $ 9,173 $ 11,711
===============================================================================================================
Nonperforming assets as a percent of loans
and foreclosed properties (excluding
90 days or more past due on accrual) .23 % .41 % .36 %
===============================================================================================================
</TABLE>
(3) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $123,265 $132,415
Provision (credited) charged to operating expenses - -
Allowance of subsidiary purchased 711 2,088
- -------------------------------------------------------------------------------------------------------------
123,976 134,503
- -------------------------------------------------------------------------------------------------------------
Loans charged off 5,894 5,699
Recoveries of loans previously charged off 4,469 3,577
- -------------------------------------------------------------------------------------------------------------
Net charge-offs 1,425 2,122
- -------------------------------------------------------------------------------------------------------------
Balance, March 31 $122,551 $132,381
=============================================================================================================
</TABLE>
7
<PAGE> 8
Allowance ratios were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance end of period to net loans outstanding 1.82 % 2.03 %
Net charge-offs to average loans (annualized) .09 .13
===============================================================================================================
</TABLE>
(4) ACQUISITIONS
On January 1, 1997, the Corporation completed its acquisition of
Hartsville Bancshares, Inc. ("Hartsville"), an $89.5 million bank holding
company, by exchanging approximately 350,000 shares of the Corporation's common
stock (adjusted for the 2-for-1 split) for all of the outstanding shares of
Hartsville. The acquisition was accounted for as a purchase. The purchase
price in excess of the fair value of net assets acquired was $6 million and was
recorded as goodwill. Hartsville was the parent of CommunityFirst Bank, which
operated five branches in Middle Tennessee. CommunityFirst was simultaneously
merged with and into First American National Bank ("FANB"), a wholly-owned
subsidiary of the Corporation.
On July 1, 1996, FANB purchased 96.2% of the stock of INVEST Financial
Corporation ("INVEST") for $26.0 million in cash. Simultaneously, INVEST
completed its acquisition of Investment Center Group, Inc., the parent of
Investment Centers of America, in a transaction valued at approximately $5.0
million. INVEST is a national marketer of mutual funds, annuities and other
investment products sold through financial institutions. Both transactions
were accounted for as purchases. During the third quarter of 1996, FANB
purchased an additional 2.1% of the stock of INVEST. The purchase price in
excess of the fair value of net assets acquired was an aggregate of $17.7
million which is recorded as goodwill. Effective February 1, 1997, AmeriStar
Capital Markets, Inc., formerly a wholly-owned subsidiary of FANB and a
broker-dealer registered with the National Association of Securities Dealers,
was merged with and into INVEST. As a result of this merger, FANB's equity
ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a healthcare payments processing company, for $8.6 million. The
transaction was accounted for under the equity method of accounting.
Effective March 11, 1996, the Corporation acquired First City Bancorp,
Inc. ("First City") by exchanging approximately 2.2 million shares of First
American Corporation common stock (adjusted for the 2-for-1 stock split) for
all of the outstanding shares of First City. First City was a bank holding
company headquartered in Murfreesboro, Tennessee, and operated two Tennessee
state chartered banks and a consumer finance company. First City had $366
million in assets, 11 banking offices, and nine consumer finance locations in
the middle Tennessee area. The transaction was accounted for as a purchase.
The purchase price in excess of the fair value of net assets acquired
(goodwill) was $32.2 million.
(5) ACCOUNTING MATTERS
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was adopted prospectively by the Corporation on January 1, 1997
with the exception of certain transactions that are deferred by the provisions
of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 provides accounting and reporting standards
for sales, securitizations, and servicing of receivables and other financial
assets, secured borrowing and collateral transactions, and extinguishments of
liabilities. The adoption of this statement had no material impact on the
consolidated financial statements.
(6) EARNINGS PER COMMON SHARE
Earnings per common share amounts are computed by dividing net income by
the weighted average number of common shares outstanding during each respective
period.
8
<PAGE> 9
(7) COMMON STOCK
The Corporation purchased 1.43 million shares of First American
Corporation common stock (adjusted for the 2-for-1 stock split) in the open
market during the first quarter of 1997 at a total cost of $46.3 million.
Under Tennessee law, such shares have been recognized as authorized but
unissued. Accordingly, the Corporation reduced the par value and reflected the
excess of the purchase price over par of such repurchased shares as a reduction
from capital surplus.
All of the First American shares exchanged in the Hartsville transaction
were repurchased during January 1997 in the open market.
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split payable on May 9, 1997, to shareholders of record on April 28, 1997, and
reduced the par value of its common stock from $5.00 to $2.50 per share.
(8) LEGAL AND REGULATORY MATTERS
Following the adoption of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), Charter Federal Savings Bank ("Charter" or
now "FAFSB"), brought an action against the Office of Thrift Supervision and
the Federal Deposit Insurance Corporation seeking injunctive and other relief,
contending that Congress' elimination of supervisory goodwill required
rescission of certain supervisory transactions. The Federal District Court
found in Charter's favor, but in 1992 the Fourth Circuit Court of Appeals
reversed, and the U.S. Supreme Court denied Charter's petition for certiorari.
In 1995, the Federal Circuit Court found in favor of another thrift institution
in a similar case (Winstar Corp. v. United States) in which the association
sought damages for breach of contract. Charter also filed suit against the
United States Government ("Government") in the Court of Federal Claims based on
breach of contract. Pending the Supreme Court's review of the Winstar
decision, FAFSB's action was stayed. In July 1996, the Supreme Court affirmed
the lower court's decision in Winstar. The stay was automatically lifted and
FAFSB's suit is now proceeding. The Government, however, has filed a motion to
dismiss the suit based on the prior Fourth Circuit decision. This motion has
not yet been decided by the Federal Claims Court.
The value of FAFSB's claims against the Government, as well as their
ultimate outcome, are contingent upon a number of factors, some of which are
outside of FAFSB's control, and are highly uncertain as to substance, timing
and the dollar amount of any damages which might be awarded should FAFSB
finally prevail. Under the Agreement and Plan of Reorganization as amended by
and between FAFSB and the Corporation, in the event that FAFSB is successful in
this litigation, the FAFSB shareholders as of December 1, 1995 will be entitled
to receive additional consideration equal in value to 50% of any recovery, net
of all taxes and certain other expenses, including the costs and expenses of
such litigation, received on or before December 1, 2000 subject to certain
limitations in the case of certain business combinations. Such additional
consideration, if any, is payable in the common stock of the Corporation, based
on the average per share closing price on the date of receipt by FAFSB of the
last payment constituting a recovery from the Government.
Also, there are from time to time other legal proceedings pending against
the Corporation and its subsidiaries. In the opinion of Management and
counsel, liabilities, if any, arising from such proceedings presently pending
would not have a material adverse effect on the consolidated financial
statements of the Corporation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
consolidated financial statements appearing within this report and by reference
to First American Corporation's 1996 Annual Report.
OVERVIEW
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split of First American Corporation common stock and a 29% increase in the
quarterly cash dividend. On a post-split basis, the quarterly dividend in
respect to the first quarter 1997 will be $.20 per share. The par value of
the common stock was reduced from $5.00 to $2.50 per share. All financial data
included has been restated to reflect the impact of the stock split.
Net income for the first quarter of 1997 was $34.0 million, a $4.2
million, or 14.2% increase from the $29.8 million earned in the first quarter
of 1996. Earnings per share also increased during the first quarter of 1997 to
$.58, up 16% over the $.50 for the first quarter of 1996. Return on average
assets ("ROA") was 1.37% versus 1.26% in the previous year's first quarter and
return on average equity ("ROE") was 15.78% compared to 15.08% in the first
quarter 1996.
Effective January 1, 1997, First American acquired Hartsville, an $89.5
million bank holding company, by exchanging approximately 350,000 shares of the
Corporation's common stock for all of the outstanding shares of Hartsville.
All of the First American shares exchanged in the transaction were repurchased
in the open market during January 1997. Hartsville had five branches in Middle
Tennessee and operated under the name CommunityFirst. Immediately following
the merger of Hartsville with and into First American, CommunityFirst was
merged with and into FANB. The acquisition was accounted for as a purchase.
Effective July 1, 1996, FANB, a wholly-owned subsidiary of First
American, purchased 96.2% of the stock of INVEST for $26.0 million in cash.
Simultaneously, INVEST completed its acquisition of Investment Center Group,
Inc., the parent of Investment Centers of America, in a transaction valued at
$5.0 million, which makes INVEST the nation's largest marketer of mutual funds,
annuities, and other investment products sold through financial institutions.
Both transactions were accounted for as purchases. During the third quarter of
1996, FANB purchased an additional 2.1% of the stock of INVEST. Effective
February 1, 1997, AmeriStar Capital Markets, Inc., formerly a wholly-owned
subsidiary of FANB and a broker-dealer registered with the National Association
of Securities Dealers, was merged with and into INVEST. As a result of the
merger, FANB's equity ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a health care payments processing company, for $8.6 million. The
transaction is being accounted for under the equity method of accounting.
Effective March 11, 1996, First American acquired First City by
exchanging approximately 2.2 million shares of First American Corporation
common stock for all of the outstanding shares of First City. First City was a
bank holding company headquartered in Murfreesboro, Tennessee, and operated two
Tennessee state chartered banks and a consumer finance company. First City had
$366 million in assets, 11 banking offices, and nine consumer finance locations
in the middle Tennessee area. The transaction was accounted for as a purchase.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income on a taxable equivalent basis represented 60% of
total revenues in the first quarter of 1997 and 73% in the first quarter of
1996. For purposes of this discussion, total revenues consist of the sum of
net interest income and noninterest income. Net interest income on a taxable
equivalent basis in the first quarter of 1997 was $93.9 million, up $9.2
million, or 10.9%, from $84.7 million in the first quarter of 1996. Net
interest income is the difference between total interest income earned on
earning assets such as loans and securities and total interest expense incurred
on interest-bearing liabilities such as deposits. Net interest income is
affected by the volume and mix of earning assets and interest-bearing
liabilities and the corresponding interest yields and costs.
Total interest income on a taxable equivalent basis amounted to $182.3
million for the first quarter of 1997, compared to $172.2 million for the first
quarter of 1996, an increase of $10.1 million, or 5.8%. Of the $10.1 million
increase in total interest income, $8.3 million resulted from an increase in
the volume
10
<PAGE> 11
of earning assets (primarily loans and securities) and $1.8 million resulted
from an increase in average yields. Average earning assets rose $428.0
million, or 4.8%, to $9.27 billion. Average loans increased $265.3 million, or
4.1%, to $6.68 billion, average securities increased $341.3 million, or 16.2%,
to $2.45 billion, and average money market investments decreased $178.6 million
to $138.7 million. Excluding the effects of the Hartsville and First City
acquisitions, average loans for the quarter ended March 31, 1997, increased
1.2% over the same period last year. The average yield on earning assets
increased 14 basis points to 7.97% from 7.83%, reflecting a generally higher
interest rate environment in the first quarter of 1997 compared to the first
quarter of 1996 for financial instruments with maturities of one year or
longer. For example, the 1-year and 5-year treasury security yields averaged
5.65% and 6.36%, respectively, in the first quarter of 1997 compared to 5.12%
and 5.57%, respectively, in the first quarter of 1996. Shorter-term external
interest rates were generally lower than the first quarter of 1996. Because
some of First American's earning assets (and interest-bearing liabilities) do
not reprice immediately upon a change in external rates and because of other
factors, such as competitive pressures, a change in external rates will not
result in a change in the Company's average yields on earning assets (and rates
paid on interest-bearing liabilities) of the same magnitude or timing as the
change in external rates.
Total interest expense in the first quarter of 1997 increased $854.0
thousand, or 1%, to $88.4 million from the first quarter of 1996. Of the
increase, $4.5 million resulted from an increase in the volume of
interest-bearing liabilities which was partially offset by a $3.7 million
decrease which was due to lower average interest rates paid on interest-bearing
funds. In the first quarter of 1997, average interest-bearing liabilities grew
$384.0 million, or 5.2%, to $7.82 billion from $7.44 billion in the first
quarter of 1996. Average interest-bearing deposits increased $348.0 million,
or 5.7%, to $6.4 billion, average short-term borrowings rose $97.2 million, or
9.8%, to $1.09 billion, and average long-term debt decreased $61.1 million, or
15.9%, to $322.6 million. Excluding the effects of the Hartsville and First
City acquisitions, total average interest-bearing deposits increased 1%. The
average rate paid on interest-bearing liabilities decreased 15 basis points to
4.58% from 4.73% due to lower short-term external interest rates in 1997 as
compared to the first quarter of 1996.
Net interest income in the first quarter of 1997 increased primarily as a
result of the increase in the volume of earning assets and an improved net
interest spread. Net interest spread is the difference between the yield on
earning assets and the rate paid on interest-bearing liabilities. First
American's net interest spread improved 29 basis points to 3.39% during the
first quarter of 1997 from 3.10% for the first quarter of 1996. This increase
was due to a 14 basis point increase in yields on earning assets and a 15 basis
point decrease in the rates paid on interest-bearing liabilities.
As the net interest spread improved, the net interest margin, which is
net interest income expressed as a percentage of average earning assets,
increased to 4.11% for the first quarter of 1997 as compared with 3.85% for the
same quarter a year earlier. The primary factors leading to the improvement in
the net interest margin were the increase in the volume of earning assets and
the improvement in net interest spread.
PROVISION FOR LOAN LOSSES
This topic is addressed under the caption "Allowance and Provision for
Loan Losses."
NONINTEREST INCOME
Total noninterest income was $61.7 million for the first quarter of 1997
compared with $32.0 million for the first quarter of 1996, an increase of $29.7
million, or 92.9%. Noninterest income represented 40% of total revenues in the
first quarter of 1997 and 27% during the same time last year. The increase in
noninterest income from the first quarter of 1996 included a $26.8 million
increase in investment services income, a $1.1 million, or 8.3%, increase in
service charges on deposit accounts, and a $2.6 million, or 31.5%, increase in
other income. Of the total $26.8 million improvement in investment services
income over the first quarter of 1996, $26.0 million resulted from the
acquisition of INVEST and the remainder resulted principally from growth in
retail brokerage commissions related to mutual funds and annuities sales and
institutional brokerage commissions on various types of securities
transactions. The $1.1 million increase in service charges on deposit accounts
resulted primarily from a greater number of deposit accounts and related
activities for commercial and retail deposits. The average number of retail
deposit accounts increased 2.5% and the average number of commercial deposit
accounts increased 2.8% from first
11
<PAGE> 12
quarter 1996 to the current quarter. Other income in the first quarter of 1997
included a $1.0 million increase in ATM surcharge and network transaction fee
items, which resulted principally from fees generated by the introduction of
new ATM services such as stamps, mini-statements, and ATM use by non-First
American customers, and a $1.2 million gain on the sale of mortgage loans.
Excluding INVEST, noninterest income increased $3.1 million, or 9.6%.
NONINTEREST EXPENSE
Total noninterest expense increased $31.8 million, or 47%, to $99.5
million for the first quarter of 1997 compared with $67.7 million for the same
period in 1996. The increase in noninterest expense included a $17.8 million
increase in subscribers' commissions related to INVEST's brokerage activities,
an $8.4 million increase in salaries and employee benefits, a $4.0 million
increase in other expenses, an $.8 million increase in net occupancy expense,
and an $.8 million increase in systems and processing expense. The above
increases were partially offset by a $.9 million decrease in marketing expense.
Salaries and employee benefits increased $8.4 million, or 21.7%, from the
same period in 1996 principally due to merit increases and additional employees
resulting primarily from acquisitions. From March 31, 1996, to March 31, 1997,
the number of full-time equivalent employees increased 11.4% related primarily
to the Hartsville and INVEST acquisitions. Other expenses increased $4.0
million from the previous year's first quarter primarily due to an $.8 million
increase in amortization of intangibles related to the Hartsville, First City,
and INVEST acquisitions, a $.7 million increase in security clearing fees
related to INVEST, a $.4 million increase in travel expenses, and a $.3 million
increase in convention and group meeting expense. Net occupancy expense grew
$.8 million primarily due to higher rent and other occupancy-related expenses
due to the Hartsville, First City, and INVEST acquisitions. Systems and
processing expense increased $.8 million over last year's first quarter
primarily due to higher processing volumes related to the recent acquisitions
and various projects to enhance systems. A decrease in marketing expense of
$.9 million occurred due to statewide advertising projects that have been
deferred. Of the total $31.8 million increase in noninterest expense, $25.7
million was associated with INVEST. Excluding INVEST, noninterest expense
increased $6.1 million, or 9.1%. First American's operating efficiency ratio
from the traditional banking business improved to 56.93% in the first quarter
of 1997 compared to 58.0% the first quarter of 1996.
INCOME TAXES
During the first quarters of 1997 and 1996, income tax expense was $21.1
million and $18.3 million, respectively. The major factor for the 15.3%
increase in income tax expense was the higher income before income taxes.
BALANCE SHEET REVIEW
ASSETS
Total assets of First American rose $357.5 million, or 3.6%, to $10.21
billion at March 31, 1997, compared to $9.85 billion one year earlier. The
growth in total assets was primarily due to the $232.9 million, or 3.6%,
increase in loans, net of unearned discount and net deferred loan fees, to
$6.75 billion at March 31, 1997, from $6.52 billion at March 31, 1996. Leading
the growth in loans were commercial loans, which increased $256.7 million, or
9%, over a broad range of industry categories. The increase in loan volume, in
addition to increases from acquisitions, was primarily a reflection of positive
economic conditions in Tennessee and adjacent states, and the success of First
American's sales efforts and marketing programs. Also contributing to asset
growth were increases in investment securities ($156.8 million), trading
securities ($34.6 million), cash ($27.8 million), time deposits with other
banks ($9.2 million), partially offset by the $149.7 million decrease in
federal funds sold and securities purchased under agreements to resell.
Total assets decreased $190.6 million from $10.4 billion at December 31,
1996, to $10.21 billion at March 31, 1997. The decrease in total assets from
December 31, 1996, to March 31, 1997, was primarily due to the $144.3 million
decrease in Federal funds sold and securities purchased under agreements to
resell, and by the $127.4 million decrease in cash, partially offset by a $90.2
million increase in loans, net of unearned discount and net deferred loan fees.
Leading the growth in loans were commercial loans which increased $89.6
million.
12
<PAGE> 13
During the first quarter of 1997, approximately $54.5 million of mortgage
loans were sold with the mortgage servicing rights retained by First American.
The transaction resulted in a gain of approximately $1.2 million.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level which is adequate to absorb estimated loan losses inherent in the loan
portfolio. The provision for loan losses is a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance at
an appropriate level. Determining the appropriate level of the allowance and
the amount of the provision for loan losses involves uncertainties and matters
of judgment and therefore cannot be determined with precision.
In order to maintain the allowance at an appropriate level, First
American's loan loss methodology produced no provision for loan losses during
the first quarter of 1997 nor during the first quarter of 1996. The primary
factors leading to no provision for loan losses in the first quarters of 1997
and 1996, were the continued favorable levels of asset quality as discussed
under the caption "Asset Quality" and relatively low net loan charge-off
experience. In the first quarter of 1997 there were net charge-offs of $1.4
million which compared to net charge-offs of $2.1 million in the first quarter
of 1996. Net charge-offs as a percentage of average loans on an annualized
basis amounted to .09% and .13%, respectively, in the first quarters of 1997
and 1996. Activity in the allowance for loan losses in the first quarter of
1997 also included a $.7 million increase due to the January 1, 1997
acquisition of Hartsville.
The allowance for loan losses was $122.6 million at March 31, 1997,
$132.4 million at March 31, 1996, and $123.3 million at December 31, 1996. The
allowance for loan losses represented 1.82% and 2.03% of net loans at March 31,
1997 and 1996, respectively, and 1.85% at December 31, 1996.
ASSET QUALITY
First American's nonperforming assets (excluding loans 90 days past due
on accrual status) were $15.8 million at March 31, 1997, $26.8 million at March
31, 1996, and $23.7 million at December 31, 1996. Nonperforming assets
(excluding loans 90 days past due on accrual status) at March 31, 1997,
represented .23% of total loans and foreclosed properties, compared to .41% at
March 31, 1996, and .36% at December 31, 1996. At March 31, 1997,
nonperforming assets were comprised of $11.2 million of non-accrual loans and
$4.5 million of foreclosed properties.
Other potential problem loans consist of loans that are currently not
considered nonperforming but on which information about possible credit
problems has caused Management to doubt the ability of the borrowers to comply
fully with present repayment terms. At March 31, 1997, such loans totaled
approximately $57 million compared with approximately $80 million of such loans
at March 31, 1996, and $52 million at December 31, 1996. Depending on the
economy and other factors, these loans and others, which may not be presently
identified, could become nonperforming assets in the future.
LIABILITIES
Total deposits were $7.8 billion at March 31, 1997, an increase of $360.8
million, or 4.8%, from $7.44 billion a year earlier. Core deposits, which are
defined as total deposits excluding certificates of deposit $100,000 and over
and foreign deposits, totaled $6.96 billion at March 31, 1997, and $6.71
billion at March 31, 1996. Short-term borrowings increased $38.9 million, or
3.7%, to $1.08 billion at March 31, 1997, from $1.04 billion at March 31, 1996.
Long-term debt decreased $44.6 million from March 31, 1996, to $323.3 million
at March 31, 1997, primarily due to the reclassification of $45.0 million of
fixed rate Federal Home Loan Bank ("FHLB") borrowing from long- to short-term.
Total deposits increased $9.9 million from $7.79 billion at December 31,
1996, to $7.8 billion at March 31, 1997. Core deposits increased $153.1
million, short-term borrowings decreased $74.0 million, and long-term debt
decreased $7.9 million from December 31, 1996, to March 31, 1997. The decrease
in long-term debt was primarily due to the reclassification of $9.0 million of
fixed rate FHLB borrowings from long- to short-term.
13
<PAGE> 14
OFF BALANCE SHEET INSTRUMENTS
First American has utilized off balance sheet derivative products for a
number of years in managing its interest rate sensitivity. Generally, a
derivative transaction is a payments exchange agreement whose value derives
from an underlying asset or underlying reference rate or index. The use of
non-complex, non-leveraged derivative products has reduced the Company's
exposure to changes in the interest rate environment. By using derivative
products such as interest rate swaps and futures contracts to alter the nature
of (hedge) specific assets or liabilities on the balance sheet (for example to
change a variable to a fixed rate obligation), the derivative product offsets
fluctuations in net interest income from the otherwise unhedged position. In
other words, if net interest income from the otherwise unhedged position
changes (increases or decreases) by a given amount, the derivative product
should produce close to the opposite result, making the combined amount
(otherwise unhedged position impact plus the derivative product position
impact) essentially unchanged. Derivative products have enabled First American
to improve its balance between interest-sensitive assets and
interest-sensitive liabilities by managing interest rate sensitivity, while
continuing to meet the lending and deposit needs of its customers.
In conjunction with managing interest rate sensitivity, at March 31,
1997, First American had derivatives with notional values totaling $1.15
billion. These derivatives had a net positive fair value (unrealized net
pre-tax gain) of $2.7 million. Notional amounts are key elements of derivative
financial instrument agreements. However, notional amounts do not represent
the amounts exchanged by the parties to derivatives and do not measure First
American's exposure to credit or market risks. The amounts exchanged are based
on the notional amounts and the other terms of the underlying derivative
agreements. At March 31, 1996, First American had derivatives with notional
values totaling $1.2 billion. These derivatives had a net negative fair value
(unrealized pre-tax loss) of $42.0 thousand at March 31, 1996. The instruments
utilized are noted in the following table along with their notional amounts and
fair values at March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Weighted
Weighted Average Average
Rate Maturity
Related Variable Rate Notional -------------------- -------- Fair
(in thousands) Asset/Liability Amount Paid Received Years Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 1997
Interest rate swaps Money market deposits $ 200,000 5.67% (1) 5.53% (2) 2.3 $ 3,804
Interest rate swaps Loans 350,000 5.55 (3) 6.65 (1) 4.5 (2,824)
Forward interest rate Available for sale
swaps securities 200,000 7.01 (4) N/A (4) 3.6 (117)
Forward interest rate
swaps Money market deposits 400,000 6.27 (5) N/A (5) 1.5 1,857
---------- ---------
$1,150,000 $ 2,720
=======================================================================================================================
March 31, 1996
Interest rate swaps Money market deposits $ 900,000 5.90% (1) 5.35% (2) 1.6 $ 757
Interest rate swaps Long-term debt 100,000 6.32 (1) 5.28 (3) .4 (436)
Forward interest rate
swaps Money market deposits 200,000 6.64 (6) 5.33 (6) .3 (363)
---------- ---------
$1,200,000 $ (42)
=======================================================================================================================
</TABLE>
(1) Fixed rate.
(2) Variable rate which reprices quarterly based on 3-month LIBOR except for
$25 million which reprices every 6 months based on 6-month LIBOR.
(3) Variable rate which reprices quarterly based on 3-month LIBOR.
(4) Forward swap periods to begin in May 1997 for $50 million, June 1997 for
$50 million and April 1998 for $100 million. The rates to be paid are
fixed and were set at the inception of the contracts. Variable rates to
be received are based on 3-month LIBOR but were unknown at March 31,
1997, since the forward swap periods had not yet begun.
(5) Forward swap periods to begin in May 1997 for $100 million, and September
1997 for $100 million, and November 1997 for $200 million. The rates to
be paid are fixed and were set at the inception of the contracts.
Variable rates to be received are based on 3-month LIBOR but were unknown
at March 31, 1997, since the forward swap period had not yet begun.
(6) Forward swap periods began in June 1995. The rates paid are fixed and
were set at the inception of the contracts. Variable rates received are
based on a 3-month LIBOR and reprice quarterly.
As First American's individual derivative contracts approach maturity,
they may be terminated and replaced with derivatives with longer maturities
which offer more interest rate risk protection. At March 31, 1997, there were
$3.5 million of deferred net gains related to terminated derivatives contracts,
and there were $3.3 million of deferred net losses at March 31, 1996. Deferred
gains and losses on off balance
14
<PAGE> 15
sheet derivative activities are recognized as interest income or interest
expense over the original covered periods.
Net interest income for the quarter ended March 31, 1997, was increased
by derivative products income of $.6 million. Net interest income for the
quarter ended March 31, 1996, was decreased by $2.7 million derivative products
expense. The change from derivative products net expense in the first quarter
of 1996 to net pretax income in the first quarter of 1997 was primarily due to
the reduced amortization of deferred losses on terminated derivative contracts
and changes in the interest rate environment.
Credit risk exposure due to off-balance-sheet hedging is closely
monitored, and counterparts to these contracts are selected on the basis of
their credit worthiness, as well as their market-making ability. As of March
31, 1997, all outstanding derivative transactions were with counterparts with
credit ratings of A-2 or better. Enforceable bilateral netting contracts
between First American and its counterparts allow for the netting of gains and
losses in determining net credit exposure. First American's net credit
exposure on outstanding derivatives was $4.0 million on March 31, 1997. Given
the credit standing of the counterparts to the derivative contracts, Management
believes that this credit exposure is reasonable in light of its objectives.
CAPITAL POSITION
Total shareholders' equity was $854.1 million, or 8.37% of total assets
at March 31, 1997, $825.9 million, or 8.38% of total assets, at March 31, 1996,
and $868.7 million, or 8.35% of total assets at December 31, 1996. Book value
per share was $14.56 on March 31, 1997, $13.76 per share on March 31, 1996, and
$14.66 per share on December 31, 1996.
Total shareholders' equity decreased $14.6 million from December 31,
1996, principally from the repurchase of $46.3 million of common stock and the
$11.8 million decrease in net unrealized gains and losses on securities
available for sale, net of tax and offset by increases of $24.8 million of
earnings retention ($34.0 million of net income less $9.2 million of
dividends), $7.4 million of common stock issued for employee benefit and
dividend reinvestment plans, and $9.6 million of common stock issued for the
acquisition of Hartsville. All of the First American shares exchanged in the
Hartsville transaction were repurchased during January 1997 in the open market.
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split and a 29% increase in the quarterly cash dividend. On a post-split
basis, the quarterly dividend in respect to the first quarter of 1997 will be
$.20 per share. All financial data has been restated to reflect the impact of
the stock split. In the first quarter of 1997, First American declared cash
dividends on its common stock of $.155 per share compared to $.14 per share in
the first quarter of 1996. The dividend payout ratio was 27% in the first
quarter of 1997 compared to 28% in the first quarter of 1996.
The Federal Reserve Board and Office of the Comptroller of the Currency
(OCC) regulations require that bank holding companies and national banks
maintain minimum capital ratios. As of March 31, 1997, the Corporation and its
bank subsidiaries, FANB and First American National Bank of Kentucky
("FANBKY"), had ratios which exceeded the regulatory requirements to be
classified as "well capitalized," the highest regulatory capital rating. At
March 31, 1997, the Corporation, FANB, and FANBKY had total risk-based capital
ratios of 11.98%, 11.50%, and 10.59%, respectively, Tier I risk-based capital
ratios of 9.49%, 10.24%, and 9.97%, respectively, and Tier I leverage capital
ratios of 7.62%, 8.31%, and 6.29%, respectively. In order to be considered
well capitalized, the total risk-based capital ratio must be a minimum of 10%,
the Tier I risk-based capital ratio must equal or exceed 6%, and the Tier I
leverage capital ratio must be 5% or greater.
First American Federal Savings Bank ("FAFSB") is subject to capital
requirements adopted by the Office of Thrift Supervision ("OTS"), which are
similar to those issued by the Federal Reserve Board and the OCC. At March 31,
1997, FAFSB's core (leverage) capital ratio was 6.21%, its Tier I capital ratio
was 12.58% of risk based weighted assets, and its total risk-based capital
ratio was 13.42%, all of which exceeded the minimum ratios established by the
OTS.
LIQUIDITY
Liquidity management consists of maintaining sufficient cash levels to
fund operations and to meet the requirements of borrowers, depositors, and
creditors. Liquid assets, which include cash and cash equivalents (less
Federal Reserve Bank reserve requirements), money market instruments, and
securities
15
<PAGE> 16
that will mature within one year, amounted to $927.3 million and $934.2 million
at March 31, 1997 and 1996, respectively. The estimated average maturity of
securities was 4.3 years and 4.2 years at March 31, 1997 and 1996,
respectively. The average repricing life of the total securities portfolio was
2.4 years and 1.7 years at March 31, 1997 and 1996, respectively. The overall
liquidity position of First American is further enhanced by a high proportion
of core deposits, which provide a stable funding base. Core deposits comprised
89% of total deposits at March 31, 1997, versus 90% at March 31, 1996.
An additional source of liquidity is the Corporation's three year $70
million revolving credit agreement which will expire March 31, 1998. First
American had no borrowings under this agreement during 1996 or 1997.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is incorporated by
reference to Item 3 of the Registrant's annual report on Form 10-K
for the year ended December 31, 1996, and Note 8 to the
Corporation's Consolidated Financial Statements for the quarter
ended March 31, 1997 included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Charter of the Registrant currently in effect as amended and corrected, included
herein.
3.2 By-laws of the Registrant currently in effect as amended January 16, 1997, are incorporated by
reference to Item 14 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
11 Statement regarding computation of per share earnings is included in Note 6 to the
Consolidated Financial Statements for the quarter ended March 31, 1997. See Part 1, Item 1.
15 Letter regarding unaudited interim financial information from KPMG Peat Marwick LLP, dated
April 17, 1997.
27 Financial Data Schedule for interim year-to-date period ended March 31, 1997. (For SEC use
only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST AMERICAN CORPORATION
---------------------------
(Registrant)
/s/ Martin E. Simmons
--------------------------------------------
Martin E. Simmons
Executive Vice President, General Counsel,
Secretary and Principal Financial Officer
Date: May 13, 1997
-------------------------------------
<PAGE> 1
EXHIBIT 3.1
RESTATED CHARTER
OF
FIRST AMERICAN CORPORATION
<PAGE> 2
EXHIBIT 3.1
RESTATED CHARTER
OF
FIRST AMERICAN CORPORATION
(herein sometimes the "Corporation")
AS RESTATED ON JANUARY 13, 1997
Pursuant to the provisions of Section 48-20-107 of the Tennessee Business
Corporation Act, the undersigned corporation adopts the following restated
charter (hereinafter the "Charter"):
ARTICLE I
The name of the corporation is First American Corporation.
ARTICLE II
The duration of the Corporation is perpetual.
ARTICLE III
The address of the principal office of the Corporation in the State of
Tennessee shall be First American Center, Nashville, Tennessee 37237, County of
Davidson.
ARTICLE IV
The Corporation is for profit.
ARTICLE V
A. The purpose for which the Corporation is organized is to transact the
business of a holding company with all of the powers granted generally to
corporations for profit by the Statutes of Tennessee, and without limiting in
any manner the scope and generality of the foregoing, the Corporation shall have
the following purposes and powers:
1. To acquire by purchase, subscription, or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge, or
otherwise dispose of or deal in and with any and all securities, as such term is
hereinafter defined, issued or created by any corporation, firm, organization,
association or other entity, public or private, whether formed under the laws of
the United States of America or of any state, commonwealth, territory,
dependency or possession thereof, or of any foreign country or of any political
subdivision, territory, dependency, possession or municipality thereof, or
issued or created by the United States of America or any state or commonwealth
thereof of any foreign country, or by any agency, subdivision, territory,
dependency,
<PAGE> 3
possession or municipality of any of the foregoing, and as owner thereof to
possess and exercise all the rights, powers and privileges of ownership,
including the right to execute consents and vote thereon.
The term "securities" as used in this Charter shall mean any and
all notes, stocks, treasury stocks, bonds, debentures, evidences of
indebtedness, certificates of interest or participation in any profit-sharing
agreement, collateral-trust certificates, preorganization certificates or
subscriptions, transferable shares, investment contracts, voting trust
certificates, certificates of deposit for a security, fraction undivided
interests in oil, gas, or other mineral rights, or, in general, any interests or
instruments commonly known as "securities," or any and all certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guaranties of, or warrants or rights to subscribe to or purchase, any of
the foregoing.
2. To make, establish and maintain investments in securities, and to
supervise and manage such investments.
3. To cause to be organized under the laws of the United States of
America or of any state, commonwealth, territory, dependency or possession
thereof, or of any foreign country or of any political subdivision, territory,
dependency, possession or municipality thereof, one or more corporations, firms,
organizations, associations or other entities and to cause the same to be
dissolved, wound up, liquidated, merged or consolidated.
4. To acquire by purchase or exchange, or by transfer to or by merger
or consolidation with the Corporation or any corporation, firm, organization,
association or other entity owned or controlled, directly or indirectly, by the
Corporation, or to otherwise acquire, the whole or any part of the business,
good will, rights, or other assets of any corporation, firm, organization,
association or other entity, to operate and/or carry on the business of same,
and to undertake or assume in connection therewith the whole or any part of the
liabilities and obligations thereof, to effect any such acquisition in whole or
in part by delivery of cash or other property, including securities issued by
the Corporation, or by any other lawful means.
5. To make loans and give other forms of credit, with or without
security, and to negotiate and make contracts and agreements in connection
therewith.
6. To aid by loan, subsidy, guaranty or in any other lawful manner any
corporation, firm, organization, association or other entity of which any
securities are in any manner directly or indirectly held by the Corporation or
in which the Corporation or any such corporation, firm, organization,
association or entity may be or become otherwise interested; to guarantee the
payment of dividends on any stock issued by any such corporation, firm,
organization, association or entity; to guarantee or, with or without recourse
against any such corporation, firm, organization, association or entity, to
assume the payment of the principal of, or the interest on, any obligations
issued or incurred by such corporation, firm, organization, association or
entity; to do any and all other acts and things for the enhancement, protection
or preservation of any securities which are in
<PAGE> 4
any manner, directly or indirectly, held, guaranteed or assumed by the
Corporation, and to do any and all acts and things designed to accomplish any
such purpose.
7. To borrow money for any business, object or purpose of the
Corporation from time to time, without limit as to amount; to issue any kind of
indebtedness, whether or not in connection with borrowing money, including
evidences of indebtedness convertible into stock of the Corporation, to secure
the payment of any evidence of indebtedness by the creation of any interest in
any of the property or rights of the Corporation, whether at that time owned or
thereafter acquired.
8. To render service, assistance, counsel and advice to, and to act as
representative or agent in any capacity (whether managing, operating, financial,
purchasing, selling, advertising or otherwise) of, any corporation, firm,
organization, association, or other entity.
B. The Corporation shall possess and may exercise all powers and privileges
necessary or convenient to effect any or all of the foregoing purposes, or to
further any or all of the foregoing powers, and the enumeration herein of any
specific purposes or powers shall not be held to limit or restrict in any manner
the exercise by the Corporation of the general powers now or hereafter conferred
by the laws of the State of Tennessee upon corporations formed under the General
Corporation Act of Tennessee.
ARTICLE VI
A. Authorized Shares. The maximum number of shares which the Corporation
shall have authority to issue is FIFTY MILLION (50,000,000) shares of common
stock with a par value of FIVE dollars ($5.00) per share and TWO MILLION FIVE
HUNDRED THOUSAND (2,500,000) shares of preferred stock without par value.
B. No Preemptive Rights. No shareholder of any class of stock of the
Corporation shall, because of his ownership of stock, have a preemptive or other
right to purchase, subscribe for, or take any part of any stock or any part of
the notes, debentures, bonds or other securities convertible into or carrying
options or warrants to purchase stock of the Corporation issued, optioned, or
sold by it after its incorporation. Any part of the capital stock and any part
of the notes, debentures, bonds, or other securities convertible into or
carrying options or warrants to purchase stock of the Corporation authorized by
this Charter or by an amendment thereto duly filed, may at any time be issued,
optioned for sale, and sold or disposed of by the Corporation pursuant to
resolution of its Board of Directors to such persons and upon such terms as may
to such Board seem proper without first offering such stock or securities or any
part thereof to existing shareholders.
C. Issuance of Preferred Stock in Series. The Board of Directors is
expressly authorized at any time, and from time to time, to provide for the
issuance of shares of preferred stock in one or more series, with such voting
powers, full or limited but not to exceed one vote per share, or without voting
powers and with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
and
<PAGE> 5
as are not stated and expressed in this Charter or any amendment thereto,
including (but without limiting the generality of the foregoing) the following:
(i) The designation of such series.
(ii) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes or
of any other series of capital stock, and whether such dividends shall be
cumulative or noncumulative.
(iii) Whether the shares of such series shall be subject to redemption
by the Corporation, and, if made subject to such redemption, the times, prices
and other terms and conditions of such redemption.
(iv) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series.
(v) Whether or not the shares of such series shall be convertible into
or exchangeable for shares of any other class or classes or of any other series
of any other class or classes of capital stock of the Corporation, and, if
provision be made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange.
(vi) The extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with respect to the
election of the directors or otherwise; provided, however, that in no event
shall any holder of any series of preferred stock be entitled to more than one
vote for each share of such preferred stock held by him.
(vii) The restrictions, if any, on the issue or reissue of any
additional preferred stock.
(viii) The rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the Corporation.
D. $2.375 Cumulative Preferred Stock
1. Designation. The initial series of preferred stock without par value
shall be known and designated as $2.375 Cumulative Preferred Stock (hereinafter
referred to as the "Cumulative Preferred Stock"), and shall consist of THREE
HUNDRED THOUSAND (300,000) shares without par value and shall have the rights,
preferences and characteristics set forth below.
2. Dividends.
(a) The holders of shares of Cumulative Preferred Stock shall be
entitled to receive dividends at the rate of $2.375 per share per annum, when,
as and if declared by the Board of
<PAGE> 6
Directors out of funds legally available therefor. Dividends shall accrue from
the date of original issue and shall be payable on the first days of October,
January, April and July, commencing October 1, 1978. The record dates for
determining holders entitled to receive such dividends shall be such dates as
may be fixed by the Board of Directors.
(b) Dividends on the Cumulative Preferred Stock shall be
cumulative from the date of original issue. If such dividends shall not have
been paid, or declared and set apart for payment upon all outstanding shares of
Cumulative Preferred Stock, the deficiency shall be fully paid, or declared and
set apart for payment, before any dividends are paid or declared upon any shares
of Common stock or any class or series of stock ranking as to dividends or
assets junior to the Cumulative Preferred Stock. Whenever full cumulative
dividends on all outstanding shares of Cumulative Preferred Stock shall have
been paid, or declared and set apart for payment, the Board of Directors may
declare dividends upon the Common Stock or any other class or series of stock
junior to the Cumulative Preferred Stock, payable then or thereafter, and no
holder of Cumulative Preferred Stock shall be entitled to share therein by
virtue of such holding.
3. Liquidation. Upon any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Cumulative
Preferred Stock shall be entitled to be paid from the assets (whether capital or
surplus) of the Corporation the following amounts:
(i) upon involuntary dissolution, liquidation or winding up, $25
per share;
(ii) upon voluntary dissolution, liquidation or winding up, an
amount per share equal to the optional redemption price prevailing on the date
on which such dissolution shall have become legally effective or such
liquidation or winding up shall have been authorized, or if such date shall be
prior to June 1, 1980, $26.75 per share;
plus, in every case, an amount equal to all accumulated and unpaid
dividends accrued to the date fixed for final distribution to such holders,
whether or not earned or declared, before any payment or distribution shall be
made to the holders of the Common Stock or any class or series ranking junior as
to dissolution, liquidation or winding up to the Cumulative Preferred Stock.
After payment in full of such amounts to the holders of the Cumulative Preferred
Stock, the holders of the Cumulative Preferred Stock, as such, shall have no
right or claim to any of the remaining assets of the Corporation, and the same
shall be distributed to the holders of the Common Stock and any other class or
series of stock junior as to dissolution, liquidation or winding up to the
Cumulative Preferred Stock in accordance with their respective rights.
4. Optional Redemption
(a) Subject to the provisions of this subsection D4, the
Corporation may redeem, on or after June 1, 1980, the Cumulative Preferred
Stock, or any part thereof, at the option of the Board of Directors, at the then
applicable optional redemption price plus an amount equal to all accumulated and
unpaid dividends accrued to the redemption date of the shares redeemed, whether
or not earned
<PAGE> 7
or declared, provided, however, that not less than (30) days nor more than (60)
days prior to the date fixed for redemption, (the "Redemption Date"), a notice
specifying the time and place of redemption and the redemption price shall be
given to the holders of record of the shares to be redeemed by publication of
such notice in one newspaper published and of general circulation in the City of
Nashville, Tennessee, and in one newspaper published and of general circulation
in the Borough of Manhattan, The City of New York and by mailing such notice to
such holders at their addresses, as the same appear upon the stock registry
books; provided, however, that if all shares of Cumulative Preferred Stock are
to be redeemed, no failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such redemption.
(b) The optional redemption price of shares of Cumulative
Preferred Stock redeemed at the option of the Board of Directors shall be as
follows:
$26.75 if redeemed on or after June 1, 1980 and prior to June 1, 1981;
$26.50 if redeemed on or after June 1, 1981 and prior to June 1, 1982;
$26.25 if redeemed on or after June 1, 1982 and prior to June 1, 1983;
$26.00 if redeemed on or after June 1, 1983 and prior to June 1, 1984;
$25.75 if redeemed on or after June 1, 1984 and prior to June 1, 1985;
$25.50 if redeemed on or after June 1, 1985 and prior to June 1, 1986;
$25.25 if redeemed on or after June 1, 1986 and prior to June 1, 1987;
$25.00 if redeemed on or after June 1, 1987 or thereafter.
The optional redemption price, plus dividends accrued and unpaid to the
Redemption Date, shall be paid on the Redemption Date.
(c) If less than all outstanding shares of Cumulative Preferred
Stock are to be redeemed, and except as otherwise hereinafter required by the
provisions of this subsection D4, such redemption shall be pro rata from each
holder of record, provided that the Corporation shall not redeem a fraction of a
share. If, on a strictly pro rata basis, a record holder would otherwise be
entitled to have redeemed whole shares and a fractional share, only the whole
shares shall be redeemed; however, if, on a strictly pro rata basis, a record
holder would otherwise be entitled to have redeemed only a fractional share (and
no whole shares), one full share shall be redeemed from such record holder.
In the event of any such partial redemption, the notice of
redemption mailed as aforesaid shall inform each holder of record of shares
called for redemption of the total number or proportion of shares registered in
his name that have been called for redemption, but the notice of
<PAGE> 8
redemption to be published as aforesaid need not contain such information.
(d) From and after the Redemption Date, unless default is made in
the payment of the optional redemption price when due, the shares so called for
redemption shall cease to be outstanding, and the holders thereof shall cease to
be shareholders with respect to such shares and shall have no interest in or
claim against the Corporation with respect to such shares, other than to receive
the optional redemption price on and after the date fixed for redemption without
interest thereon, upon surrender of their certificates with endorsement thereof
if required.
(e) At any time after notice of optional redemption shall have
been given as hereinabove provided, the Corporation may deposit, or cause to be
deposited in trust, to be applied to the redemption of the shares of Cumulative
Preferred Stock so called for redemption, with First American National Bank of
Nashville, Nashville, Tennessee, or with some other bank or trust company
organized and doing business under the laws of the United States of America or
the State of Tennessee and having capital surplus and undivided profits
aggregating at least ten million dollars ($10,000,000), the aggregate amount to
be paid on optional redemption to the holders of the shares so to be redeemed
upon surrender of the certificates for such shares. In case any holder of shares
of Cumulative Preferred Stock which shall have been called for redemption shall
not, within six years after such deposit, have claimed the amount deposited with
respect to the redemption thereof, such bank or trust company, upon demand,
shall pay over to the Corporation such unclaimed amount and shall thereupon be
relieved of all responsibility in respect thereof to such holder, and such
holder shall look only to the Corporation for the payment thereof. Any interest
accrued on funds so deposited shall be paid to the Corporation from time to
time.
(f) Notwithstanding the foregoing optional redemption provisions,
if at any time the Corporation shall have failed to declare or pay dividends in
full on all shares of Cumulative Preferred Stock outstanding, then and until all
arrearages of such dividends shall have been paid, or declared and set apart for
payment, the Corporation shall not purchase or redeem or otherwise acquire for
value (nor may moneys be paid or made available to any sinking fund for the
redemption of) any shares of Cumulative Preferred Stock or any shares of Common
Stock or any shares of any class or series of stock ranking as to dividends or
assets equally with or junior to the Cumulative Preferred Stock except in the
case of (i) a redemption of all outstanding shares of Cumulative Preferred Stock
at the redemption price determined in accordance with subsections D4(a) and
D4(b) above; or (ii) a purchase or other acquisition for value of shares of
Cumulative Preferred Stock pursuant to and in accordance with a purchase or
exchange of or made by the Corporation to all holders of record of the
Cumulative Preferred Stock.
5. Voting Rights
(a) Except as set forth in this subsection D5 or in any applicable
statute, the holders of Cumulative Preferred Stock shall have no voting powers,
nor shall they be entitled to notice of any meeting of the shareholders of the
Corporation.
<PAGE> 9
(b) If any time the Corporation shall be arrears in dividends on
any shares of Cumulative Preferred Stock in an amount equal to six full
quarterly dividends thereon, then, until all arrearages of dividends accumulated
on all shares of Cumulative Preferred Stock shall have been paid or declared and
set apart for payment, the holders of the Cumulative Preferred Stock, voting
separately as a class, shall have the sole right, to the exclusion of any other
class of stock, at all annual or special meetings of the shareholders of the
Corporation at which directors are to be elected, to vote for and elect TWO (2)
directors. At all annual or special meetings for election of directors so long
as such right to elect directors shall continue, the holders of the Cumulative
Preferred Stock, voting separately as a class, shall vote for and elect the
directors which they are entitled to elect as aforesaid, and thereafter the
holders of the Common stock and of any other stock of the Corporation having
voting powers, in accordance with their respective rights, shall vote for and
elect the remaining directors. At any meeting of the shareholders at which the
holders of the Cumulative Preferred Stock shall have the right to vote, they
shall have one vote for each share of Cumulative Preferred Stock registered on
the record date for such meeting in their name on the stock registry books. The
holders of the Cumulative Preferred Stock shall be entitled to notice of any
meeting of the shareholders called for the election of directors at which such
holders shall be entitled to vote as provided in this subsection D5(b), and at
any such election the holders of one-third of the shares of Cumulative Preferred
Stock outstanding shall constitute a quorum for the election of the directors
whom the holders of shares of Cumulative Preferred Stock are entitled to elect,
and a plurality of all votes of the Cumulative Preferred Stock represented at
the meeting shall be sufficient to elect such directors.
Whenever all arrearages of dividends on the Cumulative
Preferred Stock as aforesaid shall have been paid or declared and set apart for
payment, all powers of the holders of the Cumulative Preferred Stock to vote for
directors shall terminate, the term of office of all directors elected by them
shall forthwith automatically come to an end, and the number of directors shall
be the number elected by the other shareholders of the Corporation.
If the date upon which such right of the holders of the
Cumulative Preferred Stock shall become vested shall be more than one hundred
fifty days preceding the date of the next ensuing annual meeting of shareholders
as fixed by the by-laws of the Corporation or by the Board of Directors pursuant
to the By-Laws, the size of the Board of Directors shall automatically be
increased by two members, and the President of the Corporation shall call a
special meeting of the holders of the Cumulative Preferred Stock, to be held
within sixty (60) days after such right became vested or as promptly thereafter
as possible, for the purpose of electing two persons to the Board of Directors
to serve until the next annual meeting and until their successors shall be
elected and shall qualify. Notice of such meeting shall be mailed to each holder
of record of Cumulative Preferred Stock not less than ten (10) days prior to the
date of such meeting.
Whenever the holders of Cumulative Preferred Stock shall be
entitled to elect two directors, any holder of such Cumulative Preferred Stock
shall have the right, during regular business hours, in person or by duly
authorized representative, to examine and to make transcripts of the stock
records of the Corporation for the Cumulative Preferred Stock for the purpose of
communicating with other holders of such Cumulative Preferred Stock with respect
to the exercise of such right of
<PAGE> 10
election.
If, during any interval between annual meetings of
shareholders for the election of directors and while the holders of the
Cumulative Preferred Stock shall be entitled to elect two directors, the number
of directors in office who have been so elected by the holders of the Cumulative
Preferred Stock or who succeeded a director so elected shall, by reason of
resignation, death or removal, be less than two, such vacancy shall be filled by
vote of the remaining director then in office who was elected by vote of the
holders of the Cumulative Preferred Stock or succeeded a director so elected or,
if there be no such remaining director then in office or if such vacancy or
vacancies be not so filled within forty (40) days after the creation thereof,
the President of the Corporation shall promptly call a special meeting of the
holders of the Cumulative Preferred Stock and such vacancy or vacancies shall be
filled by vote at such special meeting.
Any director elected by the holders of the Cumulative
Preferred Stock or who succeeded a director so elected may be removed from
office by vote of the holders of a majority of the shares of such stock. A
special meeting of the holders of shares of such stock may be called by a
majority vote of the Board of Directors for the purpose of removing such a
director. The President of the Corporation shall, as promptly as practicable
after delivery to the Corporation at its principal office of a request to such
effect signed by the holders of at least ten percent (10%) of the outstanding
shares of Cumulative Preferred Stock, call a special meeting of the holders of
such stock for such purpose to be held within SIXTY (60) days or as soon
thereafter as possible after the delivery of such request.
(c) So long as any Cumulative Preferred Stock shall be
outstanding, the Corporation shall not without the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of all shares of
Cumulative Preferred Stock at the time outstanding (but may do so with such vote
when so authorized by its Board of Directors and also by vote of the holders of
any other class or series of stock which may then be required) (i) authorize or
create or increase the authorized amount of any stock ranking as to dividends or
assets prior to the Cumulative Preferred Stock or any security convertible into
or exchangeable for or carrying rights to purchase any such prior stock; (ii)
otherwise alter, change or cancel any of the provisions, preferences, rights or
powers of any shares of Cumulative Preferred Stock in any manner which will
adversely affect any shares of Cumulative Preferred Stock then outstanding;
(iii) sell, transfer or lease (otherwise than as security) its property and
assets as an entirety or substantially as an entirety, provided that this
restriction shall not apply to such a sale, transfer or lease if none of the
provisions, preferences, rights or powers of the Cumulative Preferred Stock will
be adversely affected; or (iv) merge or consolidate with or into any other
corporation, provided, however, that this restriction shall not apply to, nor
shall it operate to prevent, the consolidation of merger of the Corporation with
or into another corporation if none of the provisions, preferences, rights or
powers of the Cumulative Preferred Stock or the holders thereof will be
adversely affected thereby.
(d) So long as any Cumulative Preferred Stock shall be
outstanding, the Corporation shall not without the affirmative vote of the
holders of at least a majority of the shares of Cumulative
<PAGE> 11
Preferred Stock present in person or by proxy at a meeting at which holders of
at least a majority of the outstanding shares of Cumulative Preferred Stock are
so present (but may do so with such vote when so authorized by its Board of
Directors and also by vote of the holders of any other class or series of stock
which may then be required: (i) authorize or create or increase the authorized
amount of any other class or series of stock ranking as to dividends or assets
equally with the Cumulative Preferred Stock or of any security convertible into
or exchangeable for or carrying rights to purchase any such pari passu stock, or
(ii) increase the authorized amount of Cumulative Preferred Stock.
(e) Notwithstanding the provisions of subsections D5(b), D5(c) or
D5(d) hereof, the holders of the Cumulative Preferred Stock shall not have any
rights under the provisions of this subsection D5 to vote on any matter
specified therein if, in connection with the accomplishment of such matter,
provision is to be made for the redemption of all the Cumulative Preferred Stock
at the time outstanding.
6. Redemption in the Event of Owner's Death.
(a) Subject to the limitations set forth in this subsection D6,
from and after January 1, 1979, the Corporation, upon the death of any owner of
any shares of Cumulative Preferred Stock, shall redeem within sixty (60) days
following receipt by the Corporation of written notice therefor from such
owner's personal representative(s) or surviving joint tenant(s), and of such
deceased owner's shares as shall be specified in such notice at a redemption
price of $25.00 per share plus accrued and unpaid dividends. The maximum number
of shares of Cumulative Preferred Stock which the Corporation shall be required
to redeem in any calendar year pursuant to this subsection D6 shall be 7,500
shares, and such shares will be redeemed in order of their tender to the
Corporation for redemption. The Corporation may, but shall not be obligated to,
redeem shares prior to January 1, 1979 and redeem in any calendar year shares of
Cumulative Preferred Stock in excess of the 7,500 share maximum. If shares in
excess of the 7,500 share maximum are tendered in a calendar year by the
personal representative(s) or surviving joint tenant(s)of a deceased owner, such
excess shares will be held by the Corporation and will be redeemed (up to the
7,500 maximum) as soon as possible in the next calendar year, unless the tender
for redemption is withdrawn by the personal representative(s) or surviving joint
tenants(s) by written notice received by the Secretary of the Corporation prior
to payment of the redemption price therefor. Shares tendered pursuant to this
subsection D6 must be accompanied by (1) a written request for redemption signed
by the personal representative(s) or surviving joint tenant(s), (2) appropriate
evidence of ownership and authority, (3) the certificates for the shares to be
redeemed, and (4) such waivers by taxing authorities and other documents as may
be required by counsel to the Corporation.
The Corporation shall not be required to redeem any shares
pursuant to this subsection D6, if such redemption would be prohibited by
subsection D4(f) hereof or the provisions of any law or statute, or the
provisions of any loan agreement or indenture to which the Corporation or any of
its subsidiaries is now or may hereafter be bound; provided, however neither the
Corporation nor any of its subsidiaries will enter into any loan agreement or
indenture which would immediately upon its execution or effectiveness prohibit
such redemption by its express terms or by the operation of any
<PAGE> 12
formula contained herein.
E. Series A Junior Preferred Stock. Pursuant to the authority vested in the
Board of Directors in accordance with the provisions of this Article VI of the
Charter, the Board of Directors does hereby create, authorize and provide for
the issuance of Series A Junior Preferred Stock out of the class of 2,500,000
shares of preferred stock, no par value (the "Preferred Stock"), having the
voting powers, designation, relative, participating, optional and other special
rights, preferences, and qualifications, limitations and restrictions thereof
that are set forth as follows:
1. Designation and Amount. The shares of such series shall be
designated as Series A Junior Preferred Stock ("Series A Preferred Stock") and
the number of shares constituting such series shall be 250,000. Such number of
shares may be adjusted by appropriate action of the Board of Directors.
2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any
shares of any other series of Preferred Stock or any other shares of preferred
stock of the Corporation ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, each holder of one one-hundredth
(1/100) of a share (a "Unit") of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for that purpose,
(i) quarterly dividends payable in cash on the 1st day of
January, April, July and October in each year (each such date being a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of such Unit of Series A Preferred Stock, in an amount
per Unit (rounded to the nearest cent) equal to the greater of (x) $.01 or (y)
subject to the provision for adjustment hereinafter set forth, the aggregate per
share amount of all cash dividends declared on shares of the common stock of the
Corporation, par value $5.00 per share, (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Preferred Stock, and (ii) subject to the provision for adjustment
hereinafter set forth, quarterly distributions (payable in kind) on each
Quarterly Dividend Payment Date in an amount per Unit equal to the aggregate per
share amount of all non-cash dividends or other distributions (other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock, by reclassification or otherwise) declared on shares of
Common Stock since the immediately preceding Quarterly Dividend Payment Date, or
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series A Preferred Stock. In the event that the
Corporation shall at any time after December 27, 1988 (the "Rights Declaration
Date") (i) declare or pay any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, or (ii) subdivide outstanding shares of
Common Stock or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, then in each such case the amount to which the holder of a
Unit of Series A Preferred Stock was entitled immediately prior to such event
pursuant to the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such
<PAGE> 13
event.
(b) The Corporation shall declare a dividend or distribution on
Units of Series A Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the shares of Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per Unit
on the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and shall be cumulative on
each outstanding Unit of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of such Unit of Series A
Preferred Stock, unless the date of issuance of such Unit is prior to the record
date for the first Quarterly Dividend Payment Date, in which case, dividends on
such Unit shall begin to accrue from the date of issuance of such Unit, or
unless the date of issuance is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of Units of Series A
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on Units of
Series A Preferred Stock in an amount less than the aggregate amount of all such
dividends at the time accrued and payable on such Units shall be allocated pro
rata on a unit-by-unit basis among all Units of Series A Preferred Stock at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of Units of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
3. Voting Rights. The holders of Units of Series A Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series A Preferred Stock shall entitle the holder thereof to one
vote on all matters submitted to a vote of the shareholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
then in each such case the number of votes per Unit to which holders of Units of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which shall
be the number of shares of Common Stock outstanding immediately after such event
and the denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
Units of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all
<PAGE> 14
matters submitted to a vote of shareholders of the Corporation.
(c)(i) If at any time dividends on any Units of Series A
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current quarterly dividend
period on all Units of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment, all holders of Units of Series A
Preferred Stock voting separately as a class, shall have the right, at the next
meeting of shareholders called for the election of directors (the "Next
Meeting"), to elect two directors (the "New Directors" or individually, "New
Director"), which directors shall be in addition to the number previously set by
the Board of Directors pursuant to Article III of the by-laws. One of the New
Directors shall serve as a member of the class of directors being elected for a
three-year term and the other New Director shall serve as a member of the class
of directors whose remaining term at the Next Meeting is two years and until
their successors are elected by such holders and qualified or their earlier
resignation, removal or incapacity or until such earlier time as all accrued and
unpaid dividends upon the outstanding Units of Series A Preferred Stock shall
have been paid (or set aside for payment) in full. The New Directors may be
removed and replaced by such holders, and vacancies in such directorships may be
filled only by such holders (or the remaining directors elected by such holders
if there be one) in the manner permitted by law. After the holders of Units of
Series A Preferred Stock have exercised their right to elect directors during
any default period, the number of directors shall not be increased or decreased
except as approved by a vote of the holders of Units of Series A Preferred Stock
as herein provided or pursuant to the rights of any equity securities ranking
senior to the Series A Preferred Stock.
(ii)Immediately upon the expiration of a default period (x)
the right of holders of Units of Series A Preferred Stock as a separate class to
elect directors shall cease, (y) the term of any directors elected by the
holders of Units of Series A Preferred Stock as a separate class shall
terminate, and (z) the number of directors shall be such number as may be
provided for prior to any increase made pursuant to the provisions of paragraph
3(c)(i) of this paragraph 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Charter or by-laws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
directors.
(iii) The provisions of this paragraph (c) shall govern the
election of directors by holders of Units of Series A Preferred Stock during any
default period notwithstanding any provisions of the Charter to the contrary.
(d) Except as set forth herein or required by law, holders of
Units of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of shares of Common Stock as set forth herein) for the taking of
any corporate action.
4. Certain Restrictions.
<PAGE> 15
(a) Whenever quarterly dividends or other dividends or
distributions payable on Units of Series A Preferred Stock as provided in
paragraph 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding Units of
Series A Preferred Stock shall have been paid (or set aside for payment) in
full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior to the Series A Preferred Stock;
(ii)declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity as to dividends with
the Series A Preferred Stock, except for dividends paid ratably on Units of
Series A Preferred Stock and shares of all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of such Units and all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided, however, that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock ranking junior (both as to dividends and upon liquidation, dissolution or
winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any Units
of Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such Units.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this paragraph 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any Units of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such Units
shall, upon their cancellation, become authorized but unissued Units of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, no distribution shall be made,
<PAGE> 16
(i) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless the holders of Units of Series A Preferred Stock shall
have received, subject to adjustment as hereinafter provided in paragraph (b),
the greater of either (y) $80.00 per Unit plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not earned or declared,
to the date of such payment, or (z) the amount equal to the aggregate per share
amount to be distributed to holders of shares of Common Stock, or (ii) to the
holders of shares of stock ranking on a parity upon liquidation, dissolution or
winding up with the Series A Preferred Stock, unless simultaneously therewith
distributions are made ratably on Units of Series A Preferred Stock and all
other shares of such parity stock in proportion to the total amounts to which
the holders of Units of Series A Preferred Stock are entitled under clause
(i)(y) of this sentence and to which the holders of shares of such parity stock
are entitled, in each case upon such liquidation, dissolution or winding up.
(b) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock, or (ii) subdivide outstanding shares of
Common Stock, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, then in each such case the aggregate amount to which holders
of Units of Series A Preferred Stock were entitled immediately prior to such
event pursuant to clause (i)(z) of paragraph (a) of this paragraph 6 shall be
adjusted by multiplying such amount by a fraction the numerator of which shall
be the number of shares of Common Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
7. Share Exchange, Merger, Etc. In case the Corporation shall enter
into any share exchange, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case Units of
Series A Preferred Stock shall at the same time be similarly exchanged for or
converted into an amount per Unit (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is converted or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on outstanding shares of Common Stock payable in shares of Common
Stock, or (ii) subdivide outstanding shares of Common Stock, or (iii) combine
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
8. Redemption. The Units of Series A Preferred Stock shall not be
redeemable at the option of the Corporation or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the Corporation may
acquire Units of Series A Preferred Stock in any other manner permitted by law
and the Charter or by-laws of the Corporation.
<PAGE> 17
9. Ranking. The Units of Series A Preferred Stock shall rank junior to
all other series of the Preferred Stock and to any other class of preferred
stock that hereafter may be issued by the Corporation as to the payment of
dividends and the distribution of assets, unless the terms of any such series or
class shall provide otherwise.
10. Amendment. The Charter, including without limitation the provisions
hereof, shall not hereafter be amended, either directly or indirectly, or
through merger or share exchange with another corporation, in any manner that
would alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect the holders thereof adversely without the
affirmative vote of the holders of a majority or more of the outstanding Units
of Series A Preferred Stock, voting separately as a class.
11. Fractional Shares. The Series A Preferred Stock may be issued in
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.
ARTICLE VII
The amount of capital with which this Corporation will begin business shall
be (not less than one thousand) One Thousand ($1,000.00) Dollars; and when such
amount so fixed shall have been subscribed for, all subscriptions of the stock
of this Corporation shall be enforceable and it may proceed to do business in
the same manner and as fully as though the maximum number of shares authorized
under the provisions of the preceding section hereof shall have been subscribed
for.
ARTICLE VIII
A. By-laws. The by-laws of the Corporation may be made, altered, amended
or repealed by the Board of Directors.
B. Indemnification. Indemnification for directors, officers, employees
and agents of the Corporation may be provided either directly or through the
purchase of insurance, by the Corporation from time to time to the fullest
extent and in the manner permitted by law.
To the full extent from time to time permitted by law, including
without limitation the Tennessee Business Corporation Act, as currently in
effect or as it may be amended from time to time, no director of the corporation
shall be personally liable to the corporation or its shareholders for monetary
damages for breach of any fiduciary duty as a director. Neither the amendment or
repeal of this Article VIII (B), nor the adoption of any provision of this
Charter inconsistent with this Article VIII (B), shall reduce or eliminate the
protection afforded by this Article VIII (B) to a director in respect of any
matter which occurred, or any cause of action or claim which but for this
Article VIII (B) would have accrued or arisen, prior to such amendment, repeal
or adoption.
<PAGE> 18
C. Issuance of Bonds, Debentures or Obligations. Authority is hereby
expressly vested in the Board of Directors to issue bonds, debentures or
obligations of this Corporation and to fix all of the terms thereof including
without limitation the interest to be paid thereon, the convertibility or non-
convertibility thereof and other provisions with regard thereto.
ARTICLE IX
The Board of Directors may take without a meeting on written consent any
action which they are required or permitted to take by the Charter, by-laws or
statutes provided such consent sets forth the action taken and is signed by all
the directors.
ARTICLE X
A. Voting Requirement. In addition to any affirmative vote required by law
or any other Article of this Charter, and except as otherwise expressly provided
in Section B of this Article, any Business Combination shall require an
affirmative vote of (i) seventy-five percent (75%) of the votes entitled to be
cast by all holders of Voting Stock (as defined herein) voting together as a
single class at a meeting of shareholders called for such purpose and, in
addition thereto, (ii) a majority of the votes entitled to be cast by all
holders of Voting Stock, other than shares of Voting Stock which are
Beneficially Owned (as defined herein) by the Interested Shareholder (as defined
herein), voting together as a single class at a meeting of shareholders called
for such purpose. Such affirmative vote shall be required notwithstanding the
fact that a vote would not otherwise be required, or that a lesser percentage
may be specified by law or in any agreement with any national securities
exchange or otherwise.
B. When Voting Requirement Not Applicable. The provisions of Section A of
this Article shall not be applicable to any Business Combination which shall
have been approved by a majority of the Disinterested Directors or as to which
all of the conditions specified in subsections B(1), B(2) and B(3) shall have
been met:
1. Fair Prices. The aggregate amount per share of the cash and the Fair
Market Value (as defined herein), as of the Announcement Date, of the
consideration other than cash to be received in such Business Combination by
holders of shares of the respective classes and series of outstanding capital
stock of the Corporation shall be at least equal to the highest of the
following:
(a) if applicable, the highest per share price (adjusted for any
subsequent stock dividends, splits, combinations, recapitalizations,
reclassifications or other such reorganizations) paid to acquire any shares of
such respective classes and series Beneficially Owned by the Interested
Shareholder during the Pre-announcement period (as defined herein);
(b) The highest per share price (adjusted for any subsequent stock
dividends, splits, combinations, recapitalizations, reclassifications or other
such reorganizations) paid to acquire any shares of such respective classes and
series Beneficially Owned by the Interested Shareholder in the
<PAGE> 19
transaction in which the Interested Shareholder became an Interested
Shareholder;
(c) The Fair Market Value per share of such respective classes
and series on the Announcement Date (as defined herein);
(d) The Fair Market Value per share of such respective classes
and series on the Determination Date (as defined herein); or
(e) The amount per share of any preferential payment to which
shares of such respective classes and series are entitled in the event of a
liquidation, dissolution or winding up of the Corporation.
2. Form of Consideration. The consideration to be received by holders
of each particular class and series of outstanding capital stock of the
Corporation in a Business Combination shall be: (i) cash or (ii) if the majority
of the shares of any particular class or series of the capital stock of the
Corporation Beneficially Owned by the Interested Shareholder shall have been
acquired for a consideration in a form other than cash, the same form of
consideration used to acquire the largest number of shares of such class or
series previously acquired and Beneficially Owned by the Interested Shareholder.
3. Other Requirements. After such Interested Shareholder has become
an Interested Shareholder and prior to the consummation of such Business
Combination, except as approved by a majority of the Disinterested Directors,
there shall have been:
(a) No failure to declare and pay in full, when and as due, any
dividends on any class or series of Preferred Stock (as defined herein) (whether
cumulative or not), except on any class or series of Preferred Stock as to which
dividends were in arrears on the Determination Date;
(b) No reduction in the quarterly rate of dividends on the
Corporation's Common Stock below the dividends paid during the dividend quarter
of the Corporation ended immediately prior to the Determination Date, except any
reduction in dividends necessary to fairly reflect any stock dividend, split,
recapitalization, reclassification or other such reorganization;
(c) No failure to increase the quarterly rate of any dividends per
share paid on the Corporation's Common Stock to fairly reflect any stock
combination, recapitalization, reclassification or other such reorganization
which has the effect of reducing the number of outstanding shares of Common
Stock;
(d) No increase in the number of shares of the capital stock of
the Corporation Beneficially Owned by the Interested Shareholder, except: (i) as
a part of the transaction that resulted in the Interested Shareholder becoming
an Interested Shareholder or (ii) to consummate the Business Combination in
compliance with the provisions of this Article.
<PAGE> 20
(e) No loans, advances, guarantees, pledges or other financial
assistance or tax credits or other tax advantages provided by the Corporation or
its subsidiaries for the benefit, directly or indirectly, of the Interested
Shareholder, whether in anticipation of or in connection with such Business
Combination or otherwise;
(f) No material change in the Corporation's business or capital
structure or the business or capital structure of any subsidiary of the
Corporation effected, directly or indirectly, by or for the benefit of the
Interested Shareholder; and
(g) A proxy or information statement mailed at least thirty (30)
days prior to the completion of the Business Combination to all the holders of
Voting Stock (whether or not shareholder approval of the Business Combination is
required) which proxy or information statement shall (i) describe the Business
Combination, (ii) include in a prominent place the recommendations, if any, of a
majority of the Disinterested Directors as to the advisability or inadvisability
of the Business Combination; (iii) if deemed advisable by a majority of the
Disinterested Directors, include an opinion of a reputable investment banking
firm or other expert as to the fairness or unfairness of the terms of the
Business Combination from the point of view of the shareholders other than the
Interested Shareholder (such investment banking firm to be selected by a
majority of the Disinterested Directors and to be paid a reasonable fee for
their services by the Corporation upon receipt of such opinion) and (iv) be
responsive to the pertinent provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, or any laws supplementing
or superseding such Act, rules and regulations, whether or not such proxy or
information statement is required by law to be furnished to any holders of
Voting Stock.
C. Definitions. As used in Articles X, XI, and XII:
1. "Business Combination" means any of the transaction described
below:
(a) Any merger or consolidation of the Corporation or any
Subsidiary (as defined herein) with: (i) any Interested Shareholder or (ii) any
corporation (whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate (as defined herein) of an
Interested Shareholder;
(b) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions: (i) to or with any
Interested Shareholder or Affiliate of any Interested Shareholder of any assets
(including securities) of the Corporation or any Subsidiary having an aggregate
Fair Market Value of $1,000,000 or more or (ii) to or with the Corporation or
any Subsidiary of any assets (including securities) of any Interested
Shareholder or any Affiliate of an Interested Shareholder having an aggregate
Fair Market Value of $1,000,000 or more;
(c) The issuance or transfer by the Corporation or any Subsidiary
in one transaction or a series of transactions, of any securities of the
Corporation or any Subsidiary to any Interested Shareholder or an Affiliate of
any Interested Shareholder in exchange for cash, securities or other
<PAGE> 21
property, or a combination thereof, having an aggregate Fair Market Value of
$1,000,000 or more;
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder;
(e) Any reclassification of securities (including any reverse
stock split) or any recapitalization or reorganization of the Corporation, or
any merger or consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class of
equity securities of the Corporation or any Subsidiary (including securities
convertible into equity securities) which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested Shareholder; or
(f) Any other transaction or series of transactions that is
similar in purpose or effect to those referred to in (a) through (e) of this
subsection C(1).
2. "Voting Stock" means the Common Stock and those classes of
Preferred Stock which would then be entitled to vote in the election of
directors.
3. "Beneficially Owned," with respect to any securities, means the
right or power (directly or indirectly through any contract, understanding or
relationship) (i) vote or direct the voting of such securities (ii) to dispose
or direct the disposition of such Securities, or (iii) to acquire such voting or
investment power, whether such right or power is exercisable immediately or only
after the passage of time.
4. "Interested Shareholder" means any Person (as defined herein) or
member of a Group of Persons (as defined herein) who or which, together with any
Affiliate or Associate (as defined herein) of such Person or member,
Beneficially Owns (within the meaning of subsection C(3) above) ten percent or
more of the outstanding Voting Stock of the Corporation.
5. "Person" means any individual, firm, corporation, partnership,
joint venture or other entity.
6. "Group of Persons" means any two or more Persons who or which are
acting or have agreed to act together for the purpose of acquiring, holding,
voting or disposing of any Voting Stock of the Corporation.
7. "Disinterested Director" means any member of the Board of Directors
of the Corporation who is not an Interested Shareholder or an Affiliate or
Associate of an Interested Shareholder and who (i) was a member of the Board of
Directors prior to the time the Interested Shareholder became an Interested
Shareholder or (ii) was elected or recommended to succeed a Disinterested
Director by a majority of the Disinterested Directors then on the Board of
Directors.
<PAGE> 22
8. "Fair Market Value" means: (i) in the case of stock, the highest
sale price during the 30 day period immediately preceding the date in question
of a share of such stock on the NASDAQ National Market System, or if such stock
is listed on an exchange registered under the Securities Exchange Act of 1934,
on the principal exchange on which such stock is listed, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by a majority of the Disinterested Directors
in good faith; and (ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by a
majority of the Disinterested Directors in good faith.
9. "Pre-announcement Period" means the two-year period ending at
11:59 p.m., Nashville time, on the Announcement Date.
10. "Announcement Date" means the date of the first public
announcement of the proposal of the Business Combination.
11. "Determination Date" means the date on which the Interested
Shareholder becomes an Interested Shareholder.
12. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation.
13. "Affiliate," used to indicate a relationship with a specified
Person, means another Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such specified Person.
14. "Associate," used to indicate a relationship with a specified
Person, means (i) any corporation or other similar organization (other than the
Corporation or a Subsidiary) of which such specified Person is an officer or
partner or is, directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, (ii) any trust or estate in which such
specified Person has a substantial beneficial interest or as to which such
specified Person serves as trustee or in a similar fiduciary capacity, (iii) any
relative or spouse of such specified Person, or any relative of such spouse who
has the same home as such Person and (iv) any other Person or Affiliate of a
Person who directly or indirectly has received more than $50,000 for services or
property from the specified Person or from an Affiliate of the specified Person
during any year of the preceding five calendar years or who can reasonably be
expected to receive more than such amount in the current calendar year under any
existing agreement or agreements or understandings with such specified Person or
an Affiliate of such specified Person.
15. "Preferred Stock" means all classes or series of the Corporation's
capital stock other than Common Stock.
D. Powers of Disinterested Directors. A majority of the Disinterested
Directors of the Corporation shall have the power and duty to determine, on the
basis of information known to them
<PAGE> 23
after reasonable inquiry, all facts necessary to determine compliance with this
Article, including without limitation (i) whether a Person is an Interested
Shareholder, (ii) the number of shares of Voting Stock beneficially owned by any
Person, (iii) whether a Person is an Affiliate or Associate of another, (iv)
whether the requirements of Section B, have been met with respect to any
Business Combination, and (v) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value of $1,000,000 or more. The good
faith determination of a majority of the Disinterested Directors on such matters
shall be conclusive and binding for all purposes of this Article.
E. No Effect on Preferential Rights. The provisions of this Article shall
not affect in any way the amount or form of consideration that any holder of
shares of the Corporation's capital stock is entitled to receive upon the
liquidation or dissolution of the Corporation or any other preferential rights
of the holders of such shares.
F. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
G. Amendment or Repeal. In addition to any affirmative vote required by
law, an affirmative vote at least equal to the vote of seventy-five percent
(75%) of the votes entitled to be cast by all holders of Voting Stock voting
together as a single class, and addition thereto and (ii) a majority of the
votes entitled to be cast by all holders of Voting Stock, other than shares of
Voting Stock which are Beneficially Owned by an Interested Shareholder, voting
together as a single class, shall be required to amend or repeal, or adopt any
charter provisions inconsistent with this Article. Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
ARTICLE XI
A. The Board of Directors shall consist of not less than nine (9) nor more
than twenty-seven (27), the exact number of directors to be established from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption). At the annual
meeting of shareholders held in 1985, the directors shall be divided into three
classes, as nearly equal in number as possible with a one year term of office
for the first class, a two year term of office for the second class and a three
year term of office for the third class. At each annual meeting of shareholders
following such initial classification and election, directors elected to succeed
those directors whose terms expire shall be elected for a three year term of
office. Each director shall hold office for the term for which that person was
elected and until his or her successor shall have been elected or qualified.
<PAGE> 24
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for the unexpired term of his or her predecessor, or if there is no such
predecessor, until the next annual meeting of shareholders. No decrease in the
number of authorized directors constituting the entire Board of Directors shall
shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
(but only for cause as defined in the Tennessee General Corporation Act) from
office at any time by the affirmative vote of seventy-five percent (75%) of the
votes entitled to be cast by all holders of voting stock, voting together as a
single class at a meeting called for such purpose. If the holders of any series
of Preferred Stock then outstanding are entitled to elect one or more directors,
the provision of the foregoing sentence shall not apply, in respect of the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that series and the rights of the holders of such shares
shall be as set forth in this Charter and in the certificate of designation
establishing such series.
D. Notwithstanding any other provision of this Charter or any provision of
applicable law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of holders of any particular class or series of
the capital stock of the Corporation entitled to vote by applicable law or by
the terms of such class or series, this Article may not be altered, amended or
repealed except upon the affirmative vote of the holders of seventy-five percent
(75%) of the votes entitled to be cast by all holders of Voting Stock, voting
together as a single class at a meeting called for such purpose, and, in
addition thereto (ii) a majority of the votes entitled to be cast by all holders
of voting stock, other than shares of voting stock which are Beneficially Owned
by an Interested Shareholder, voting together as a single class.
ARTICLE XII
The Board of Directors of the Corporation, when evaluating any offer of a
Person, other than the Corporation itself, to (a) make a tender or exchange
offer for any equity security of the Corporation or any other security of the
Corporation convertible into an equity security, (b) merge or consolidate the
Corporation with another Person or purchase or (c) otherwise acquire all or
substantially all of the properties and assets of the Corporation (an
"Acquisition Proposal"), shall consider all relevant factors, including without
limitation, the consideration being offered in the Acquisition Proposal in
relation to the then-current market price, in relation to the then-current value
of the Corporation in a freely negotiated transaction, and in relation to the
Board of Directors' then estimate of the future value of the Corporation as an
independent entity, the social and economic effects on the employees, customer,
suppliers and other constituents of the Corporation and its subsidiaries and
on the communities in which the Corporation and its subsidiaries operate or are
located and the desirability of maintaining the Corporation's independence from
other entities.
<PAGE> 25
ARTICLES OF CORRECTION
TO THE RESTATED CHARTER
OF
FIRST AMERICAN CORPORATION
Pursuant to the provisions of Section 48-11-305 of the Tennessee
Business Corporation Act ("TBCA"), the undersigned hereby adopts the following
Articles of Correction.
A. The document to be corrected is the Restated Charter of First
American Corporation (the "Restated Charter") which was filed
with the office of the Tennessee Secretary of State on January
13, 1997.
B. The incorrect statement, located in Article VI, Section D(1) of
the Restated Charter, was the result of a typographical error
and reads as follows:
D. $2.375 Cumulative Preferred Stock
Designation. The initial series of preferred stock
without par value shall be known and designated as $2.375
Cumulative Preferred Stock (hereinafter referred to as
the "Cumulative Preferred Stock"), and shall consist of
TWO MILLION FIVE HUNDRED THOUSAND (2,500,000) shares
without par value and shall have the rights, preferences
and characteristics set forth below.
C. Article VI, Section D(1) of the Restated Charter is hereby
corrected to read as follows:
D. $2.375 Cumulative Preferred Stock
Designation. The initial series of preferred stock
without par value shall be known and designated as $2.375
Cumulative Preferred Stock (hereinafter referred to as
the "Cumulative Preferred Stock"), and shall consist of
300,000 shares without par value, and shall have the
rights, preferences and characteristics set forth below.
FIRST AMERICAN CORPORATION
By: /s/ Mary Neil Price
--------------------------------
Mary Neil Price
Executive Vice President, Deputy
General Counsel and Assistant
Corporate Secretary
<PAGE> 26
ARTICLES OF AMENDMENT TO THE RESTATED CHARTER
OF
FIRST AMERICAN CORPORATION
Pursuant to the provisions of Section 48-16-102 and 48-20-106 of the
Tennessee Business Corporation Act, the undersigned corporation hereby adopts
the following Articles of Amendment to its Charter:
1. The name of the corporation is First American Corporation.
2. The amendment adopted is as follows:
Subsection (E)(1) of Article VI of the corporation's Charter is
amended to read as follows:
"1. Designation and Amount. The shares of such series
shall be designated as Series A Junior Preferred Stock ("Series
A Preferred Stock") and the number of shares constituting such
series shall be 500,000. Such number of shares may be adjusted
by appropriate action of the Board of Directors."
3. The amendment was duly adopted by the Board of Directors on March
20, 1997, without shareholder action, no such action being
required.
4. The amendment shall become effective upon filing.
FIRST AMERICAN CORPORATION
By: /s/ Mary Neil Price
--------------------------------
Mary Neil Price
Executive Vice President
Deputy General Counsel
<PAGE> 27
ARTICLES OF AMENDMENT TO THE RESTATED CHARTER
OF
FIRST AMERICAN CORPORATION
Pursuant to the provisions of Sections 48-20-102 and 48-20-106 of the
Tennessee Business Corporation Act, the undersigned corporation hereby adopts
the following Articles of Amendment to its Charter:
1. The name of the corporation is First American Corporation.
2. The amendment adopted is as follows:
Section (A) of Article VI of the corporation's Charter is amended
to read as follows:
"A. Authorized Shares. The maximum number of shares which the
Corporation shall have authority to issue is ONE HUNDRED MILLION
(100,000,000) shares of common stock with a par value of TWO
dollars and FIFTY cents ($2.50) per share and TWO MILLION FIVE
HUNDRED THOUSAND (2,500,000) shares of preferred stock without par
value."
3. The amendment was duly adopted by the Board of Directors on April
17, 1997, without shareholder action, no such action being
required.
4. The amendment shall become effective at 12:01 AM on May 9, 1997.
FIRST AMERICAN CORPORATION
By: /s/ Mary Neil Price
--------------------------------
Mary Neil Price
Executive Vice President
Deputy General Counsel
<PAGE> 1
Exhibit 15. Letter regarding unaudited interim financial information
from KPMG Peat Marwick LLP
The Board of Directors and Shareholders
First American Corporation:
We have reviewed the consolidated balance sheets of First American Corporation
and subsidiaries as of March 31, 1997 and 1996, and the related consolidated
income statements, changes in shareholders' equity and cash flows for the
three-month periods ended March 31, 1997 and 1996. These consolidated
financial statements are the responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First American Corporation and
subsidiaries as of December 31, 1996; and the related consolidated income
statements, changes in shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated January 16, 1997, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ KPMG Peat Marwick LLP
- --------------------------
April 17, 1997
Nashville, Tennessee
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 476,013
<INT-BEARING-DEPOSITS> 17,863
<FED-FUNDS-SOLD> 17,358
<TRADING-ASSETS> 59,954
<INVESTMENTS-HELD-FOR-SALE> 1,732,223
<INVESTMENTS-CARRYING> 802,547
<INVESTMENTS-MARKET> 799,205
<LOANS> 6,748,845
<ALLOWANCE> 122,551
<TOTAL-ASSETS> 10,208,903
<DEPOSITS> 7,802,837
<SHORT-TERM> 1,080,393
<LIABILITIES-OTHER> 148,268
<LONG-TERM> 323,262
0
0
<COMMON> 146,610
<OTHER-SE> 707,533
<TOTAL-LIABILITIES-AND-EQUITY> 10,208,903
<INTEREST-LOAN> 138,702
<INTEREST-INVEST> 40,567
<INTEREST-OTHER> 2,031
<INTEREST-TOTAL> 181,300
<INTEREST-DEPOSIT> 70,054
<INTEREST-EXPENSE> 88,366
<INTEREST-INCOME-NET> 92,934
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 147
<EXPENSE-OTHER> 99,537
<INCOME-PRETAX> 55,148
<INCOME-PRE-EXTRAORDINARY> 55,148
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,030
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.09
<LOANS-NON> 11,248
<LOANS-PAST> 19,038
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 56,594
<ALLOWANCE-OPEN> 123,265
<CHARGE-OFFS> 5,894
<RECOVERIES> 4,469
<ALLOWANCE-CLOSE> 122,551
<ALLOWANCE-DOMESTIC> 69,358
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 53,193
</TABLE>
