<PAGE> 1
As filed with the Securities and Exchange Comission on January 19, 1994
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
TENNESSEE 6021 62-0803242
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901) 523-4444
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
HARRY A. JOHNSON, III
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST TENNESSEE NATIONAL CORPORATION
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901) 523-5624
(Name, address, including zip code, and telephone number,
including area code, of agent for service
With Copies to:
<TABLE>
<S> <C>
LINDA M. CROUCH LAUREL C. WILLIAMS
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell Burch, Porter & Johnson
2000 First Tennessee Building Morgan Keegan Tower
165 Madison Avenue 50 North Front Street, Suite 650
Memphis, Tennessee 38103 Memphis, Tennessee 38103
(901) 526-2000 (901) 527-2311
</TABLE>
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective and after conditions contained in Merger Agreement have been
satisfied or waived.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: / /
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<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of each Amount Proposed Maximum Proposed Maximum Amount
class of to be Offering Price Aggregate of
securities Registered(1) per Unit(2) Offering Price Registration Fee
to be registered
Common Stock and 485,218 $1.58 $766,644 $265
Associated Rights
</TABLE>
(1) Based upon the assumed number of shares that may be issued in the
Merger described herein. Such assumed number is based on the number
of shares of HCMC common Stock that may be outstanding immediately
prior to the Merger and the minimum price per share provided for
Registrant's Common Stock in Section B of Article I of the Merger
Agreement.
(2) Estimated solely for purpose of computing the registration fee
pursuant to Rule 457(f)(2).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
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<CAPTION>
FORMS S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
-------------------------- --------------------------------
<S> <C> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and Facing page of Registration Statement; Outside Front Cover
Outside Front Cover Page of Prospectus Page
2. Inside Front and Outside Back Cover Pages Available Information; Table of Contents
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; The Special Meeting; The Merger
and Other Information
4. Terms of the Transaction Summary; The Merger; Incorporation of Certain Documents by
Reference; Effect of the Merger on Rights of Shareholders;
Description of FTNC Capital Stock
5. Pro Forma Financial Information Index to Pro Forma Financial Information
6. Material Contacts with the Company Being The Merger
Acquired
7. Additional Information Required for Reoffering Not Applicable
by Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
B. Information About the Registrant
10. Information with Respect to S-3 Registrants Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by Incorporation of Certain Documents by Reference
Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants Other Not Applicable
Than S-3 or S-2 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Other Summary; Information concerning HCMC; Index to HCMC
Than S-2 or S-3 Companies Financial Information
D. Voting and Management Information
18. Information if Proxies, Consents or Incorporation of Certain Documents by Reference; Summary;
Authorizations are to be Solicited The Special Meeting; Experts; The Merger; Cover Page of
Proxy Statement-Prospectus
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or in
an Exchange Offer
</TABLE>
<PAGE> 3
____________ , 1994
Dear Highland Capital Management Corp. Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Highland Capital Management Corp. to be held at the office of the Company,
6077 Primacy Parkway, Suite 228, Memphis, Tennessee on _____________, 1994 at
10:00 a.m. CST.
At this meeting, you will have an opportunity to consider and vote on
the terms of an Agreement and Plan of Merger (the "Merger Agreement"), that
provides for Highland Capital Management Corp. to merge with and into First
Tennessee Investment Management, Inc. (the "Merger"), with First Tennessee
Investment Management, Inc. being the surviving corporation.
The Merger Agreement generally provides for a tax-free exchange in
which Highland Capital Management Corp. shareholders will receive shares of
First Tennessee National Corporation common stock in exchange for their shares
of Highland Capital Management Corp. common stock.
The proposed Merger has been unanimously approved by the Boards of
Directors of both First Tennessee National Corporation and Highland Capital
Management Corp.
The enclosed Notice of Special Meeting of Shareholders and Proxy
Statement-Prospectus explain the Merger and provide specific information
relative to the Special Meeting. Please carefully read these materials and
thoughtfully consider the information contained in them. Your vote is of great
importance, as the approval of Highland Capital Management Corp. shareholders
is required to consummate the Merger.
Whether or not you plan to attend the Special Meeting, you are urged
to complete, date, sign and promptly return the enclosed proxy card to assure
that your shares will be voted at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
MERGER.
Sincerely,
Steven Wishnia
Chairman
<PAGE> 4
HIGHLAND CAPITAL MANAGEMENT CORP.
================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD __________, 1994
================================================================================
Notice is hereby given that a Special Meeting of Shareholders of
Highland Capital Management Corp. ("HCMC") has been called by the Board of
Directors and will be held at the office of Highland Capital Management Corp.,
6077 Primacy Parkway, Suite 228, Memphis, Tennessee on _________, ___________,
1994 at 10:00 a.m. CST, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan for Merger dated as of November 10, 1993, (the "Merger Agreement"), by and
among First Tennessee National Corporation ("FTNC"), First Tennessee Investment
Management, Inc. ("FTIM") and HCMC. The Merger Agreement provides that HCMC
will merge with and into FTIM, a wholly-owned subsidiary of FTNC, all as more
fully described in the accompanying Proxy Statement-Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come
before the meeting.
Whether or not you plan to attend, please complete, date and sign the
enclosed proxy card and return it at once in the stamped return envelope in
order to insure that your shares will be represented at the meeting. If you
attend in person, the proxy can be disregarded, if you wish, and you may vote
your own shares.
Only shareholders of record at the close of business on ____________,
1994 will be entitled to receive notice of and to vote at the meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors,
PAUL H. BERZ, Secretary
Memphis, Tennessee
Dated: ___________, 1994
THE BOARD OF DIRECTORS OF HIGHLAND CAPITAL MANAGEMENT CORP.
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ITS COMMON STOCK VOTE TO APPROVE THE
PROPOSAL.
<PAGE> 5
PROXY STATEMENT
HIGHLAND CAPITAL MANAGEMENT CORP.
SPECIAL MEETING TO BE HELD ON ___________, 1994
PROSPECTUS
FIRST TENNESSEE NATIONAL CORPORATION
485,218 SHARES OF COMMON STOCK
This Proxy Statement-Prospectus is being furnished to the five
individuals who are all of the holders of common stock, no par value per share
(the "HCMC Common Stock"), of Highland Capital Management Corp. ("HCMC"), a
Delaware corporation registered as an investment adviser pursuant to the
Investment Advisers Act of 1940, as amended, in connection with the
solicitation of proxies by the HCMC Board of Directors (the "HCMC Board") for
use at the Special Meeting of HCMC shareholders to be held at 10:00 a.m. CST on
___________, 1994, at the office of HCMC, 6077 Primacy Parkway, Suite 228,
Memphis, Tennessee, and at any adjournments or postponements thereof (the
"Special Meeting").
At the Special Meeting, these five shareholders of HCMC Common Stock
as of the close of business on __________, 1994 will consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of November 10,
1993, (the "Merger Agreement"), by and among First Tennessee National
Corporation ("FTNC"), a Tennessee corporation registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended, First Tennessee
Investment Management, Inc., a Tennessee corporation registered as an
investment adviser pursuant to the Investment Advisers Act of 1940, as amended
("FTIM") and HCMC, pursuant to which, among other things, HCMC will merge with
and into FTIM with FTIM surviving the merger (the "Merger"). Upon consummation
of the Merger, each outstanding share of HCMC Common Stock will be converted
into the right to receive shares of common stock, par value $2.50 per share, of
FTNC ("FTNC Common Stock") as described herein. For a description of the
Merger Agreement, which is included herein in its entirety as Appendix "A" to
this Proxy Statement-Prospectus, see "The Merger."
Pursuant to the Merger Agreement, the five shareholders of HCMC are to
receive registered shares of FTNC Common Stock and this Proxy
Statement-Prospectus constitutes a prospectus of FTNC in respect of up to
485,218 shares of FTNC Common Stock to be issued to these five shareholders of
HCMC in connection with the Merger. The shares of FTNC Common Stock to be
issued in connection with the Merger are based upon the conversion of each
outstanding share of HCMC Common Stock into shares of FTNC Common Stock as
described herein. See "The Merger -- Terms of the Merger."
The outstanding shares of FTNC Common Stock are, and the shares
offered hereby will be, included for quotation on the National Association of
Securities Dealers Automated Quotations System - National Market System
("NASDAQ/NMS"). The last reported sale price of FTNC Common Stock on the
NASDAQ/NMS on ____________, 1994 was $___________ per share.
All information contained in this Proxy Statement-Prospectus relating
to FTNC and its subsidiaries has been supplied by FTNC and all information
relating to HCMC has been supplied by HCMC. This Proxy Statement-Prospectus
and the accompanying proxy card are first being mailed to shareholders of HCMC
on or about ____________, 1994.
THE SHARES OF FTNC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS ___________, 1994
<PAGE> 6
TABLE OF CONTENTS
-----------------
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Page
----
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Special Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 7
Vote Required; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reasons for the Merger; Recommendation of HCMC Board of Directors . . . . . . . . 8
Conditions; Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 8
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . 8
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 9
Certain Differences in Shareholders' Rights . . . . . . . . . . . . . . . . . . . 9
Shareholders' Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 9
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Market Prices of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Equivalent and Pro Forma Share Data . . . . . . . . . . . . . . . . . . . . . . 10
Selected Financial Data and Ratios . . . . . . . . . . . . . . . . . . . . . . . 12
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Period-End Balance Sheet Data (Dollars in thousands). . . . . . . . . . . . . . 15
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . 18
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . 20
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Conduct of Business Pending Merger . . . . . . . . . . . . . . . . . . . . . . . 22
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . 23
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . 24
Effect on HCMC Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 24
Shareholders' Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 26
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Resale of FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 27
NASDAQ/NMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CERTAIN REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Certain Transactions by FTNC With its Affiliates . . . . . . . . . . . . . . . . 29
</TABLE>
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Page
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<S> <C>
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 29
FTNC Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31
INFORMATION CONCERNING HCMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 32
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . .. 33
Ownership of HCMC Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . .. 34
DESCRIPTION OF FTNC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35
FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35
Shareholder Protection Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 36
Subordinated Capital Notes due 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 36
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
Conflict-of-Interest Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
Required Vote for Authorization of Certain Actions . . . . . . . . . . . . . . . . . . . . . . .. 37
Shareholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 38
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 38
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 39
Amendment of Certificate of Incorporation or Charter and Bylaws . . . . . . . . . . . . . . . .. 39
Voluntary Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 39
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 39
Business Combination Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 40
Control Share Acquisition Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41
Investor Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41
Authorized Corporation Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 42
Greenmail Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 42
Dividends and Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 42
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 42
Rights of Holders of Capital Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
INDEX TO PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 45
INDEX TO HCMC FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 45
APPENDICES:
Appendix A -- Agreement and Plan of Merger
Appendix B -- Delaware General Corporation Law, Section 262
</TABLE>
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<PAGE> 8
AVAILABLE INFORMATION
FTNC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be obtained, upon payment of prescribed
fees, from the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In addition, such reports, proxy statements and other information can
be inspected at the SEC's facilities referred to above and at the SEC's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The FTNC Common Stock is included for quotation on NASDAQ/NMS and such
reports, proxy statements and other information concerning FTNC should be
available for inspection and copying at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. FTNC
has filed with the SEC a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of FTNC
Common Stock and associated rights to be issued pursuant to the Merger
Agreement. This Proxy Statement-Prospectus does not contain all the
information set forth in the Registration Statement. Such additional
information may be obtained from the SEC's principal office in Washington, D.C.
Statements contained in this Proxy Statement-Prospectus or in any document
incorporated by reference in this Proxy Statement-Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are hereby incorporated by
reference in this Proxy Statement-Prospectus and made a part hereof: (a)
FTNC's Annual Report on Form 10-K for the year ended December 31, 1992, and its
Form 8 filed March 23, 1993, and Forms 10-K/A filed on April 28 and June 29,
1993, amending its Annual Report on Form 10-K; (b) FTNC's Current Reports on
Form 8-K filed February 18, 1993, August 25, 1993 and October 18, 1993; (c)
FTNC's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993,
June 30, 1993 and September 30, 1993; (d) FTNC's proxy statement dated March
12, 1993, exclusive of the Board Compensation Committee Report and the Total
Shareholder Return Performance Graph on pages 11-14 thereof; (e) the
description of FTNC Common Stock contained in FTNC's registration statement on
Form 10, filed April 14, 1970, pursuant to Section 12 of the Exchange Act (and
any amendments or reports filed for the purpose of updating the description);
and (f) FTNC's registration statement on Form 8-A, filed September 8, 1989,
pursuant to which FTNC registered the Shareholder Protection Rights under the
Exchange Act.
All documents filed by FTNC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement- Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference will be deemed to
be modified or superseded for the purpose of this Proxy Statement-Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is, or is deemed to be, incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Proxy-Statement Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS RELATING TO
FTNC BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS, OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO THE TREASURER, FIRST TENNESSEE NATIONAL
CORPORATION, P.O. BOX 84, MEMPHIS, TENNESSEE 38101, TELEPHONE NUMBER (901)
523-5630. COPIES OF EXHIBITS THAT ARE NOT SPECIFICALLY INCORPORATED BY
- 4 -
<PAGE> 9
REFERENCE IN SUCH DOCUMENTS MAY BE OBTAINED FOR A CHARGE COVERING THE COST OF
REPRODUCTION AND MAILING. IN ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY __________, 1994.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FTNC OR HCMC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
- 5 -
<PAGE> 10
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding FTNC, FTIM, HCMC and the matters to be considered
at the Special Meeting and is qualified in all respects by the information
appearing elsewhere and incorporated by reference in this Proxy
Statement-Prospectus, the Appendices hereto and the documents referred to
herein.
PARTIES TO THE MERGER
FTNC. FTNC is a regional bank holding company incorporated under the
laws of Tennessee, which, through First Tennessee Bank National Association,
Memphis, Tennessee ("FTB") and its other banking and banking-related
subsidiaries, provides a broad range of financial services primarily in the
State of Tennessee. FTNC was incorporated in Tennessee in 1968. At September
30, 1993, FTNC had consolidated total assets of approximately $9.5 billion,
consolidated total deposits of approximately $6.7 billion and equity capital of
approximately $656.5 million. At December 31, 1992, based on information in
the American Banker, an industry journal, FTNC ranked 61st among bank holding
companies in the United States and first among bank holding companies
headquartered in Tennessee in terms of total assets.
FTNC coordinates the financial resources of the consolidated
enterprise and maintains systems of financial, operational and administrative
control that allow coordination of selected policies and activities. FTNC
operates principally through FTB, which was chartered as a national banking
association in 1864. As of September 30, 1993, FTB was the largest commercial
bank headquartered in Tennessee both in terms of total assets and deposits. At
September 30, 1993, FTB had total assets of approximately $9.3 billion, total
deposits of approximately $6.6 billion and equity capital of approximately
$611.3 million. FTB conducts a broad range of retail banking and fiduciary
services and had 205 banking locations at September 30, 1993. FTB also offers
a comprehensive range of financial services, including bond broker/ agency
services and nationwide check clearing, to companies throughout the
southeastern United States and selected national markets. Bond broker/agency
services provided by FTB consist primarily of the sale of bank-eligible
securities to other financial institutions. Subsidiaries of FTNC and FTB are
engaged primarily in providing integrated check processing solutions, discount
brokerage, equipment finance, venture capital, investment management and credit
life insurance.
The principal executive offices of FTNC are located at 165 Madison
Avenue, Memphis, Tennessee 38103, and its telephone number is (901) 523-4444.
FTIM. FTIM is a Tennessee corporation registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and under the
Tennessee Securities Act of 1980, as amended. FTIM was formed in 1972 and
provides investment advisory services to individuals, corporations and employee
benefit plans. It also provides investment advice to the Memphis Trust
Division of FTB and is a sub-adviser to a registered investment company, the
investment adviser of which is FTB. The principal executive office of FTIM is
located at 4385 Poplar Avenue, Memphis, Tennessee 38117 and its telephone
number is (901) 681-2480.
HCMC. HCMC is a Delaware corporation registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and in several
states, including Tennessee. HCMC was founded in 1987 by Paul H. Berz, James
M. Weir, Steven Wishnia, and C. Thomas Whitman. The fifth principal of HCMC,
Edward J. Goldstein, joined HCMC in 1989. HCMC manages assets on behalf of
individuals, charitable foundations, financial institutions, pension and profit
sharing plans, and trusts and estates. The executive offices of HCMC are
located at 6077 Primacy Parkway, Suite 228, Memphis, Tennessee 38119 and the
telephone number is (901) 761-9500.
- 6 -
<PAGE> 11
Additional information about FTNC and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement-Prospectus. See
"Incorporation of Certain Documents by Reference."
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held on _______________, 1994 at 10:00
a.m., CST, at the office of HCMC, 6077 Primacy Parkway, Suite 228, Memphis,
Tennessee. The purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Merger Agreement.
VOTE REQUIRED; RECORD DATE
Only HCMC shareholders at the close of business on _________________,
1994 (the "HCMC Record Date") will be entitled to vote at the Special Meeting.
The affirmative vote of the holders of a majority of the shares outstanding on
such date is required to approve the Merger Agreement. Abstentions will have
the same effect as a vote "against" approval of the Merger Agreement. See "The
Special Meeting-Vote Required." As of the HCMC Record Date, there were 100
shares of HCMC Common Stock held by five individuals and entitled to be voted.
See "Information Concerning HCMC -- Description of Business" and "-- Ownership
of HCMC Common Stock and Dividends."
The five shareholders who comprise the HCMC Board and executive
officers owned, as of the HCMC Record Date, all of the 100 outstanding shares
of HCMC Common Stock, all of whom intend to vote their shares in favor of
approval of the Merger Agreement.
As of the HCMC Record Date, FTNC and its subsidiaries, beneficially
owned no shares of HCMC Common Stock, and the directors and executive officers
of FTNC beneficially owned no shares of HCMC Common Stock.
TERMS OF THE MERGER
Upon consummation of the Merger, each outstanding share of HCMC Common
Stock will be converted into the right to receive registered shares of FTNC
Common Stock. Each share of HCMC Common Stock issued and outstanding at the
Effective Date (as defined below) will become and be converted into registered
shares of FTNC Common Stock based on a conversion number (the "Conversion
Number") determined as follows:
The Conversion Number shall be equal to the quotient of the
HCMC Price (hereinafter defined) divided by the FTNC Common
Stock Average Price. "FTNC Common Stock Average Price" means
the average of the closing price of the FTNC Common Stock for
the 20 business days (the "Calculation Period") ending on the
fifth business day prior to the Effective Date of the Merger
(as hereinafter defined).
The HCMC Price means $179,530.58, which is the quotient of (i)
the product of the Total Annual Fees (being the annualized
investment advisory fees accrued for the average of the two
calendar quarters ending June 30, 1993 and September 30, 1993,
respectively, for those clients of HCMC which are "Regular
Bill Cycle" accounts and the total annual fees for "New
Accounts" and "Irregular Billing Cycle" accounts), as
calculated and set forth on Schedule (B)(1) of the Merger
Agreement for those accounts of HCMC multiplied by a factor of
4.5 and divided by (ii) the number of shares of HCMC Common
Stock outstanding on the Effective Date.
If the Calculation Date had been ________________, 1994, the number of
shares of FTNC Common Stock exchanged for all outstanding shares of HCMC Common
Stock would have been ____________.
- 7 -
<PAGE> 12
No fractional shares of FTNC Common Stock will be issued in connection
with the Merger. In lieu of fractional shares, FTNC will make a cash payment
equal to the fractional interest which an HCMC shareholder would otherwise
receive multiplied by the average price of FTNC's Common Stock, based on the
closing prices over the 20 business days immediately prior to the fifth
calendar day prior to the Effective Date. The holders of HCMC Common Stock at
the Effective Date will become holders of FTNC Common Stock. Each outstanding
share of FTNC Common Stock will remain outstanding and unchanged as a result of
the Merger. See "The Merger -- Terms of the Merger."
EFFECTIVE DATE
The Merger will become effective at the time of the filing of a
certificate of merger or on such later date as the certificate of merger may
specify (the "Effective Date"). Unless otherwise mutually agreed upon by FTNC
and HCMC, the Effective Date will occur on the fifteenth business day of the
month during which the expiration of all applicable waiting periods in
connection with governmental approvals occurs and all conditions to the
consummation of the Merger Agreement have been satisfied or waived.
REASONS FOR THE MERGER; RECOMMENDATION OF HCMC BOARD OF DIRECTORS
The HCMC Board, comprised of all of the shareholders of HCMC, believes
the Merger is fair to and in the best interest of HCMC and, as shareholders,
intend to vote FOR approval of the Merger Agreement. The HCMC Board believes
that the Merger will provide significant value to all HCMC shareholders and
also enable them to participate in opportunities for growth that the HCMC Board
believes the Merger makes possible. See "The Merger -- Background of and
Reasons for the Merger." For information on the interests of officers and
directors of HCMC in the Merger, see "The Merger -- Interests of Certain
Persons in the Merger."
No financial adviser has been engaged by HCMC to prepare or deliver an
opinion to the HCMC Board to the effect that the terms of the Merger are fair
to the holders of HCMC Common Stock from a financial point of view.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the shareholder approval solicited hereby, receipt of the necessary
regulatory approvals, receipt of opinions of counsel regarding certain tax
aspects of the Merger, and satisfaction of customary closing conditions.
The regulatory approvals and consents necessary to consummate the
transactions contemplated by the Merger Agreement include the approval of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
and the preparation and filing of amendments to the FTIM and HCMC Forms ADV,
respectively, with the Securities and Exchange Commission ("SEC") and the
Tennessee Securities Division and the registration of FTIM as an investment
adviser in certain states where HCMC has been registered as an investment
adviser. Applications have been submitted for such approvals and
registrations. There can be no assurances as to when, if or with what
conditions such approvals or waiver will be granted. See "The Merger --
Conditions to Consummation of the Merger," "-- Regulatory Approvals,"
"-- Conduct of Business Pending the Merger" and "--Certain Regulatory
Considerations."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Date by the mutual consent of FTNC and HCMC and by either of them
individually under certain specified circumstances, including, if the Merger
has not become effective by May 11, 1994, or by FTNC and FTIM if FTNC's Common
Stock Average Price is less than $37.00 per share and by HCMC, under certain
circumstances, if the FTNC Common Stock Average Price is greater than $43.00.
See "The Merger -- Waiver and Amendment; Termination."
- 8 -
<PAGE> 13
INTERESTS OF CERTAIN PERSONS IN THE MERGER
HCMC's management and the HCMC Board have certain interests in the
Merger that are in addition to their interests as shareholders of HCMC
generally. These include employment of all of the shareholders of HCMC by FTIM
after the Merger and the terms of a management agreement between FTNC and FTIM
after the Effective Date of the Merger. See "The Merger -- Interests of
Certain Persons in the Merger."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Date, the five shareholders of HCMC automatically
will become shareholders of FTNC, and their rights as shareholders of FTNC will
be determined by the Tennessee Business Corporation Act ("TBCA") and by FTNC's
Charter and Bylaws. The rights of shareholders of FTNC differ from rights of
the shareholders of HCMC with respect to certain important matters, including,
but not limited to, their rights to remove directors, call special meetings,
cumulate votes for directors, amend the charter and bylaws, submit shareholder
proposals or nominations of director candidates, take action without a meeting,
and dissent with respect to their shares; the rights of the holders of debt
securities; indemnification provisions; and statutory and other restrictions on
certain business combinations and share acquisitions. For a summary of these
differences, see "Effect of the Merger on Rights of Shareholders."
SHAREHOLDERS' APPRAISAL RIGHTS
Under the Delaware General Corporation Law ("DGCL"), holders of HCMC
Common Stock who deliver to HCMC the required written demand for appraisal for
their shares prior to the vote at the Special Meeting and who do not vote in
favor of or consent in writing to the Merger, will have the right to be paid
the "fair value" of their shares as determined by the Delaware Court of
Chancery. SUCH APPRAISAL RIGHT WILL BE LOST, HOWEVER, IF THE PROCEDURAL
REQUIREMENTS OF THE DGCL ARE NOT FULLY AND PRECISELY SATISFIED. See "The
Merger--Shareholders' Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that for federal income tax purposes the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and, accordingly, for
federal income tax purposes, no gain or loss will be recognized by either HCMC
or FTNC as a result of the Merger and HCMC's shareholders will not recognize
gain or loss upon the receipt of FTNC Common Stock in exchange for HCMC Common
Stock, except to the extent of any cash received in lieu of fractional shares.
Consummation of the Merger is dependent upon, among other conditions, receipt
by each of FTNC and HCMC of an opinion of counsel, dated as of the Effective
Date, substantially to this effect. See "The Merger -- Certain Federal Income
Tax Consequences."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a pooling of
interests of FTNC and HCMC under Generally Accepted Accounting Principles
("GAAP"). See "The Merger -- Accounting Treatment."
MARKET PRICES OF COMMON STOCK
The FTNC Common Stock is included for quotation on the NASDAQ/NMS
(symbol: FTEN). The following table sets forth the high and low closing price
of FTNC Common Stock as reported on NASDAQ/NMS for the first quarter of 1994
through January 13, 1994, and on a quarterly basis for the two years ended
December 31, 1993 and 1992. The price of FTNC Common Stock has been adjusted
for a 3-for-2 stock split effected May 22, 1992.
- 9 -
<PAGE> 14
<TABLE>
<CAPTION>
1994 1993 1992
---- --------------------------------- -----------------------------------
1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
38 1/4 40 1/2 43 1/2 47 43 1/4 37 1/4 38 36 3/4 34 7/8
37 3/8 36 1/4 38 7/8 37 3/4 36 1/8 35 33 1/8 32 7/8 26 3/8
</TABLE>
The closing price per share of FTNC Common Stock as of November 9,
1993, the last business day preceding the execution of the Merger Agreement was
$38.75 and was $___ as of _____, the last practicable date prior to mailing of
this Proxy Statement-Prospectus. There is no established public trading
market for HCMC Common Stock, and no shares of HCMC Common Stock have been
transferred since its formation in 1987.
HCMC shareholders are advised to obtain current market quotations for
FTNC Common Stock. The market price of FTNC Common Stock at the Effective Date
may be higher or lower than the market price at the time the Merger Agreement
was executed, at the date of mailing of this Proxy Statement-Prospectus, at the
time of the Special Meeting, or at the Calculation Date.
EQUIVALENT AND PRO FORMA SHARE DATA
The following table presents selected comparative unaudited per share
data for FTNC Common Stock and HCMC Common Stock on a historical basis and for
FTNC Common Stock on a pro forma combined basis and HCMC Common Stock on a pro
forma equivalent basis giving effect to the Merger on a pooling of interests
accounting basis. Per share amounts have been adjusted for FTNC's 3-for-2
stock split effected May 22, 1992. The data is not necessarily indicative of
the results of the future operations of the combined entity or the actual
results that would have occurred had the Merger been consummated prior to the
periods indicated. For a description of the pooling of interests accounting
basis with respect to the Merger and the related effects on the historical
financial statements of FTNC, see "The Merger -- Accounting Treatment." The
information is derived from and should be read in conjunction with the
consolidated historical financial statements of FTNC and HCMC, including the
related notes thereto, contained herein or incorporated herein by reference.
See "Incorporation of Certain Documents by Reference," "Index to Pro Forma
Financial Information," and "Index to HCMC Financial Information."
- 10 -
<PAGE> 15
EQUIVALENT AND PRO FORMA SHARE DATA (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended December 31,
-------------------------- ------------------------------------------------
1993 1992 1992 1991 1990
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Income Per Common Share:(1)
FTNC $ 3.20 $ 2.77 $ 3.19 $ 2.63 $ 2.01
HCMC 1,267.48 1,354.42 709.08 1,567.96 (322.47)
FTNC pro forma (lower exchange range
limit) 3.15 2.73 3.14 2.59 1.97
FTNC pro forma (upper exchange range
limit) 3.15 2.73 3.14 2.60 1.98
HCMC pro forma equivalent (lower
exchange range limit) 15,284.37 13,246.45 15,235.85 12,567.15 9,558.79
HCMC pro forma equivalent (upper
exchange range limit) 13,151.66 11,398.10 13,109.91 10,855.34 8,266.76
Fully Diluted Income Per Common
Share:(1)
FTNC $ 3.14 $ 2.71 $ 3.12 $ 2.60 $ 2.00
HCMC 1,267.48 1,354.42 709.08 1,567.96 (322.47)
FTNC pro forma (lower exchange range
limit) 3.09 2.67 3.07 2.56 1.97
FTNC pro forma (upper exchange range
limit) 3.10 2.68 3.08 2.56 1.97
HCMC pro forma equivalent (lower
exchange range limit) 14,993.24 12,955.32 14,896.19 12,421.58 9,558.79
HCMC pro forma equivalent (upper
exchange range limit) 12,942.90 11,189.35 12,859.40 10,688.33 8,225.01
Dividends Declared Per Common Share:(2)
FTNC $ 1.08 $ .90 $ 1.26 $ 1.14 $ 1.09
HCMC -- -- -- -- --
FTNC pro forma 1.08 .90 1.26 1.14 1.09
HCMC pro forma equivalent (lower
exchange range limit) 5,240.35 4,366.96 6,113.75 5,531.49 5,288.88
HCMC pro forma equivalent (upper
exchange range limit) 4,509.14 3,757.62 5,260.66 4,759.65 4,550.89
Book Value Per Common Share (end of
period):(3)
FTNC $ 23.31 $ 21.24 $ 21.25 $ 19.39 $ 17.91
HCMC 7,667.49 7,045.35 6,400.01 5,690.93 4,122.97
FTNC pro forma (lower exchange range
limit) 22.94 20.91 20.91 19.08 17.62
FTNC pro forma (upper exchange range
limit) 22.99 20.95 20.96 19.12 17.66
HCMC pro forma equivalent (lower
exchange range limit) 111,309.01 101,459.08 101,459.08 92,579.59 85,495.41
HCMC pro forma equivalent (upper
exchange range limit) 95,986.24 87,468.97 87,510.72 79,828.49 73,732.80
</TABLE>
_________________
(1) Pro forma income per share is calculated using combined historical
income for FTNC and HCMC divided by the average pro forma common
shares of the combined entity. The average pro forma common shares of
the combined entity have been calculated by increasing FTNC's
historical weighted average shares by the shares of FTNC common stock
that would have been issued based on a purchase price paid for HCMC of
$17,953,057 and a FTNC stock price range of $37 to $43. The HCMC pro
forma equivalent income per share amounts are computed by multiplying
the FTNC pro forma amounts by their respective exchange ratios of
4,852.18 and 4,175.13, respectively.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC. HCMC pro forma equivalent dividends per share represent
4,852.18 and 4,175.13, respectively, of such amounts.
(3) FTNC pro forma book value per common share is based upon the
historical total common equity of the combined entity divided by the
total pro forma common shares of the combined entity assuming
conversion of HCMC's common stock into 485,218 and 417,513 shares,
respectively. HCMC pro forma equivalent book value per common share
amounts are based on the respective exchange ratios.
- 11 -
<PAGE> 16
SELECTED FINANCIAL DATA AND RATIOS
The following table presents for FTNC and HCMC, on a historical basis,
selected unaudited consolidated financial data and ratios. This information is
based on the consolidated financial statements of FTNC and HCMC included herein
or incorporated herein by reference and should be read in conjunction therewith
and with the notes thereto. Per share amounts have been adjusted for FTNC's
3-for-2 stock split effected May 22, 1992. See "Incorporation of Certain
Documents by Reference," "Index to Pro Forma Financial Information" and "Index
to HCMC Financial Information." Results of the nine months ended September 30,
1993 are not necessarily indicative of results to be expected for the entire
year. All adjustments necessary to arrive at a fair statement of results of
interim period operations of FTNC and HCMC, in the opinion of the management of
the respective companies, have been included and are of a normal recurring
nature.
- 12 -
<PAGE> 17
SELECTED FINANCIAL DATA AND RATIOS (UNAUDITED)
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended December 31,
------------------------ ---------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Interest Income and Other
Income:
FTNC $ 622,141 $ 623,024 $ 824,246 $ 831,796 $ 814,457 $ 782,312 $ 676,573
HCMC 2,910 2,485 3,412 2,744 2,252 2,156 1,799
FTNC pro forma 625,051 625,509 827,658 834,540 816,709 784,468 678,372
Net Income Applicable to Common
Stock:
FTNC $ 90,037 $ 77,368 $ 89,165 $ 73,022 $ 56,580 $ 37,355 $ 61,399
HCMC 127 135 71 157 (32) 57 200
FTNC pro forma 90,164 77,503 89,236 73,179 56,548 37,412 61,599
Net Income per Common Share:(1)
FTNC $ 3.20 $ 2.77 $ 3.19 $ 2.63 $ 2.01 $ 1.33 $ 2.20
HCMC 1,267.48 1,354.42 709.08 1,567.96 (322.47) 571.51 1,997.93
FTNC pro forma (lower exchange
range limit) 3.15 2.73 3.14 2.59 1.97 1.31 2.17
FTNC pro forma (upper exchange
range limit) 3.15 2.73 3.14 2.60 1.98 1.31 2.18
Dividends Declared per Common
Share:
FTNC $ 1.08 $ .90 $ 1.26 $ 1.14 $ 1.09 $ .96 $ .86
HCMC -- -- -- -- -- -- --
FTNC pro forma(2) 1.08 .90 1.26 1.14 1.09 .96 .86
Total Assets (end of period):
FTNC $9,458,720 $8,621,195 $8,925,774 $8,760,715 $7,485,199 $7,149,357 $6,697,877
HCMC 1,317 1,189 1,168 1,024 807 821 714
FTNC pro forma 9,460,037 8,622,384 8,926,942 8,761,739 7,486,006 7,150,178 6,698,591
Long-Term Debt and Capital Leases
(end of period):
FTNC $ 91,489 $ 128,531 $ 127,637 $ 128,671 $ 129,057 $ 129,955 $ 134,526
HCMC -- -- -- -- -- -- --
FTNC pro forma 91,489 128,531 127,637 128,671 129,057 129,955 134,526
Performance Ratios:
Return on Average Assets
FTNC 1.37% 1.26% 1.07% .95% .79% .54% .95%
HCMC 13.64 16.35 6.47 17.13 (3.96) 7.45 27.98
FTNC pro forma 1.37 1.26 1.08 .96 .79 .54 .95
Return on Average
Shareholders' Equity
FTNC 19.23 18.17 15.44 14.14 11.63 7.95 13.89
HCMC 24.09 28.41 11.73 31.95 (7.53) 13.74 51.57
FTNC pro forma 19.23 18.19 15.44 14.16 11.61 7.96 13.92
Shareholders' Equity to
Total Assets (end of period)
FTNC 6.94 6.90 6.69 6.15 6.64 6.69 6.93
HCMC 58.22 59.26 54.80 55.57 51.10 54.18 54.26
FTNC pro forma 6.95 6.91 6.70 6.15 6.65 6.70 6.94
</TABLE>
_________________
(1) Pro forma income per share is calculated using combined historical
income for FTNC and HCMC divided by the average pro forma common
shares of the combined entity. The average pro forma common shares of
the combined entity have been calculated by increasing FTNC's
historical weighted average shares by the shares of FTNC common stock
that would be issued on a purchase price paid for HCMC of $17,953,057
and a FTNC stock price range of $37 to $43.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC.
- 13 -
<PAGE> 18
RECENT DEVELOPMENTS
The following is certain financial information for FTNC for the three
months and the twelve months ended December 31, 1993 and 1992 and for the
period end. This information has been derived from unaudited consolidated
statements and reflects all normal recurring adjustments which are, in the
opinion of management, necessary for a fair statement of results of operations
for the periods presented.
First Tennessee National Corporation
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
--------------------------------- --------------------------------
December 31 December 31
--------------------------------- --------------------------------
1993 1992(1) 1993 1992(1)
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Summary Statements of Income (Dollars in
thousands, except per share data):
Interest income $151,648 $145,796 $586,467 $599,237
Less interest expense 60,617 62,246 239,913 276,303
-------- ------- ------- -------
Net interest income 91,031 83,550 346,554 322,934
Provision for loan losses 7,475 10,460 34,540 43,171
-------- ------- ------- -------
Net interest income after provision
for loan losses 83,556 73,090 312,014 279,763
Investment banking income 22,282 16,922 91,525 80,275
Securities gains (losses) (769) (785) 725 (1,678)
Service and fee income 61,654 39,289 178,239 146,412
------- ------- ------- -------
Adjusted gross income after provision for
loan losses 166,723 128,516 582,503 504,772
Noninterest operating expense 119,369 99,444 398,386 360,476
------- ------- ------- -------
Income before income taxes 47,354 29,072 184,117 144,296
Applicable income taxes 16,726 17,275 63,452 55,131
------- ------- ------- -------
Net income $ 30,628 $ 11,797 $120,665 $ 89,165
======= ======= ======= =======
Per Share Data:
Net income $ 1.06 $ .42 $ 4.26 $ 3.19
Dividends declared .42 .36 1.50 1.26
Book value 23.95 21.25 23.95 21.25
Selected Financial Ratios:
Return on average assets 1.28% .55% 1.35% 1.07%
Return on average equity 18.33 7.78 18.99 15.44
Net interest margin 4.36 4.41 4.35 4.37
Net charge-offs to average loans .55 .87 .57 .81
</TABLE>
____________________________
(1) Includes one-time costs related to the HFC acquisition as
follows: provision for loan losses, $1.3 million; noninterest
operating expense, $9.4 million; applicable income taxes, $4.9
million.
- 14 -
<PAGE> 19
Period-End Balance Sheet Data (Dollars in thousands):
<TABLE>
<CAPTION>
December 31
--------------------------------------
1993 1992
------------------- ----------------
<S> <C> <C>
Loans, net of unearned income(1) $5,987,568 $4,610,018
Investment securities 2,169,736 3,031,105
Other earning assets 323,863 474,968
--------- ---------
Total earning assets 8,481,167 8,116,091
Cash and due from banks 602,416 496,526
Other assets 525,265 313,157
--------- ---------
Total assets $9,608,848 $8,925,774
========= =========
Interest-bearing deposits $5,258,418 $5,448,923
Short-term borrowed funds 1,330,048 1,010,283
Long-term debt 89,962 126,872
--------- ---------
Total interest-bearing liabilities 6,678,428 6,586,078
Demand deposits 1,888,333 1,467,839
Other liabilities 363,102 274,344
Shareholders' equity 678,985 597,513
--------- ---------
Total liabilities and shareholders' equity $9,608,848 $8,925,774
========= =========
Period-end shares outstanding 28,325,565 28,122,606
</TABLE>
_____________________
(1) Includes loans held for sale.
(2) Includes investment securities held for sale.
FTNC had earnings of $120.7 million for 1993, compared to $89.2
million reported in 1992, or $104.8 million for 1992 after adjusting for
one-time merger costs related to the Home Financial Corporation ("HFC") merger
which closed during the fourth quarter of 1992. Net income for 1993 increased
15.2% over 1992 earnings after adjusting for the HFC one-time costs. Fourth
quarter net income of $30.6 million increased 11.7% over the fourth quarter of
1992 earnings of $27.4 million, also adjusted for the HFC one- time costs.
Earnings per share were $4.26 for the year and $1.06 for the quarter, increases
of 13.6% and 8.2%, respectively, over 1992 earnings adjusted for the HFC
one-time costs.
Return on equity was 18.99% in 1993, compared to the 18.14% return of
1992, adjusted for HFC one-time costs. Return on assets was 1.35% for the
year, improving upon last year's adjusted level of 1.26%.
Growth in 1993 net income resulted from 12.0% revenue growth on a
fully taxable equivalent basis, lower loan loss provision, and an absence of
one-time costs incurred in the fourth quarter of 1992 from the HFC merger.
Pretax income, adjusted for the HFC merger, on a fully taxable equivalent basis
increased 16.5% over 1992 but higher federal taxes reduced net income growth to
15.2%. The Maryland National Mortgage Corporation ("MNMC") acquisition, which
closed in the fourth quarter of 1993, added 7.5% to noninterest income growth,
1.6% to net interest income growth, and 5.5% to noninterest expense growth in
1993. Noninterest income related to MNMC was lowered during the fourth quarter
due to the purchase accounting treatment which required FTNC to purchase MNMC
loans held for sale at market value and reduced the accounting gain realized on
sales to investors.
Net interest income growth was fueled by increases in earning assets,
as the net interest margin held level to last year's average. The net interest
margin rose in the fourth quarter of 1993 to 4.36% from 4.23% in the third
quarter due to the additional loans from consumer lending and short-term
warehouse loans resulting from the MNMC acquisition. Average loan growth
accelerated in 1993, with loans rising at an annual rate of 9.6% above the 1992
level. Loan growth was strongest in consumer lending, especially first and
second mortgage real estate-related installment loans, as consumer loans rose
24.7% above 1992. Average commercial and construction loans increased 5.0%,
showing signs of growth for the first time in six years.
Noninterest income growth provided 67% of the increase in revenue
during 1993, raising the percentage of revenue related to fee income to 43% for
1993 and to 47% in the fourth quarter with the inclusion of MNMC. The bond
division reported record revenues in 1993 of $91.5 million, 14.0% above 1992.
Strong growth rates were
- 15 -
<PAGE> 20
also reported for other sources of fee income: trust income increased
by 10.7%, bank card income by 9.3%, deposit services by 8.7%, and other fee
income, including mortgage banking, by 45.4%. Security gains for 1993 were
$0.7 million compared with losses of $1.7 million for 1992.
Noninterest operating expense grew 13.5% compared to 1992 levels
excluding the one-time expenses related to the HFC merger. Expenses grew due
to an increase in bond division and mortgage banking activity in 1993 and the
impact of the MNMC acquisition. Excluding these expenses, noninterest
operating expense grew 6.3%.
Asset quality showed improvement as the provision for loan losses
dropped by $8.6 million from 1992. Nonperforming loans at December 31, 1993,
were $25.4 million, compared with $30.0 million at the end of 1992. Total
nonperforming assets increased to $58.1 million at December 31, 1993, 6.3%
above the $54.7 million at December 31, 1992. This increase was due to the
$14.1 million increase in foreclosed properties related to the MNMC
acquisition. Net charge-offs for 1993 were $28.4 million compared to $36.4
million in 1992, while the ratio of net charge-offs to average loans fell from
.81% in 1992 to .57% in 1993.
In January 1994, Hickory Venture Capital Corporation ("Hickory"), a
subsidiary of FTB, realized an after-tax gain of approximately $8 million from
one of its investments. The acquisition of SNMC Management Corporation
("SNMC"), parent of Sunbelt National Mortgage Corporation ("Sunbelt"), was
closed in January and the previously announced one-time after-tax expenses of
approximately $3 million were recognized. The Hickory gain will allow a larger
proportion of the mortgage servicing rights originated by Sunbelt during the
first quarter to be held rather than sold, thereby accelerating the growth of
the mortgage servicing portfolio. FTNC will adopt SFAS 112, "Employers'
Accounting for Postemployment Benefits," in the first quarter and will
recognize the one-time costs associated with these postemployment benefit
obligations.
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<PAGE> 21
THE SPECIAL MEETING
Each copy of this Proxy Statement-Prospectus mailed to the five
holders of HCMC Common Stock is accompanied by a proxy furnished in connection
with the HCMC Board's solicitation of proxies for use at the Special Meeting
and at any adjournments or postponements thereof. The Special Meeting is
scheduled to be held at 10:00 a.m. CST on ________________, 1994, at the office
of Highland Capital Management Corp., 2077 Primacy Parkway, Suite 228, Memphis,
Tennessee. Only the five holders of HCMC Common Stock at the close of business
on _____________, 1994 are entitled to receive notice of and to vote at the
Special Meeting. At the Special Meeting, shareholders will consider and vote
upon (a) a proposal to approve the Merger Agreement and (b) such other matters
as may properly be brought before the Special Meeting or any adjournments or
postponements thereof.
HOLDERS OF HCMC COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO HCMC IN THE ENCLOSED, POSTAGE
PAID ENVELOPE.
Any holder of HCMC Common Stock who has delivered a proxy may revoke
it any time before it is voted by attending the Special Meeting and voting in
person at the meeting or by giving notice of revocation in writing or
submitting a signed proxy bearing a later date to HCMC, 6077 Primacy Parkway,
Suite 228, Memphis, Tennessee 38138 Attention: Secretary, provided such notice
or proxy is actually received by HCMC before the vote of shareholders. The
shares of HCMC Common Stock represented by properly executed proxies received
at or prior to the Special Meeting and not subsequently revoked will be voted
as directed by the shareholders submitting such proxies. If instructions are
not given, proxies received will be voted FOR approval of the Merger Agreement.
If any other matters are properly presented at the Special Meeting for
consideration, the persons named in the HCMC proxy card enclosed herewith will
have discretionary authority to vote on such matters in accordance with their
best judgment. The HCMC Board is unaware of any matter to be presented at the
Special Meeting other than the proposal to approve the Merger Agreement.
The cost of soliciting proxies from holders of HCMC Common Stock will
be borne by HCMC. Such solicitation will be made by mail but also may be made
by telephone or in person by the directors, officers and employees of HCMC (who
will receive no additional compensation for doing so).
HCMC SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXIES.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of HCMC Common Stock entitled to vote at the Special Meeting is required
in order to approve the Merger Agreement. Therefore, a failure to return a
properly executed proxy card or to vote in person at the Special Meeting will
have the same effect as a vote against the Merger Agreement. As of the HCMC
Record Date, there were 100 shares of HCMC Common Stock outstanding, held by
five individuals and entitled to vote at the Special Meeting, with each share
being entitled to one vote.
A majority of the outstanding shares entitled to vote at the Special
Meeting constitutes a quorum for purposes of that meeting. An abstention will
be considered present for quorum purposes, but will have the same effect as a
vote "against" the proposal to approve the Merger Agreement.
As of the HCMC Record Date, the five shareholders who comprise the
HCMC Board and executive officers of HCMC owned all the outstanding shares of
HCMC Common Stock. Such shareholders intend to vote their shares in favor of
approval of the Merger Agreement.
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<PAGE> 22
RECOMMENDATION
FOR THE REASONS DESCRIBED BELOW, THE HCMC BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTEREST OF
HCMC AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF HCMC VOTE FOR
APPROVAL OF THE MERGER AGREEMENT. SEE "THE MERGER -- BACKGROUND OF AND REASONS
FOR THE MERGER."
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, which is incorporated herein by reference
and attached hereto as Appendix "A." HCMC shareholders are urged to read
carefully the Merger Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background. On March 25, 1993, E. Kelton Morris, Executive Vice
President and Manager of the Trust Division of FTB, contacted Paul H. Berz to
schedule a meeting to explore the possibility of a merger between HCMC and
FTIM. A meeting was held on May 4, 1993, attended by Mr. Morris, and the five
principals of HCMC. Subsequently, several meetings were held at which
representatives of HCMC and FTNC and their respective counsel negotiated the
Merger Agreement, the Management Agreement and the Employment Agreements
(hereinafter defined).
By written consent dated November 10, 1993, the HCMC Board unanimously
approved the Merger Agreement, the Management Agreement and the Employment
Agreements. The FTNC Board unanimously approved the Merger Agreement at a
regular meeting held on October 19, 1993.
Reasons for the Merger. In reaching its determination that the Merger
and Merger Agreement are fair to, and in the best interest of, HCMC and its
shareholders, the HCMC Board consulted with its advisers, and considered a
number of factors, including, without limitation, the following:
(a) the HCMC Board's familiarity with and review of HCMC's business,
operations, earnings, and financial condition;
(b) the HCMC Board's belief that the terms of the Merger Agreement
are attractive in that the Agreement allows HCMC shareholders to become
shareholders in FTNC, an institution which is the largest bank holding company
headquartered in Tennessee, whose stock is traded over NASDAQ/NMS, and the
recent earnings performance of FTNC;
(c) FTNC's wide range of banking products and services and its
dividend payment history;
(d) the HCMC Board's belief, based upon an analysis of the
anticipated financial effects of the Merger, that upon consummation of the
Merger, FTNC and its banking subsidiaries would be well capitalized
institutions, the financial positions of which would be well in excess of all
applicable regulatory capital requirements;
(e) the expectation that the Merger will generally be a tax-free
transaction of HCMC and its shareholders and that the Merger will be accounted
for under the pooling of interests method of accounting (see "Certain Federal
Income Tax Consequences" and "Accounting Treatment") and;
(f) the receipt by the five shareholders of HCMC of registered shares
of FTNC Common Stock
- 18 -
<PAGE> 23
The HCMC Board did not assign any specific or relative weight to the
foregoing factors in their considerations.
TERMS OF THE MERGER
At the Effective Date, HCMC will merge with and into FTIM, with FTIM
being the surviving entity. In the Merger, each share of HCMC Common Stock
outstanding immediately prior to the Effective Date will be converted into the
right to receive registered shares of FTNC Common Stock. Each share of HCMC
Common Stock issued and outstanding at the Effective Date will become and be
converted into registered shares of FTNC Common Stock based on the Conversion
Number determined as follows:
Each share of HCMC Common Stock issued and outstanding at the
Effective Time shall become and be converted into the right to
receive the number of shares of FTNC Common Stock equal to the
Conversion Number. The "Conversion Number" shall be equal to
the quotient of the HCMC Price (hereafter defined) divided by
the FTNC Common Stock Average Price (as hereinafter defined).
The Calculation Period shall consist of the 20 business day
period ending on the fifth business day prior to the Effective
Date. The FTNC Common Stock Average Price shall be equal to
the average of the closing prices of the FTNC Common Stock as
reported in the Southwest Edition of The Wall Street Journal
on the National Association of Securities Dealers Automated
Quotation System, National Market System ("NASDAQ") on each of
the business days included in the Calculation Period. A
business day shall be a day on which the New York Stock
Exchange is generally open for trading. The HCMC Price shall
be equal to the quotient of (i) the product of the Total
Annual Fees (being the annualized investment advisory fees
accrued for the average of the two calendar quarters ending
June 30, 1993 and September 30, 1993, respectively, for those
clients of HCMC which are "Regular Bill Cycle" accounts and
the total annual fees for "New Accounts" and "Irregular
Billing Cycle" accounts), as calculated and as set forth in
Schedule (B)(1) of the Merger Agreement, respectively, for
those accounts of HCMC, multiplied by a factor of four and
one-half (4.5) and divided by (ii) the number of shares of
HCMC Common Stock outstanding at the Effective Time.
If the Calculation Date had been _____________, 1994, and the number
of shares of FTNC Common Stock exchanged for all outstanding shares of HCMC
Common Stock would have been __________.
No fractional shares of FTNC Common Stock will be issued in connection
with the Merger. In lieu of fractional shares, FTNC will make a cash payment
equal to the fractional interest which a HCMC shareholder would otherwise
receive multiplied by the average price of FTNC's Common Stock, calculated on
the basis of closing prices over the 20 business days immediately prior to the
fifth calendar day prior to the Effective Date. If prior to the Effective Date
the outstanding shares of FTNC Common Stock are increased, decreased, changed
into or exchanged for a different number or class of shares or securities
through a change in FTNC's capitalization, then the Conversion Number will be
adjusted accordingly.
EFFECTIVE DATE
The Effective Date of the Merger will be the date the certificate of
merger is filed in accordance with the TBCA and DGCL or on such later date as
the certificate may specify. Unless otherwise mutually agreed upon by FTNC and
HCMC, the Effective Date will occur on the fifteenth business day of the month
during which the expiration of all applicable waiting periods in connection
with governmental approvals occurs and all conditions to the consummation of
the Merger Agreement have been satisfied or waived.
- 19 -
<PAGE> 24
SURRENDER OF CERTIFICATES
On the Effective Date, FTNC will deliver to each former holder of
record of HCMC Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of HCMC Common Stock for certificates representing registered shares of FTNC
Common Stock.
HOLDERS OF HCMC COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender to FTNC of one or more certificates for HCMC Common
Stock together with a properly completed letter of transmittal, there will be
issued and mailed to the holder of HCMC Common Stock surrendering such items a
certificate or certificates representing the number of registered shares of
FTNC Common Stock to which such holder is entitled and, where applicable, a
check for the amount representing any fractional share determined in the manner
described above.
No dividend or other distribution payable after the Effective Date
with respect to FTNC Common Stock will be paid to the holder of any
unsurrendered HCMC certificate until the holder surrenders such certificate(s),
at which time the holder will be entitled to receive all previously withheld
dividends and distributions, without interest.
After the Effective Date, there will be no transfers on HCMC's stock
transfer books of shares of HCMC Common Stock issued and outstanding at the
Effective Date. If certificates representing shares of HCMC Common Stock are
presented for transfer after the Effective Date, they will be returned to the
presenter together with a form of letter of transmittal and exchange
instructions.
Neither FTNC nor HCMC nor any other person will be liable to any
former holder of HCMC Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for HCMC Common Stock has been lost, stolen or
destroyed, FTNC will issue the consideration properly payable in accordance
with the Merger Agreement upon receipt of appropriate evidence as to such loss,
theft or destruction, appropriate evidence as to the ownership of such
certificate by the claimant, and appropriate and customary indemnification,
including when appropriate the posting of a bond.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of FTNC, FTIM and HCMC to effect the Merger
shall be subject to the satisfaction prior to the Effective Time of the
following conditions: (a) approval of the Merger Agreement and the transactions
contemplated thereby by the Board of Directors or executive committee of FTNC
(which approval has been obtained), and the requisite votes of the shareholders
of HCMC and by FTNC as the sole shareholder of FTIM in accordance with
applicable law; (b) the procurement by FTNC of approval of the Merger Agreement
and the transactions contemplated by the Merger Agreement by the Federal
Reserve Board, and the expiration of any statutory waiting periods; (c) the
procurement of all regulatory consents and approvals which are necessary to
consummate the transactions contemplated by the Merger Agreement; (d) the
satisfaction of all other requirements prescribed by law which are necessary to
the consummation of the transactions contemplated by the Merger Agreement; (e)
no party to the Merger Agreement shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger; (f) no statute, rule, regulation,
order, injunction or decree shall have been enacted, entered, promulgated or
enforced by any governmental authority which prohibits, restricts or makes
illegal consummation of the Merger; (g) receipt by each party from counsel of a
legal opinion that the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code; (h)
necessary amendments to FTIM's and HCMC's respective Form ADV under the
Investment Advisers Act of 1940, and any initial registrations of FTIM as an
investment adviser under applicable
- 20 -
<PAGE> 25
state investment advisory statutes shall have been effected and declared
effective by all applicable state securities regulatory bodies; and (i) the
Registration Statement shall have become effective and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Securities and Exchange Commission.
The obligation of FTNC to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of, among others, the
following additional conditions: (a) FTNC and its directors and officers who
sign the Registration Statement will have received from HCMC's independent
certified public accountants certain customary letters, with respect to certain
financial information regarding HCMC; (b) FTNC will have received a customary
legal opinion dated the date of closing, from counsel to HCMC; (c) each of the
representations, warranties and covenants contained in the Merger Agreement of
HCMC will, in all material respects, be true on, or complied with by, the
Effective Date and FTNC shall have received a certificate signed by certain
officers of HCMC to such effect; (d) no litigation or proceeding will be
pending against HCMC by any governmental agency seeking to prevent consummation
of the transactions contemplated by the Merger Agreement nor is any litigation
pending which in the reasonable judgment of the President of HCMC is likely to
have a material adverse effect on HCMC; (e) each director, executive officer
and other person who is an affiliate of HCMC will have delivered to FTNC a
written agreement providing, among other matters, that such person will not
sell, pledge, transfer or otherwise dispose of any shares of HCMC Common Stock
held by such "affiliate" or the shares of FTNC Common Stock to be received by
such "affiliate" in the Merger, except in compliance with the applicable
provisions of the Securities Act and the rules and regulations thereunder, and
during the periods during which any such sale, pledge, transfer or other
disposition would, under GAAP or the rules, regulations or interpretations of
the SEC, disqualify the Merger for pooling of interests accounting treatment;
(f) each of the employment and other agreements contemplated to be in effect as
of the Effective Date hereto will have been executed and in full force and
effect; and (g) HCMC shall have obtained executed clients' consents from HCMC's
advisory clients, consenting to the assignment of their contracts to FTIM upon
the Effective Date of the Merger.
The obligation of HCMC to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions: (a) HCMC will have received from FTNC's independent certified
public accountants certain customary letters with respect to certain financial
information regarding FTNC; (b) HCMC will have received a customary legal
opinion from counsel for FTNC and FTIM dated the date of closing; (c) each of
the representations, warranties and covenants of FTNC and FTIM contained in the
Merger Agreement will, in all material respects, be true on, or complied with
by, the Effective Date and HCMC shall have received a certificate signed by
certain officers of FTNC and of FTIM, to such effect; (d) no litigation or
proceeding will be pending against FTNC or any of its subsidiaries, or FTIM, by
any governmental agency, seeking to prevent consummation of the transactions
contemplated by the Merger Agreement nor is any litigation or proceeding
pending which in the reasonable judgment of the President of FTNC or of FTIM is
likely to have a material adverse effect on FTNC or FTIM, as applicable; and
(e) each of the employment and other agreements contemplated to be in effect as
of the Effective Date will have been executed and in full force and effect.
No assurance can be provided as to when, if ever, the regulatory
consents and approvals necessary to consummate the Merger will be obtained (or,
if so obtained, that such consents and approvals will not contain conditions or
requirements which cause such approvals to fail to satisfy the conditions to
the Merger set forth in the Merger Agreement) or whether all of the other
conditions precedent to the Merger will be satisfied or waived by the party
permitted to do so. See "Regulatory Approvals." If the Merger is not effected
on or before May 11, 1994, the Merger Agreement may be terminated, and the
Merger abandoned, by a vote of a majority of the Board of Directors of either
FTNC or HCMC, unless the failure to effect the Merger by such date is due to
the breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement.
REGULATORY APPROVALS
The Merger is not subject to the approval of the Federal Reserve Board
if both before and after the Merger, FTNC meets the Federal Reserve Board's
capital adequacy guidelines, and FTNC has provided written notice of
- 21 -
<PAGE> 26
the transaction to the appropriate Federal Reserve Bank at least 30 days prior
to the Effective Date and during such period, the Federal Reserve Bank has not
informed FTNC that an application is required. A letter providing the required
notice to the Federal Reserve Board has been filed.
While such authorities do not have the authority to pass upon the
adequacy or legality of the Merger, FTIM and HCMC must prepare and file certain
amendments to their registration with the SEC and the Tennessee Securities
Division as investment advisers under the Investment Advisers Act of 1940 and
the Tennessee Securities Act of 1980, as amended. In addition, as a condition
to the Merger, FTIM must register as an investment adviser in approximately 7
states in which HCMC is currently registered as an investment adviser prior to,
or contemporaneously with, the Merger. Applications for these registrations
have been filed.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "Conditions to Consummation of the Merger" and "Waiver and
Amendment; Termination."
THERE CAN BE NO ASSURANCE THAT THE REGULATORY AUTHORITIES DESCRIBED
ABOVE WILL APPROVE THE MERGER, AND IF THE MERGER IS APPROVED, THERE CAN BE NO
ASSURANCE AS TO THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT
ANY SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES
SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF THE MERGER
SET FORTH IN THE MERGER AGREEMENT.
CONDUCT OF BUSINESS PENDING MERGER
The Merger Agreement contains certain restrictions on the conduct of
HCMC's and FTIM's businesses pending consummation of the Merger. In
particular, the Merger Agreement provides that, without the prior written
consent of FTNC, HCMC may not, among other things, (a) make, declare or pay any
dividend or declare or make any distribution on, or directly or indirectly
combine, redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock or authorize the creation or issuance of or issue or sell any
additional shares of HCMC's capital stock or any options, calls or commitments
relating thereto; (b) except as disclosed in an Annex to the Merger Agreement,
pay any bonus to, or increase the rate of compensation of, any of its
directors, officers or employees, except in the ordinary course of business
consistent with past practice, or enter into any employment contracts with any
persons other than those employment agreements executed simultaneously with the
execution of the Merger Agreement; (c) enter into or modify (except as may be
required by applicable law) any employee benefit plan in respect of any of its
directors, officers or other employees; (d) substantially modify the manner in
which it has conducted its business, taken as a whole, or amend its articles of
incorporation or by-laws; (e) merge or consolidate with any other entity or
engage in any similar transaction; (f) sell, dispose of or discontinue any of
its business, assets (including investment securities) or property; (g) acquire
any assets or business that is material to it; (h) take any other action not in
its ordinary course of business; (i) take any action which would adversely
affect its registration as an investment adviser under the Investment Advisers
Act of 1940, as amended, the Tennessee Securities Act of 1980, as amended or
under any other jurisdiction; (j) borrow or loan funds except in the ordinary
course of business and not exceeding $10,000 in the aggregate up to the
Effective Date; (k) fail to (1) meet all of its obligations as they become due;
(2) use its best efforts, consistent with its past practices, to continue to
solicit new clients and to offer investment advisory services in the ordinary
course of business; and (3) preserve its business organization and properties
intact; (l) decrease its fee schedule or the fees currently being charged its
investment advisory clients; (m) fail to pay or fund its expenses and
liabilities incurred for all periods prior to the Effective Date; or (n)
directly or indirectly agree to take any of the foregoing actions.
Similarly, without the prior written consent of HCMC, FTIM will not:
(a) make, declare or pay any dividend or make any distribution on, or directly
or indirectly combine, redeem, reclassify, purchase or otherwise acquire, any
shares of its capital stock which would cause its cash balance to decline below
$1,000,000, or authorize the creation or issuance of or issue or sell any
additional shares of FTIM's capital stock, or any options, calls or commitments
relating thereto; (b) pay any bonus to, or increase the rate of compensation
of, any of its directors, officers or employees, except in the ordinary course
of business consistent with past practice, or enter into any employment
contracts with any persons; (c) enter into or modify (except as may be required
by law) any employee
- 22 -
<PAGE> 27
benefit plan, in respect of any of its directors, officers or other employees;
(d) substantially modify the manner in which it has conducted its business,
taken as a whole, or amend its articles of incorporation or by-laws; (e) merge
or consolidate with any other entity or engage in any similar transaction; (f)
sell, dispose of or discontinue any of its business (except for FTIM's loss of
business resulting from the closing of FTIM's offices in Chattanooga and
Knoxville and the withdrawal of assets under management which are invested in
any proprietary mutual fund for which FTB serves as investment adviser), assets
(including investment securities) or property; (g) acquire any assets or
business that is material to it; (h) take any other action not in the ordinary
course of business of it, taken as a whole; (i) take any action which would
adversely affect its registration as an investment adviser under the Investment
Advisers Act of 1940, as amended, or the Tennessee Securities Act of 1980, as
amended; (j) borrow or loan funds except in the ordinary course of business and
not exceeding $10,000 in the aggregate up to the Effective Date; (k) fail to
(1) meet all of its obligations as they become due, (2) use its best efforts to
continue to solicit new clients and to offer investment advisory services in
the ordinary course of business and (3) preserve its business organization and
properties intact; (l) decrease its fee schedule or decrease the fees currently
being charged its investment advisory clients; (m) fail to pay or fund all
expenses and liabilities incurred by it with respect to all periods prior to
the Effective Date; or (n) directly or indirectly agree to take any of the
foregoing actions.
NO SOLICITATION
HCMC has agreed with FTNC and FTIM, and FTNC and FTIM have agreed with
HCMC, that neither FTIM nor HCMC will solicit or encourage inquiries or
proposals with respect to, or, subject to the fiduciary duties of its
directors, furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
material portion of their respective assets (whether owned by it directly or
owned by any of its subsidiaries), or of a substantial equity interest in, it
or any business combination with it or any of its subsidiaries and, in the case
of FTNC, it will not solicit a business combination in which FTNC is not, as a
practical matter, the surviving corporation. HCMC will notify FTNC and FTIM
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated with, it and FTNC will notify HCMC immediately regarding
any such activities concerning FTIM; and each has instructed its officers,
directors, agents, advisers and affiliates to comply with the same
restrictions.
WAIVER AND AMENDMENT; TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Date, either before or after its approval by the holders of HCMC
Common Stock, as follows: (a) by the mutual consent of FTNC, FTIM and HCMC, if
the Board of Directors of each so determines; (b) by FTNC and FTIM or HCMC, in
the event of a material breach by the other party of any representation,
warranty or agreement contained in the Merger Agreement which is not cured or
not curable within 60 days after written notice of such breach is given to the
party committing the breach; (c) by FTNC and FTIM or HCMC, in the event that
the Merger is not consummated by May 11, 1994 unless the failure to consummate
is due to the breach of the Merger Agreement by the party seeking to terminate;
(d) by FTNC and FTIM, if the FTNC Common Stock Average Price is less than
$37.00; or (e) by HCMC, if the FTNC Common Stock Average Price is greater than
$43.00, unless FTNC and FTIM elect to require HCMC to consummate the Merger
based upon an assumed FTNC Common Stock Average Price of $43.00, regardless of
what such Average Price may actually be.
In the event of the termination of the Merger Agreement by either FTNC
or HCMC, as provided above, the Merger Agreement will become void, and there
will be no liability on the part of FTNC, FTIM or HCMC or their respective
officers or directors, except that such termination will be without prejudice
to the rights of any party arising out of a willful breach by any other party
of any covenant or a willful misrepresentation contained in the Merger
Agreement.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the members of the Board of Directors of HCMC are also all of
the shareholders of HCMC, and in connection with the Merger, each and all have
certain interests in the Merger that are in addition to their interests as
shareholders of HCMC generally. The HCMC Board was aware of these interests
and considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby.
Management Agreement. Simultaneously with the execution of the Merger
Agreement, FTNC, FTB, HCMC and all of its shareholders ("Principals") executed
a Management Agreement which sets forth, among other things, the duties and
responsibilities to be performed by the Principals on behalf of FTIM after the
Merger [the surviving corporation to be renamed Highland Capital Management
Corp. ("New Highland")], provides for the charging of investment advisory fees
to the Memphis Trust Division of FTB by New Highland and sets forth the
division of gross revenues between FTNC and New Highland. The Management
Agreement was executed simultaneously with the Merger Agreement, although the
provisions of the Management Agreement do not become operative until after the
Effective Date of the Merger. If the Merger Agreement is terminated prior to
the Effective Date, the Management Agreement likewise terminates
simultaneously.
Employment After the Merger. Employment Agreements were executed
simultaneously with the execution of the Merger Agreement and the Management
Agreement between HCMC and each of the Principals. When HCMC merges with and
into FTIM, FTIM will change its name to Highland Capital Management Corp. ("New
Highland") and New Highland will succeed to the rights and obligations of the
Employment Agreements as successor by merger. The terms of the Employment
Agreement expire concurrently with the expiration of the Management Agreement,
which may be extended annually by FTNC.
EFFECT ON HCMC EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that immediately prior to the Effective
Date, HCMC will freeze its employee profit sharing plan and all participant
employees of HCMC will, to the extent provided by the relevant provisions of
such plan and by law, become fully vested in such plan, HCMC will make no
further contributions to such plan and it shall be maintained as a "frozen
plan," with no further benefit accruing to participants. Following the Merger,
HCMC employees shall be entitled to participate, to the same extent and on the
same terms as the employees of FTNC, in any qualified pension, profit sharing
and stock bonus plans in effect at such time for employees of FTNC. Employees
of HCMC will receive service credit from their hire date for employment at HCMC
for purposes of eligibility and vesting requirements under FTNC's retirement
savings plan and defined benefit pension plan, and benefit service credit from
the Effective Date for purposes of benefit calculation under FTNC's defined
benefit pension plan.
SHAREHOLDERS' APPRAISAL RIGHTS
Shareholders of HCMC who follow the procedures specified in Section
262 of the DGCL ("Section 262") will be entitled to have their shares of HCMC
Common Stock appraised by the Delaware Court of Chancery and to receive payment
of the "fair value" of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, as determined by such
court. THE PROCEDURES SET FORTH IN SECTION 262 MUST BE STRICTLY COMPLIED WITH.
FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER
OF APPRAISAL RIGHTS UNDER SECTION 262.
The following discussion of the provisions of Section 262 is not
intended to be a complete statement of its provisions and is qualified in its
entirety by reference to the full text of that section, a copy of which is
attached as Appendix "B" to this Proxy Statement-Prospectus.
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Under Section 262, a shareholder of HCMC electing to exercise
appraisal rights must both:
(1) deliver to HCMC, before the taking of the vote on the
Merger, a written demand for appraisal of his shares which reasonably
informs HCMC of the identity of the shareholder of record and that
such record shareholder intends thereby to demand the appraisal of his
shares of HCMC Common Stock. This written demand is in addition to
and separate from any proxy or vote against the Merger. Neither a
vote against the Merger nor a proxy directing such vote shall satisfy
the requirement that a written demand for appraisal be delivered to
HCMC before the vote on the Merger. Such written demand for appraisal
should be delivered either in person to the Secretary of HCMC at the
Special Meeting before the vote on the Merger or in person or by mail
(certified mail, return receipt requested, being the recommended form
of transmittal) to HCMC, 6077 Primacy Parkway, Suite 228, Memphis,
Tennessee 38119, Attention: Secretary, prior to the Special Meeting;
AND
(2) not vote in favor of or consent in writing to the Merger.
A failure to vote against the Merger will not constitute a waiver of
appraisal rights. HOWEVER, ANY SHAREHOLDER WHO EXECUTES A PROXY
APPOINTMENT CARD AND WHO DESIRES TO PERFECT HIS APPRAISAL RIGHTS MUST
MARK THE PROXY APPOINTMENT CARD "AGAINST" THE PROPOSAL RELATING TO THE
MERGER because if the proxy appointment card is left blank, it will be
voted FOR the proposal relating to the Merger.
The written demand for appraisal must be made by or for the holder of
record of HCMC Common Stock. Accordingly, such demand should be executed by
or for such shareholder of record, fully and correctly, as such shareholder's
name appears on his stock certificates. If the stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in such capacity and if the stock is owned of record
by more than one person as in a joint tenancy or tenancy in common, such demand
should be executed by or for all joint owners. An authorized agent, including
one of two or more joint owners, may execute the demand for appraisal for a
shareholder of record. However, the agent must identify the record owner or
owners and expressly disclose the fact that in executing the demand he is
acting as agent for the record owner.
A record owner, such as a broker, who holds HCMC Common Stock as
nominee for others may exercise his right of appraisal with respect to the
shares held for all or less than all of the others. In such case the written
demand should set forth the number of shares covered by it. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
standing in the name of such record owner.
Within 10 days after the Effective Date, HCMC is required to, and
will, notify each shareholder of HCMC who has satisfied the foregoing
conditions of the date on which the Merger became effective. Within 120 days
after such date, HCMC or any such shareholder who has satisfied the foregoing
conditions and is otherwise entitled to appraisal rights under Section 262, may
file a petition in the Delaware Court of Chancery demanding a determination of
the value of the shares of HCMC Common Stock held by all shareholders entitled
to appraisal rights. If no such petition is filed within the aforementioned
120-day period, appraisal rights will be lost for all shareholders who had
previously demanded appraisal of their shares. Shareholders of HCMC seeking to
exercise appraisal rights should not assume that HCMC will file a petition with
respect to the appraisal of the value of their shares or that HCMC will
initiate any negotiations with respect to the "fair value" of such shares.
ACCORDINGLY, SHAREHOLDERS OF HCMC WHO WISH TO EXERCISE THEIR APPRAISAL RIGHTS
SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO PERFECT
THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION 262.
Within 120 days after the Effective Date, any shareholder who has
complied with the provisions of Section 262 is entitled, upon written request,
to receive from HCMC a statement setting forth the aggregate number of shares
of HCMC Common Stock not voted in favor of adoption of the Merger Agreement and
with respect to which demands for appraisal were received by HCMC, and the
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by HCMC or within 10 days
after expiration of the time for delivery of demands for appraisal under
Section 262, whichever is later.
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If a petition for an appraisal is timely filed, after a hearing on
such petition the Delaware Court of Chancery will determine the shareholders of
HCMC entitled to appraisal rights and will appraise the value of the HCMC
Common Stock owned by such shareholders, determining its "fair value" exclusive
of any element of value arising from the accomplishment or expectation of the
Merger. The court will direct payment of the fair value of such shares
together with a fair rate of interest, if any, on such fair value to
shareholders entitled thereto upon surrender to HCMC of share certificates.
Upon application of a shareholder, the court may, in its discretion, order that
all or a portion of the expenses incurred by any shareholder in connection with
an appraisal proceeding, including without limitation, reasonable attorneys'
fees and the fees and expenses of experts, be charged pro rata against the
value of all the shares entitled to appraisal.
Although HCMC believes that the price per share to be paid in the
Merger is fair, HCMC cannot make any representation as to the outcome of the
appraisal of fair value as determined by the Delaware Court of Chancery, and
shareholders should recognize that such an appraisal could result in a
determination of a lower, higher or equivalent value. Moreover, HCMC may or
may not argue in an appraisal proceeding for a determination of fair value by
the Delaware Court of Chancery which is lower than the price per share at the
close of the Calculation Period. In determining the fair value of the shares,
the court is required to take into account all relevant factors. Therefore,
such determination could be based upon considerations in addition to the price
paid in the Merger, the market value of the shares, asset values and earning
capacity. In Weinberger v. UOP, Inc. et al. (decided February 1, 1983), the
Delaware Supreme Court stated with respect to Section 262, among other things,
that proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court should
also be considered in an appraisal proceeding.
Any shareholder of HCMC who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Date, be entitled to
vote his shares for any purpose nor be entitled to the payment of dividends or
other distributions on his shares (other than those payable to shareholders of
record as of a date prior to the Effective Date).
If no petition for an appraisal is filed within the time provided, or
if a shareholder of HCMC delivers to HCMC a written withdrawal of his demand
for an appraisal and an acceptance of the Conversion Number, either within 60
days after the Effective Date or with the written approval of HCMC thereafter,
then the right of such shareholder to an appraisal will cease and such
shareholder shall be entitled to receive the shares of FTNC Common Stock to
which he would have been entitled had he not demanded appraisal of his shares.
No appraisal proceeding to the Court of Chancery will be dismissed as to any
shareholder without the approval of the court, which approval may be
conditioned on such terms as the court deems just.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below represents a summary
of the opinion of Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, a
Professional Corporation, counsel to FTNC. HCMC shareholders are urged to
consult their own tax advisers as to the specific tax consequences to them of
the Merger, including the applicability and effect of federal, state, local and
other tax laws.
General. It is intended that for federal income tax purposes the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code, and that, accordingly, (a) no gain or loss will be recognized by
either FTNC or HCMC as a result of the Merger, (b) no gain or loss will be
recognized by the HCMC shareholders upon the receipt of FTNC Common Stock in
exchange for HCMC Common Stock in connection with the Merger (except as
discussed below with respect to cash received in lieu of a fractional share
interest in FTNC Common Stock); (c) the tax basis of the FTNC Common Stock to
be received by the HCMC shareholders in connection with the Merger will be the
same as the basis in the HCMC Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest in which cash
is received); and (d) the holding period of the FTNC Common Stock to be
received by the HCMC shareholders in connection with the Merger will include
the
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<PAGE> 31
holding period of the HCMC Common Stock surrendered in exchange therefor,
provided that the HCMC Common Stock is held as a capital asset at the Effective
Date. Consummation of the Merger is dependent upon, among other conditions,
receipt by FTNC and HCMC of an opinion of counsel, dated as of the Effective
Date, substantially to this effect.
Consequences of Receipt of Cash in Lieu of Fractional Shares. An HCMC
shareholder who is entitled to receive cash in lieu of a fractional share
interest of FTNC Common Stock in connection with the Merger will recognize, as
of the Effective Date, gain (or loss) equal to the difference between such cash
amount and the shareholder's basis in the fractional share interest. Any gain
(or loss) recognized will be capital gain (or loss) if the HCMC Common Stock is
held by such shareholder as a capital asset at the Effective Date.
Cash Received by HCMC Shareholders Who Exercise Appraisal Rights. A
shareholder of HCMC who perfects his appraisal rights under the laws of the
State of Delaware and who receives a payment in cash of the fair value of his
shares of HCMC Common Stock will generally be treated as having received such
payment in complete redemption of such stock under Section 302(b)(3) of the
Code. In general, if the shares of HCMC Common Stock are held by the
shareholder as a capital asset at the Effective Date, the shareholder will
recognize capital gain or loss measured by the difference between the amount of
cash received by the shareholder and the basis for such shares. However, this
general rule is subject to the conditions and limitations of Section 302 of the
Code, including the attribution rules of Section 318, and the treatment of each
dissenting shareholder of HCMC will depend on his individual circumstances.
Each HCMC shareholder who contemplates exercising his appraisal rights should
consult his own tax advisor as to the possibility that any payment to him will
be treated as dividend income.
ACCOUNTING TREATMENT
The parties intend for the Merger to qualify for pooling of interests
accounting treatment. Under the pooling of interests method of accounting, the
historical basis of the assets and liabilities of FTNC and HCMC will be
combined at the Effective Date and carried forward at their previously recorded
amounts and the shareholders' equity accounts of HCMC and FTNC will be combined
on FTNC's consolidated balance sheet. Income and other financial statements of
FTNC issued after consummation of the Merger will not be restated retroactively
to reflect the consolidated operations of FTNC and HCMC as if the Merger had
taken place prior to the periods covered by such financial statements because
the transaction is not material to FTNC.
In order for the Merger to qualify for pooling of interests accounting
treatment, substantially all (90% or more) of the outstanding shares of HCMC
Common Stock must be exchanged for FTNC Common Stock. HCMC has agreed to use
its best efforts to cause the Merger to qualify for pooling of interests
treatment. See "Resale of FTNC Common Stock."
The unaudited pro forma financial information contained in this Proxy
Statement--Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger. See "Summary -- Equivalent and
Pro Forma Share Data," and "-- Selected Financial Data and Ratios."
EXPENSES
The Merger Agreement provides, in general, that FTNC and HCMC will
each pay its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby, including fees and expenses of consultants,
accountants and counsel.
RESALE OF FTNC COMMON STOCK
The shares of FTNC Common Stock issued pursuant to the Merger
Agreement will be freely transferable under the Securities Act of 1933, as
amended ("Securities Act") except for shares issued to any shareholder who
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may be deemed to be an "affiliate" of HCMC for purposes of Rule 145 under the
Securities Act as of the date of the Special Meeting. Affiliates may not sell
their shares of HCMC Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Persons who may be deemed to be affiliates
of HCMC generally include individuals or entities that control, are controlled
by or are under common control with HCMC and may include certain officers and
directors of HCMC as well as principal shareholders of HCMC. All of the
shareholders of HCMC are affiliates of HCMC for purposes of Rule 145.
HCMC has agreed in the Merger Agreement to use its best efforts to
cause each director, executive officer and other person who is an affiliate of
HCMC to enter into an agreement with FTNC providing that such person will not,
directly or indirectly, sell, pledge, transfer or otherwise dispose of shares
of HCMC Common Stock owned by such person or FTNC Common Stock to be received
by such person in the Merger (a) in the case of shares of FTNC Common Stock
only, except in compliance with the applicable provisions of the Securities Act
and rules and regulations thereunder, and (b) during the periods when any such
sale, pledge, transfer or other disposition would, under GAAP or the rules,
regulations or interpretations of the SEC, disqualify the Merger for pooling of
interests accounting treatment. Such periods in general encompass the period
commencing 30 days prior to the Merger and ending at the time of the
publication of financial results covering at least 30 days of combined
operations of FTIM and HCMC.
NASDAQ/NMS
FTNC Common Stock is included for quotation on the NASDAQ/NMS. The
FTNC Common Stock issued to the shareholders of HCMC pursuant to the Merger
Agreement will be included for quotation on the NASDAQ/NMS.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, FTNC is subject to regulation by the
Federal Reserve Board under the BHCA and its examination and reporting
requirements. Under the BHCA, bank holding companies may not directly or
indirectly acquire the ownership or control of more than 5% of the voting
shares or substantially all of the assets of any company, including a bank,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
The earnings of FTNC's subsidiaries, and therefore the earnings of
FTNC, are affected by general economic conditions, management policies,
legislative actions and governmental actions of various regulatory authorities,
including the Federal Reserve Board and the Comptroller. In addition, there
are numerous government requirements and regulations which affect the
activities of FTNC and its subsidiaries.
PAYMENT OF DIVIDENDS
FTNC is a legal entity separate and distinct from its banking and
other subsidiaries. Most of the revenues of FTNC result from dividends paid to
FTNC by its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks as well as by FTNC
to its shareholders.
Each national banking association is required by federal law to obtain
the prior approval of the Comptroller for the payment of dividends if the total
of all dividends declared by the board of directors of such bank in any year
will exceed the total of (a) such bank's net profits (as defined and
interpreted by regulation) for that year plus (b)
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the retained net profits (as defined and interpreted by regulation) for the
preceding 2 years, less any required transfers to surplus. In addition,
national banks can only pay dividends to the extent that retained net profits
(including the portion transferred to surplus) exceed bad debts (as defined by
regulation).
In 1990, the Comptroller issued a regulation that redefines certain of
the terms and methods of calculation used in these two dividend restrictions.
The rule, among other things, changes the methodology of calculating net
profits to be more consistent with GAAP with the result that provisions for
possible credit losses cannot be added back to net income and charge offs
cannot be deducted from net income in calculating the level of net profits
available for the payment of dividends. FTNC does not believe that the
regulation will have a material effect on the ability of its subsidiary
national banks to pay dividends.
Under the foregoing dividend restrictions, at September 30, 1993,
FTNC's subsidiary banks, without obtaining governmental approvals, could
declare aggregate dividends of approximately $91.9 million from retained net
profits of the preceding two years, plus an amount approximately equal to the
net profits earned less dividends paid (approximately $59.4 million) for the
period from January 1, 1993 through September 30, 1993. In order to comply
with risk-based capital guidelines and to maintain strong capital positions,
dividend payments are restricted by management to lesser amounts. During 1992,
FTNC's subsidiary banks paid $32.4 million in dividends.
The payment of dividends by FTNC and its bank subsidiaries may also be
affected or limited by other factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion
of the applicable regulatory authority, a bank under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The Comptroller has indicated that
paying dividends that deplete a national bank's capital base to an inadequate
level would be an unsafe and unsound banking practice. The Federal Reserve
Board, the Comptroller and FDIC have issued policy statements which provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
CERTAIN TRANSACTIONS BY FTNC WITH ITS AFFILIATES
There are also various legal restrictions on the extent to which FTNC
and its nonbank subsidiaries can borrow or otherwise obtain credit from FTNC's
bank subsidiaries. An insured bank and its subsidiaries are limited in
engaging in "covered transactions" with its nonbank affiliates to the following
amounts: (a) in the case of any such affiliate, the aggregate amount of covered
transactions of the insured bank and its subsidiaries will not exceed 10% of
the capital stock and surplus of the insured bank; and (b) in the case of all
affiliates, the aggregate amount of covered transactions of the insured bank
and its subsidiaries will not exceed 20% of the capital stock and surplus of
the bank. "Covered transactions" are defined by statute to include a loan or
extension of credit, as well as a purchase of securities issued by an
affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board), the acceptance of securities issued by the affiliate as
collateral for a loan and the issuance of a guarantee, acceptance, or letter of
credit on behalf of an affiliate. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
CAPITAL
The Federal Reserve Board has adopted final risk based capital
guidelines for bank holding companies, which were fully phased in at the end of
1992. The minimum guidelines for the ratio of total capital ("Total Capital")
to risk weighted assets (including certain off balance sheet activities, such
as standby letters of credit) is 8%. At least half of the Total Capital is to
be composed of common stockholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount of perpetual
preferred stock, less goodwill ("Tier 1 Capital"). The remainder may consist
of subordinated debt, other preferred stock and a limited amount of loan loss
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reserves. At September 30, 1993, FTNC's Tier 1 Capital and Total Capital
ratios were 10.50% and 13.17%, respectively.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum Tier 1 Capital leverage ratio (Tier 1 Capital-to-total assets,
less goodwill) of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating. All other bank
holding companies will generally be required to maintain a leverage ratio of 3%
plus an additional cushion of 100 to 200 basis points. FTNC's Tier 1 Capital
leverage ratio at September 30, 1993, was 7.02%. The guidelines also provide
that bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities. The
Federal Reserve Board has not advised FTNC of any specific minimum tangible
Tier 1 Capital leverage ratio applicable to it. At September 30, 1993, FTNC's
ratios exceeded the regulatory minimums.
FTNC's subsidiary banks are subject to similar capital requirements
adopted by the Comptroller and the FDIC. FTB, FTNC's principal banking
subsidiary, had a Tier 1 Capital leverage ratio (Tier 1 Capital-to-total
assets, less goodwill less premium on purchased deposits and assets) of 6.50%
at September 30, 1993. Regulations of the Comptroller provide for a minimum
Tier 1 Capital leverage ratio of 3.0%.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC and a prohibition on the taking of brokered deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, the management of FTNC is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
FTNC SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, FTNC is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required
at times when, absent such Federal Reserve Board policy, FTNC may not be
inclined to provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989 in connection with (a) the default of a commonly
controlled FDIC insured depository institution or (b) any assistance provided
by the FDIC to any commonly controlled FDIC insured depository institution "in
danger of default." "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance.
Under the National Bank Act, if the capital stock of a national bank
is impaired by losses or otherwise, the Comptroller is authorized to require
payment of the deficiency by assessment upon the bank's shareholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
shareholder after 3 months' notice, to sell the stock of such shareholder to
make good the deficiency.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
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FDIC INSURANCE ASSESSMENTS
Prior to 1993, FTNC's subsidiary banks were subject to FDIC
deposit insurance assessments at an assessment rate for the BIF of .23% and
FTNC's subsidiary federal savings bank was subject to FDIC deposit insurance
assessments at an assessment rate for SAIF of .23%. Effective November 2,
1992, the FDIC's risk-based assessment system imposes an assessment rate for an
insured depository institution which varies according to the level of risk
incurred in its activities. An institution's risk category depends upon
whether the institution is well capitalized, adequately capitalized or less
than adequately capitalized. Each insured depository institution is also
assigned to one of three "supervisory subgroups": Subgroup A institutions are
financially sound institutions with few minor weaknesses; Subgroup B
institutions demonstrate weaknesses which, if not corrected, could result in
significant deterioration; and Subgroup C institutions pose a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Effective
January 1, 1993, based on their capital and supervisory subgroups, each BIF and
SAIF member institution has been assigned an annual FDIC assessment rate
varying between .23% and .31%. All of FTNC's subsidiary banks presently are
assessed at a rate of .23%. A certain proportion of deposits attributable to
FTNC's former savings bank subsidiary remain insured by SAIF.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), enacted in December 1991, substantially revises the bank regulatory
and funding provisions of the Federal Deposit Insurance Act and makes revisions
to several other federal banking statutes. Among other things, FDICIA requires
the federal banking regulators to take "prompt corrective action" in respect of
depository institutions that do not meet minimum capital requirements. FTNC's
bank subsidiaries have capital levels well above the minimum requirements.
In addition, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market and also may not be able
to "pass through" insurance coverage for certain employee benefit accounts.
FDICIA also requires the holding company of any undercapitalized depository
institution to guarantee, in part, certain aspects of such institution's
capital plan for such plan to be acceptable.
FDICIA contains numerous other provisions, including new accounting,
audit and reporting requirements, beginning in 1995 termination of the "too big
to fail" doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, new regulatory standards in such areas as asset
quality, earnings and compensation and revised regulatory standards for, among
other things, powers of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches.
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<PAGE> 36
INFORMATION CONCERNING HCMC
DESCRIPTION OF BUSINESS
General. HCMC was founded in April 1987 by Paul H. Berz, James M.
Weir, C. Thomas Whitman and Steven Wishnia. Edward J. Goldstein, the fifth
principal of HCMC, joined the firm in 1989. HCMC provides investment
management and advisory services to individuals, charitable foundations,
financial institutions, pension and profit sharing plans and trusts and
estates. HCMC renders services pursuant to investment advisory contracts with
each client. These contracts include investment objectives and fee schedules
and may be terminated on 30 days' prior notice. Under the Investment Advisers
Act of 1940, as amended, such contracts may not be assigned without the prior
consent of the client.
Investment management fees are not fixed by law and may vary from firm
to firm. Although investment advisers may charge performance-based fees in
certain circumstances, investment advisers, including HCMC, generally charge
fees as a percentage of the market value of client assets under management.
Therefore, fluctuations in securities prices may have a material effect on
HCMC's revenues and profitability. In addition, HCMC's ability to retain or
increase assets under management is dependent on, among other factors, the
investment performance of the assets managed. The amount of assets under
management may also by affected by fluctuations in the investment patterns of
clients.
HCMC's revenues from investment advisory fees increased 22% from 1990
to 1991 and 25% from 1991 to 1992. This growth was primarily attributable to
the growth of assets under management from new and existing clients. At
November 30, 1993, HCMC had approximately 505 accounts, with a total of
approximately $779,600,000 under management.
HCMC currently employs 9 persons, all of whom are full-time employees.
Competitive Conditions. The investment management business is highly
competitive. A large number of local, regional and national investment
advisers offer services that compete with those offered by HCMC. In addition,
various services and investments offered by insurance companies and banks
compete with the services offered by HCMC. Competition for investment
management services is influenced largely by investment performance,
experience, and investment philosophy.
Supervision and Regulation. HCMC is subject to regulation at both the
federal and state level by the Securities and Exchange Commission (the
"Commission") and other regulatory bodies. HCMC is registered with the
Commission under the Investment Advisers Act of 1940, as amended, and as such
is regulated by and subject to examination by the Commission. The Investment
Advisers Act imposes numerous obligations on registered investment advisers,
including fiduciary duties, record keeping requirements, operational
requirements and disclosure obligations. Certain regulations affect the terms
of investment advisory agreements entered into by HCMC, including providing for
certain rights to terminate the agreements.
Properties. HCMC's principal executive offices are located at 6077
Primacy Parkway, Suite 228, Memphis, Tennessee 38119. HCMC leases this office
space pursuant to a lease which expires in March 1995. The lease agreement
provides for monthly rental payments of $5,596. Upon closing of the merger, it
is anticipated that New Highland's business operations would be conducted from
HCMC's current location.
Directors and Principal Officers. The members of the Board of
Directors of HCMC are elected by its shareholders at the annual meeting to
serve until the next annual meeting and until their successors are duly elected
and qualified. All of the shareholders of HCMC currently serve as the
directors and the executive officers of HCMC.
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<PAGE> 37
The name of each director, his age, his current principal occupation
(which has continued for at least five years unless otherwise indicated), his
directorships in public companies, and the year he was first elected to his
position with HCMC are as follows:
PAUL H. BERZ, 53, is Vice President and Secretary of HCMC. He
co-founded HCMC in April 1987.
EDWARD J. GOLDSTEIN, 44, is Vice President of HCMC. He joined HCMC in
1989 and became a director at that time. Prior to joining HCMC in 1989, he was
Vice President in the Securities Sales Division of Goldman Sachs & Co., an
investment banking firm.
JAMES M. WEIR, 53, is Vice President and Treasurer of HCMC. He
co-founded HCMC in April 1987.
C. THOMAS WHITMAN, 56, is President of Highland. He co-founded HCMC
in April 1987.
STEVEN WISHNIA, 45, is Chairman of HCMC. He co-founded HCMC in April
1987.
None of the persons listed above are related to any of the others.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion provides certain information concerning
HCMC's financial condition and results of operations. For a more complete
understanding of the following discussion, reference should be made to the
financial statements of HCMC and related notes elsewhere in this
Proxy Statement-Prospectus.
Results of Operations -- Nine Months Ended September 30, 1993, and Nine Months
Ended September 30, 1992
Revenues from investment adviser fees increased $429,486, or 17%, from
$2,473,394 for the nine-month period ended September 30, 1992, to $2,902,880
for the nine-month period ending September 30, 1993. This increase was
principally due to the growth in assets under management. Assets under
management increased from $690,200,000 as of September 30, 1992, to
$785,600,000 as of September 30, 1993. This increase of assets under
management was due to the addition of new clients and to appreciation of
existing assets under management.
Expenses for the nine-month period ended September 30, 1993, were
$2,689,529, a $408,912 or 18% increase over the nine-month period ended
September 30, 1992. This increase was principally due to an increase in
compensation (including bonus) paid to the principals of HCMC as a result of
HCMC's increased revenues. Earnings before income taxes were $220,282 for the
nine-month period ended September 30, 1993, as compared to $204,588 for the
nine-month period ended September 30, 1992.
Results of Operations -- Year Ended December 31, 1992, and Year Ended December
31, 1991
Revenues from investment adviser fees increased $674,974, or 25%, from
$2,722,157 for the year ended December 31, 1991, to $3,397,131 for the year
ended December 31, 1992. This increase was principally attributable to the
growth of assets under management from $614,100,000 at December 31, 1991, to
$745,900,000 at December 31, 1992. This $131,800,000 or 21% increase of assets
under management during 1992 was due to the addition of new clients and to
appreciation of existing assets under management.
Expenses for the year ended December 31, 1992, were $3,287,940, a
$778,924 or 31% increase over the year ended December 31, 1991. This increase
was principally due to an increase in compensation (including bonus) paid to
the principals of HCMC as a result of HCMC's increased revenues. Earnings
before income taxes were $123,689 for the year ended December 31, 1992, as
compared to $234,924 for the year ended December 31, 1991.
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<PAGE> 38
Results of Operations -- Year Ended December 31, 1991, and Year Ended December
31, 1990
Revenues from investment adviser fees increased $496,006, or 22%, to
$2,722,157 for the year ended December 31, 1991, as compared to $2,226,151 for
the year ended December 31, 1990. This increase was principally attributable
to the growth of assets under management from $479,100,000 at December 31,
1990, to $614,100,000 at December 31, 1991. This $135,000 or 28% increase of
assets under management was due to the addition of new clients and to
appreciation of existing assets under management.
Expenses for the year ended December 31, 1991, were $2,509,016, a
$214,850 or 9% increase over the year ended December 31, 1990. This increase
was principally due to an increase in the compensation (including bonus) paid
to the principals of HCMC as a result of HCMC's increased revenues. Earnings
before income taxes were $234,924 for the year ended December 31, 1991, as
compared to ($41,823) for the year ended December 31, 1990.
Liquidity and Capital Resources
HCMC has historically financed its working capital requirements
through funds generated from operations. For the years ended 1992 and 1991,
capital expenditures totalled $4,783 and $5,901, respectively, and were
primarily related to the purchase of office equipment and furniture. HCMC has
historically maintained sufficient liquidity for purposes of meeting potential
business demands and opportunities.
OWNERSHIP OF HCMC COMMON STOCK AND DIVIDENDS
Ownership of HCMC Common Stock. As of September 30, 1993, there were
100 HCMC Common Shares, its only class of voting securities, outstanding and
five shareholders of record of such shares. All of the shareholders of HCMC
currently serve as the directors and executive officers of HCMC. The following
table provides information concerning the number of shares of HCMC Common Stock
beneficially owned, directly or indirectly, by them as of September 30, 1993,
and the number of shares of FTNC Common Stock to be owned by such persons on
the Effective Date of the Merger. The number and percentage of shares of FTNC
Common Stock beneficially owned on the Effective Date of the Merger in the
tables in this section are based upon a conversion ratio of 4,852.18 FTNC
Common Shares for each HCMC Common Share and assuming 28,653,585 FTNC Common
Shares will be outstanding immediately prior to the Merger. The named person
has sole voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION> Percent of
Number of FTNC Total
Common Shares to FTNC Common
Number of Percent of be Beneficially Shares to be
HCMC Common Total HCMC Shares Owned Outstanding on
Beneficial Owner Shares Owned Outstanding on Effective Date Effective Date
--------------- ------------ ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Paul H. Berz 20 20% 97,043 0.34%
Edward J. Goldstein 20 20% 97,043 0.34%
James M. Weir 20 20% 97,043 0.34%
C. Thomas Whitman 20 20% 97,043 0.34%
Steven Wishnia 20 20% 97,043 0.34%
</TABLE>
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<PAGE> 39
Dividends. The shareholders of HCMC Common Stock are entitled to such
dividends as may be declared from time to time by the HCMC Board. No cash
dividends have been declared or paid by HCMC.
The Merger Agreement restricts the ability of HCMC to declare and pay
dividends. See "The Merger - Conduct of Business Pending Merger." HCMC's
ability to pay dividends also is dependent upon the earnings and financial
condition of HCMC. Dividend payments by HCMC are not subject to any regulatory
restrictions.
DESCRIPTION OF FTNC CAPITAL STOCK
The following summaries of certain provisions of the Restated Charter,
as amended (the "Charter"), and Bylaws, as amended, of FTNC, the Rights Plan
(defined below) and the Indenture (defined below) do not purport to be
complete, are qualified in their entirety by reference to such instruments,
each of which is an exhibit to the Registration Statement of which this Proxy
Statement-Prospectus is a part, and are subject, in all respects, to
applicable Tennessee law.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of FTNC currently consists of 5,000,000
shares of Preferred Stock, without par value ("Preferred Stock"), which may be
issued from time to time by resolution of the FTNC Board and 50,000,000 shares
of FTNC Common Stock. As of January 6, 1994, there were 30,124,038 shares of
FTNC Common Stock and no shares of Preferred Stock outstanding. Also,
approximately 3.3 million shares of FTNC Common Stock are reserved for issuance
under various employee stock plans and FTNC's dividend reinvestment plan,
approximately 1.3 million shares are reserved for issuance in connection with
the acquisition of Cleveland Bank & Trust Company, Cleveland, Tennessee, (See
page PF-1 herein) and, 281,640 shares of Preferred Stock are reserved for
issuance under the Rights Plan (as defined herein).
PREFERRED STOCK
The FTNC Board is authorized, without further action by the
shareholders, to provide for the issuance of up to 5,000,000 shares of
Preferred Stock, without par value, from time to time in one or more series
and, with respect to each such series, has the authority to fix the powers
(including voting power), designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof. Currently, no shares of Preferred Stock
are outstanding.
FTNC COMMON STOCK
The FTNC Board is authorized to issue a maximum of 50,000,000 shares
of Common Stock, $2.50 par value per share. The holders of the FTNC Common
Stock are entitled to receive such dividends as may be declared by the FTNC
Board from funds legally available therefor. The holders of the outstanding
shares of FTNC Common Stock are entitled to one vote for each such share on all
matters presented to shareholders and are not entitled to cumulate votes for
the election of directors. Upon any dissolution, liquidation or winding up of
FTNC resulting in a distribution of assets to the shareholders, the holders of
FTNC Common Stock are entitled to receive such assets ratably according to
their respective holdings after payment of all liabilities and obligations and
satisfaction of the liquidation preferences of any shares of Preferred Stock at
the time outstanding. The shares of FTNC Common Stock have no preemptive,
redemption, subscription or conversion rights. The shares of FTNC Common Stock
will be, when issued in accordance with the Merger Agreement, fully paid and
nonassessable. Under FTNC's Charter, the FTNC Board is authorized to issue
authorized shares of FTNC Common Stock without further action by FTNC's
shareholders. However, the FTNC Common Stock is traded in the over-the-counter
market and is quoted on the NASDAQ/NMS, which requires shareholder approval of
the issuance of additional shares of FTNC Common Stock in certain situations.
The Transfer Agent for the Common Stock is The First National Bank of Boston.
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<PAGE> 40
The FTNC Board is divided into three classes, which results in
approximately 1/3 of the directors being elected each year. In addition, the
Charter and the Bylaws, among other things, generally give to the FTNC Board
the authority to fix the number of directors on the FTNC Board and to remove
directors from and fill vacancies on the FTNC Board, other than removal for
cause and the filling of vacancies created thereby which are reserved to
shareholders exercising at least a majority of the voting power of all
outstanding voting stock of FTNC. To change these provisions of the Bylaws,
other than by action of the FTNC Board, and to amend these provisions of the
Charter or to adopt any provision of the Charter inconsistent with such Bylaw
provisions, would require approval by the holders of at least 80% of the voting
power of all outstanding voting stock. Such classification of the FTNC Board
and such other provisions of the Charter and the Bylaws may have a significant
effect on the ability of the shareholders of FTNC to change the composition of
an incumbent FTNC Board or to benefit from certain transactions which are
opposed by the FTNC Board.
SHAREHOLDER PROTECTION RIGHTS PLAN
Each share of FTNC Common Stock has, and each share of the FTNC Common
Stock issued in the Merger will have, attached to it one right (a "Right")
issued pursuant to a Shareholder Protection Rights Agreement dated as of
September 7, 1989 (the "Rights Plan"). Each Right entitles its holder to
purchase 1/100th of a share of Participating Preferred Stock, without par
value, for $76.67 (the "Exercise Price"), subject to adjustment, upon the
business day following the earlier of (i) the 10th day after commencement of a
tender or exchange offer which, if consummated, would result in a person's
becoming the beneficial owner of 10% or more of the outstanding shares of FTNC
Common Stock (an "Acquiring Person") and (ii) the first date (the "Flip-in
Date") of public announcement that a person has become an Acquiring Person.
The Rights will expire on the earliest of (i) the Exchange Time
(defined below), (ii) September 18, 1999 and (iii) the date on which the Rights
are redeemed as described below. The FTNC Board may, at its option, at any
time prior to the Flip-in Date, redeem all the Rights at a price of $.01 per
Right.
If a Flip-in Date occurs, each Right (other than Rights beneficially
owned by the Acquiring Person or its affiliates, associates or transferees,
which Rights will become void), to the extent permitted by applicable law, will
constitute the right to purchase shares of FTNC Common Stock or Participating
Preferred Stock having an aggregate market price equal to twice the Exercise
Price for an amount in cash equal to the then-current Exercise Price. In
addition, the FTNC Board may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the beneficial owner of
more than 50% of the outstanding shares of FTNC Common Stock, elect to exchange
the Rights (other than Rights beneficially owned by the Acquiring Person) for
shares of FTNC Common Stock at an exchange ratio of one share of FTNC Common
Stock per Right (the "Exchange Time").
FTNC may not agree to be acquired by an Acquiring Person without
providing that each Right, upon such acquisition, will constitute the right to
purchase common stock of the Acquiring Person having an aggregate market price
equal to twice the Exercise Price for an amount in cash equal to the
then-current Exercise Price.
The Rights will not prevent a takeover of FTNC. The Rights, however,
may have certain anti-takeover effects. The Rights may cause substantial
dilution to a person or group that acquires 10% or more of the outstanding FTNC
Common Stock unless the Rights are first redeemed by the FTNC Board.
SUBORDINATED CAPITAL NOTES DUE 1999
On June 10, 1987, FTNC issued $75,000,000 principal amount of 10 3/8%
Subordinated Capital Notes Due 1999 (the "Capital Notes"). The Capital Notes
currently constitute Tier 2 capital under the Federal Reserve Board's
risk-based capital guidelines. Pursuant to the Indenture, dated as of June 1,
1987 (the "Indenture"), between FTNC and Security Pacific National Trust
Company (New York), Trustee, at maturity the Capital Notes are required to be
exchanged for Common Stock, Preferred Stock or certain other eligible capital
securities to be
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<PAGE> 41
issued by FTNC ("Capital Securities") having a market value equal to the
principal amount of the Capital Notes, except to the extent that FTNC, at its
option, shall elect to pay in cash such principal amount from amounts
representing proceeds of other issuances of Capital Securities designated for
such use.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
FTNC is a Tennessee corporation subject to the provisions of the TBCA.
HCMC is a Delaware corporation subject to the provisions of the DGCL.
Shareholders of HCMC, whose rights are governed by HCMC's Certificate of
Incorporation and Bylaws and by the DGCL will, upon consummation of the Merger,
become shareholders of FTNC whose rights will then be governed by the Charter
and Bylaws of FTNC and by the TBCA. The following is a summary of the material
differences in the rights of shareholders of FTNC and HCMC and is qualified in
its entirety by reference to the governing law and the Articles of
Incorporation or Charter and Bylaws of each of FTNC and HCMC. Certain topics
discussed below are also subject to federal law and the regulations promulgated
thereunder. See "Certain Regulatory Considerations."
REMOVAL OF DIRECTORS
HCMC's Bylaws provide that, except as otherwise prohibited or
restricted under the DGCL, any director may be removed with or without cause by
the shareholders.
FTNC's Charter provides that any director is subject to removal by the
shareholders only for cause by the affirmative vote of the majority of the
shares entitled to vote.
CONFLICT-OF-INTEREST TRANSACTIONS
The DGCL generally permits transactions involving HCMC and an
interested director of HCMC if (i) the material facts are disclosed and a
majority of disinterested directors consents, (ii) the material facts are
disclosed and a majority of shares entitled to vote thereon consents, or (iii)
the transaction is fair to HCMC at the time it is authorized by the HCMC Board,
a committee, or the HCMC shareholders.
The TBCA generally permits transactions involving FTNC and an
interested director of FTNC if (i) the material facts are disclosed and a
majority of disinterested directors or a committee of the FTNC Board consents,
(ii) the material facts are disclosed and a majority of disinterested shares
entitled to vote thereon consents or (iii) the transaction is fair to FTNC.
The TBCA prohibits loans to directors by FTNC unless approved by a majority
vote of disinterested shareholders or the FTNC Board determines that the loan
benefits FTNC and either approves the specific loan or a general plan of loans
by FTNC.
SPECIAL MEETINGS OF SHAREHOLDERS
Pursuant to HCMC's Bylaws, a special meeting of HCMC's shareholders
may be called for any purpose by the HCMC Board or the Executive Committe, or
upon the request of the holders of 10% of the total shares outstanding.
FTNC's Bylaws authorize the Chairman of the FTNC Board, or the
Secretary at the request of a majority of the FTNC Board or, in certain
circumstances, the shareholders, to call a special meeting of shareholders for
any purpose. Such a call shall state the purpose or purposes of the proposed
meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The DGCL provides that the recommendation of the HCMC Board and the
approval of a majority of the outstanding shares of HCMC entitled to vote
thereon is required to effect a merger or consolidation or to sell, lease
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<PAGE> 42
or exchange substantially all of HCMC's assets. With respect to a merger, no
vote of the HCMC shareholders would be required if HCMC were the surviving
corporation and (i) the related agreement of merger did not amend HCMC's
Certificate of Incorporation, (ii) each share of stock of HCMC outstanding
immediately before the merger were an identical outstanding or treasury share
of HCMC after the merger and (iii) the number of shares of HCMC to be issued in
the merger (or to be issuable upon conversion of any convertible instruments to
be issued in the merger) did not exceed 20% of the shares of HCMC Common Stock
outstanding immediately before the merger.
The TBCA provides that the approval of the FTNC Board and of a
majority of the outstanding shares of FTNC entitled to vote thereon would also
generally be required to approve a merger or to sell, lease, exchange or
otherwise dispose of substantially all of FTNC's assets. In accordance with
the TBCA, submission by the FTNC Board of any such action may be conditioned on
any basis, including without limitation, conditions regarding a supermajority
voting requirement or that no more than a certain number of shares indicate
that they will seek dissenters' rights.
With respect to a merger, no vote of the shareholders of FTNC would be
required if FTNC were the surviving corporation and (i) FTNC's Charter would
remain unchanged after the merger, subject to certain exceptions, (ii) each
shareholder of FTNC immediately before the merger would hold an identical
number of shares, with identical rights and preferences, after the merger,
(iii) the number of voting shares outstanding immediately after the merger plus
the number of voting shares issuable as a result of the merger (either by
conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by more
than 20% the number of voting shares of the surviving corporation outstanding
immediately before the merger; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger (either by conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger), will not exceed by more than 20% the total number of
participating shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of FTNC, no vote of the shareholders of FTNC would
be required if such transfer were conducted in the regular course of business
or if such transfer were made to a wholly-owned subsidiary of FTNC.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Neither HCMC's Certificate of Incorporation nor its Bylaws contain
provisions concerning shareholder proposals or director nominations.
Pursuant to FTNC's Bylaws, shareholder proposals and director
nominations must be in writing and delivered or mailed to the Secretary of FTNC
not less than 30 nor more than 60 days prior to the date of a meeting of
shareholders; provided, however, that if fewer than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder will be timely if it is delivered or received not
later than the close of business on the 10th day following the earlier of the
day on which such notice of the date of such meeting was mailed or the date on
which such public disclosure was made.
ACTION BY WRITTEN CONSENT
The DGCL provides for action without shareholder meetings if a written
consent setting forth the action to be taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
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<PAGE> 43
The TBCA provides that action may be taken without a shareholder
meeting and vote if all shareholders entitled to vote on the action consent to
taking such action without a meeting. Action by written consent of the FTNC
shareholders is impracticable given the number of holders of FTNC common stock.
INSPECTION RIGHTS
Both the TBCA and the DGCL contain provisions granting shareholders
the right to inspect certain records of each corporation. Under the DGCL, any
shareholder of record, either in person or by attorney or other agent, upon
written demand under oath stating the purpose thereof, has the right to inspect
certain of HCMC's records during certain times. This right is limited,
however, to inspection for "a proper purpose," which is defined as "a purpose
reasonably related to such person's interest as a stockholder."
Under the TBCA, FTNC shareholders are also entitled to inspect and
copy, during regular business hours at FTNC's principal office, the minutes of
shareholder meetings, charter, bylaws, annual reports, and certain other
records of the corporation, provided the shareholder gives the corporation
written notice of his demand at least 5 business days before the date on which
he wishes to inspect and copy the records. In addition, a shareholder who
makes a demand in good faith, for a proper purpose, and describes with
reasonable particularity his purpose and the records he desires to inspect, and
if the records are directly connected with his purpose, may also, upon 5 days'
written notice, inspect and copy: (i) accounting records of the corporation,
(ii) the records of shareholders and excerpts from minutes of any meeting of
the board of directors, (iii) records of any action of a committee of the board
of directors while acting in place of the board of directors on behalf of the
corporation, (iv) minutes of any meeting of the shareholders, and (v) records
of action taken by the shareholders or board of directors without a meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION OR CHARTER AND BYLAWS
HCMC's Certificate of Incorporation and Bylaws provide that HCMC's
Bylaws may be amended or repealed by a majority vote of the HCMC shareholders
or the HCMC Board.
FTNC's Charter provides that any amendment to the Charter which is
inconsistent with any provision of the Bylaws may be adopted only by the
affirmative vote of the holders of at least 80% of the voting power of all
outstanding stock. FTNC's Bylaws may be amended or repealed by vote of a
majority of all the directors of FTNC, at any regular or special meeting of the
FTNC Board. In addition, the shareholders of FTNC may make, alter, amend or
repeal the Bylaws at any annual meeting or at a special meeting called for that
purpose, if at least 80% of the voting power of all outstanding voting stock
approves the amendment. The Charter also provides that at least 80% of the
voting power of all outstanding voting stock must approve an amendment to the
Charter and Bylaws to change the classification of the FTNC Board or the 80%
voting requirement for an amendment of the Bylaws.
VOLUNTARY DISSOLUTION
The DGCL provides that HCMC may be dissolved by the approval of the
HCMC Board and a majority of the shares of HCMC entitled to vote thereon. The
DGCL also allows all the shareholders of HCMC acting unanimously in writing to
effect a dissolution of HCMC without the approval of the HCMC Board.
The TBCA provides that FTNC may be dissolved if the FTNC Board
proposes dissolution and a majority of the shares of FTNC entitled to vote
thereon approves. In accordance with the TBCA, the FTNC Board may condition
its submission of a proposal for dissolution on any basis, including a greater
shareholder vote requirement.
INDEMNIFICATION
Both the DGCL and the TBCA provide in certain situations for mandatory
and permissive indemnification of directors and officers in substantially the
same manner. The TBCA, however, states that statutory
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<PAGE> 44
indemnification is not to be deemed exclusive of any other rights to which a
director seeking indemnification may be entitled; provided, however, no
indemnification may be made if a final adjudication adverse to the director or
officer establishes his liability for any breach of loyalty to the corporation
or its shareholders; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or for unlawful
distributions.
FTNC has provided additional indemnification to its directors and
certain officers designated by the FTNC Board in a shareholder-approved bylaw
amendment and individual indemnity agreements, which provide for
indemnification to the maximum extent not prohibited by law.
BUSINESS COMBINATION ACT
The DGCL regulates business combinations such as mergers,
consolidations, and asset purchases where the business acquired was, or the
assets belonged to, a public corporation, and where the acquiror became an
"interested stockholder" of the public corporation before the date of the
transaction unless (i) prior to the date of the transaction the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are directors
and also officers and employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, or (iii) on or
subsequent to the date of the transaction the business combination is approved
by the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66-2/3% of the outstanding
voting stock of the disinterested stockholders.
In the context of this law, an "interested stockholder" is any person
(other than the corporation and any direct or indirect majority-owned
subsidiary of the corporation) who directly or indirectly, alone or in concert
with others, beneficially owns or controls 15% or more of the voting stock of
the public corporation. The law prohibits business combinations with an
unapproved interested stockholder for a period of 3 years after the date on
which the person became an interested stockholder and requires that any
business combination with an unapproved interested stockholder after such 3
year period be approved by the board of directors and authorized by the
affirmative vote of 66-2/3% of the outstanding shares held by persons other
than the interested stockholders. The law is very broad in its scope and is
designed to inhibit unfriendly acquisitions but it does not apply to
corporations whose certificate of incorporation or bylaws contain a provision
not to be covered by this section. Neither HCMC's Certificate of Incorporation
nor Bylaws contain such a provision.
Tennessee's Business Combination Act provides that a party owning 10%
or more of stock in a "resident domestic corporation" (such party is called an
"interested shareholder") cannot engage in a business combination with the
resident domestic corporation unless the combination (i) takes place at least 5
years after the interested shareholder first acquired 10% or more of the
resident domestic corporation, and (ii) either (A) is approved by at least 2/3
of the non-interested voting shares of the resident domestic corporation or (B)
satisfies certain fairness conditions specified in the Business Combination
Act.
These provisions apply unless one of two events occurs. A business
combination with an entity can proceed without delay when approved by the
target corporation's board of directors before that entity becomes an
interested shareholder, or the resident corporation may enact a charter
amendment or bylaw to remove itself entirely from the Business Combination Act.
This charter amendment or bylaw must be approved by a majority of the
shareholders who have held shares for more than one year prior to the vote. It
may not take effect for at least 2 years after the vote. FTNC has not adopted
a charter or bylaw amendment removing FTNC from coverage under the Business
Combination Act.
- 40 -
<PAGE> 45
The Business Combination Act further provides an exemption from
liability for officers and directors of resident domestic corporations who do
not approve proposed business combinations or charter amendments and bylaws
removing their corporations from the Business Combination Act's coverage as
long as the officers and directors act in "good faith belief" that the proposed
business combination would adversely affect their corporation's employees,
customers, suppliers, or the communities in which their corporation operates
and such factors are permitted to be considered by the board of directors under
the charter.
The United States Court of Appeals for the Sixth Circuit has held that
the Tennessee Business Combination Act is unconstitutional as it applies to
target corporations organized under the laws of states other than Tennessee
(such as HCMC).
CONTROL SHARE ACQUISITION ACT
The Tennessee Control Share Acquisition Act ("TCSAA") strips a
purchaser's shares of voting rights any time an acquisition of shares in a
covered Tennessee corporation brings the purchaser's voting power to 1/5, 1/3
or a majority of all voting power. The purchaser's voting rights can be
established only by a majority vote of the other shareholders. The purchaser
may demand a special meeting of shareholders to conduct such a vote. The
purchaser can demand such a meeting before acquiring a control share only if it
holds at least 10% of outstanding shares and announces a good faith intention
to make the control share acquisition. A target corporation may or may not
redeem the purchaser's shares if the shares are not granted voting rights.
The United States Court of Appeals for the Sixth Circuit, however, has
held that the TCSAA is unconstitutional as it applies to target corporations
organized under the laws of states other than Tennessee (such as HCMC).
The DGCL contains no similar provisions with respect to control share
acquisitions.
INVESTOR PROTECTION ACT
Tennessee's Investor Protection Act ("TIPA") applies to tender offers
directed at corporations (called "offeree companies") that have "substantial
assets" in Tennessee and that are either incorporated in or have a principal
office in Tennessee. The TIPA requires an offeror making a tender offer for an
offeree company to file with the Commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree. The Commissioner may require additional
information material to the takeover offer and may call for hearings. The TIPA
does not apply to an offer that the offeree company's board of directors
recommends to shareholders.
In addition to requiring the offeror to file a registration statement
with the Commissioner, the TIPA requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative
acts or practices" by either side, and gives the Commissioner standing to apply
for equitable relief to the Chancery Court of Davidson County, Tennessee, or to
any other chancery court having jurisdiction whenever it appears to the
Commissioner that the offeror, the offeree company, or any of its respective
affiliates has engaged in or is about to engage in a violation of the TIPA.
Upon proper showing, the Chancery Court may grant injunctive relief. The TIPA
further provides civil and criminal penalties for violations.
The United States Court of Appeals for the Sixth Circuit has held that
the TIPA violates the commerce clause of the United States Constitution to the
extent that it applies to target corporations organized under the laws of
states other than Tennessee (such as HCMC).
The DGCL contains no similar provisions with respect to investor
protection.
- 41 -
<PAGE> 46
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act ("TACPA") is the
vehicle through which the Business Combination Act and the TCSAA can govern
foreign corporations. The TACPA provides that an authorized corporation can
adopt a bylaw or a charter provision electing to be subject to the operative
provisions of the Business Combination Act and the TCSAA, which then become
applicable "to the same extent as such provisions apply to a resident domestic
corporation." Authorized corporations are those that are required to obtain a
Certificate of Authority from the Tennessee Secretary of State and that satisfy
any 2 of certain tests including having its principal place of business located
in Tennessee; having a significant subsidiary located in Tennessee; having a
majority of such corporation's fixed assets located in Tennessee; having more
than 10% of the beneficial owners of the voting stock or more than 10% of such
corporation's shares of voting stock beneficially owned by residents of
Tennessee; employing more than 250 individuals in Tennessee or having an
annual payroll paid to residents of Tennessee that is in excess of $5,000,000;
producing goods and/or services in Tennessee that result in annual gross
receipts in excess of $10,000,000; or having physical assets and/or deposits
located within Tennessee that exceed $10,000,000 in value.
The United States Court of Appeals for the Sixth Circuit, however, has
held the TACPA unconstitutional as it applies to target corporations organized
under the laws of states other than Tennessee (such as HCMC).
The DGCL contains no similar provisions with respect to authorized
corporation protection.
GREENMAIL ACT
The Tennessee Greenmail Act ("TGA") applies to any corporation
chartered under the laws of Tennessee which has a class of voting stock
registered or traded on a national securities exchange or registered with the
SEC pursuant to Section 12(g) of the Exchange Act. The TGA provides that it is
unlawful for any corporation or subsidiary to purchase, either directly or
indirectly, any of its shares at a price above the market value, as defined in
the TGA, from any person who holds more than 3% of the class of the securities
purchased if such person has held such shares for less than 2 years, unless
either the purchase is first approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued or the corporation
makes an offer of at least equal value per share to all holders of shares of
such class.
The DGCL contains no similar provisions with respect to greenmail.
DIVIDENDS AND OTHER DISTRIBUTIONS
The DGCL generally allows dividends to be paid out of surplus of HCMC
or out of the net profits of HCMC for the current fiscal year and/or the prior
fiscal year. No dividends may be paid if they would result in the capital of
HCMC being less than the capital represented by the preferred stock of HCMC.
There are no shares of HCMC preferred stock authorized or outstanding.
The TBCA provides that FTNC generally may make dividends or other
distributions to its shareholders unless after the distribution either (i) FTNC
would not be able to pay its debts as they become due in the usual course of
business or (ii) FTNC's assets would be less than the sum of its liabilities
plus the amount that would be needed to satisfy the preferential dissolution
rights of its preferred stock. There are no shares of FTNC preferred stock
outstanding.
APPRAISAL RIGHTS
The DGCL provides appraisal rights for certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more than 2,000
- 42 -
<PAGE> 47
shareholders or (ii) shares of the surviving corporation of the merger, if the
merger did not require the approval of the shareholders of such corporation,
unless in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed
on a national securities exchange or held by more than 2,000 holders, or (C)
cash in lieu of fractional shares of such stock. Appraisal rights are not
available for a sale of assets or an amendment to the Certificate of
Incorporation, but are available to HCMC shareholders with respect to the
Special Meeting regarding the Merger. See "The Merger -- Shareholders'
Appraisal Rights."
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in
respect of a dissenter's shares. Dissenters' rights are not available as to
any shares which are listed on an exchange registered under Section 6 of the
Exchange Act or are "national market system" securities as defined in rules
promulgated pursuant to the Exchange Act (such as FTNC Common Stock).
RIGHTS OF HOLDERS OF CAPITAL NOTES
On June 10, 1987, FTNC issued Capital Notes due in 1999. At maturity,
the Capital Notes will be exchanged for Capital Securities having a market
value equal to the principal amount of the notes. See "Description of FTNC
Capital Stock--Subordinated Capital Notes due 1999."
SHAREHOLDER RIGHTS PLAN
For a discussion of the FTNC Shareholder Rights Plan, see "Description
of FTNC Capital Stock--Shareholder Rights Plan." The HCMC Board has not
adopted a shareholder rights plan.
LEGAL MATTERS
A legal opinion to the effect that the shares of FTNC Common Stock and
associated Rights offered hereby, when issued in accordance with the Merger
Agreement, will be validly issued, fully paid and nonassessable, has been
rendered by Clyde A. Billings, Jr., Vice President and Counsel, FTNC. Mr.
Billings beneficially owns approximately 9,200 shares of FTNC Common Stock.
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, a
Professional Corporation, Memphis, Tennessee, has rendered an opinion,
summarized above in the section entitled "Certain Federal Income Tax
Consequences." Members of such firm beneficially own approximately 25,000
shares of FTNC Common Stock.
EXPERTS
The financial statements of HCMC for year ended December 31, 1992 have
been audited by Cannon & Company, independent public accountants, as set forth
in their report dated November 24, 1993. The financial statements of HCMC for
years ended December 31, 1991 and 1990 and nine month periods ended September
30, 1993 and 1992 have been compiled by Cannon & Company, as set forth in their
report dated November 24, 1993. These financial statements are included in
this Proxy Statement-Prospectus upon the authority of said firm as experts in
auditing and accounting. Representatives of Cannon & Company are expected to
be present at the Special Meeting, will have an opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
The consolidated financial statements of FTNC and its subsidiaries
incorporated by reference in FTNC's Annual Report on Form 10-K for the year
ended December 31, 1992 have been audited by Arthur Andersen & Co., independent
public accountants, as set forth in their report thereon dated January 19,
1993, included therein and
- 43 -
<PAGE> 48
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the 1991 and 1990 financial statements of Home
Financial Corporation, a company acquired by FTNC during 1992 in a transaction
accounted for as a pooling of interests, Arthur Andersen & Co. relied upon the
report of Baylor and Backus, independent accountants, whose report dated
February 21, 1992, except with respect to the information discussed in Note 27,
as to which the date is October 21, 1992, was incorporated by reference in
FTNC's Form 10-K for 1992 and is incorporated herein by reference.
- 44 -
<PAGE> 49
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF-1
FTNC Pro Forma Combined Condensed Statement of Condition as of September 30, 1993 . . . . . . . . . . . . PF-2
FTNC Pro Forma Combined Condensed Statements of Income for the Nine Months
Ended September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF-3
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended December 31, 1992 . . . . . . . PF-4
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended December 31, 1992 . . . . . . . PF-5
INDEX TO HCMC FINANCIAL INFORMATION
As of and for Years Ended December 1992 (Audited), 1991 (Unaudited), and 1990 (Unaudited) and Nine Months
ended September 30, 1993 (Unaudited) and September 30, 1992 (Unaudited)
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Accountants' Compilation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1992 (Audited) and 1991 (Unaudited) and
September 30, 1993 (Unaudited) and 1992 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for Years Ended December 31, 1992 (Audited),
and December 31, 1991 (Unaudited) and December 31, 1990 (Unaudited) and
Nine Months Ended September 30, 1993 (Unaudited) and 1992 (Unaudited). . . . . . . . . . . . . . F-4
Statements of Retained Earnings for Years Ended December 31, 1992 (Audited), and
December 31, 1991 (Unaudited) and December 31, 1990 (Unaudited) and
Nine Months Ended September 30, 1993 (Unaudited) and 1992 (Unaudited). . . . . . . . . . . . . . F-5
Statements of Cash Flows for Years Ended December 31, 1992 (Audited), and
December 31, 1991 (Unaudited) and Nine Months Ended September 30, 1993 (Unaudited)
and 1992 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Additional Information
Selected Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
</TABLE>
- 45 -
<PAGE> 50
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined statement of condition and
statements of income reflect (i) the consolidated condensed historical
statements of condition of FTNC, Maryland National Mortgage Corporation
("MNMC"), and SNMC Management Corporation ("SNMC") as of September 30, 1993,
(ii) the pro forma combined condensed statement of condition of FTNC as of
September 30, 1993, (iii) the consolidated condensed historical statements of
income of FTNC, MNMC, and SNMC, (iv) the pro forma combined condensed
statements of income of FTNC, for the nine months ended September 30, 1993, and
for the year ended December 31, 1992, based on SNMC two months historical
results of operations, giving effect to the Merger on a pooling of interests
accounting basis for SNMC and a purchase accounting basis for MNMC, and (v) the
pro forma combined condensed statements of income of FTNC, for the year ended
December 31, 1992, based on SNMC two months historical results of operations
and ten months of the predecessor's historical results of operations, giving
effect to the merger on a pooling of interests accounting basis for SNMC and a
purchase accounting basis for MNMC. On October 1, 1993, FTNC acquired all the
stock of MNMC for approximately $114 million in cash. On December 31, 1993,
FTNC acquired all of the stock of New South Bancorp ("NSB") in exchange for
148,869 shares of FTNC Common Stock. On January 4, 1994, FTNC exchanged
1,798,951 shares of its stock for all of the stock of SNMC. Immediately prior
to the merger of SNMC and First Tennessee Interim Corporation, FTNC directed
that all shares of the SNMC common stock, as the surviving corporation, be
issued directly to FTB. SNMC thereby became a wholly-owned subsidiary of FTB.
Not included in the consolidated condensed historical statements or
the pro forma combined condensed statements, due to immateriality, are the
acquisitions of Cleveland Bank and Trust Company ("CBT"), NSB and Highland
Capital Management Corp. ("HCMC").
FTNC has entered into an agreement with CBT pursuant to which a
wholly-owned subsidiary of FTNC will be merged with and into CBT. Under the
terms of the agreement with CBT each of its 100,000 shares of common stock will
be converted into the right to receive and become shares of FTNC common stock,
based on an exchange ratio of between 10.5011 and 12.6957 shares of FTNC common
stock for each share of CBT common stock. The exact ratio is dependent upon
the average price of FTNC common stock at the time of regulatory approval. The
merger is subject to regulatory and CBT shareholder approvals. At September
30, 1993, CBT had approximately $225 million in assets and $23 million in
capital. The CBT merger is expected to close in the first quarter of 1994.
PF-1
<PAGE> 51
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION AS OF SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FTNC MNMC SNMC Adjustment Pro Forma
----------- ----------- ---------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 640,621 $ 6,676 $ 10,257 $ 65,958(a) $ 723,512
Investment in bank time deposits 4,435 2,971 7,406
Trading account securities 224,885 224,885
Assets held for sale 202,290 457,924 330,935 109,223(b) 1,100,372
Investment securities 2,678,797 7 100 (885,408)(b)(c) 1,793,496
Net loans 4,796,755 16,132 4,812,887
Premises and equipment, net 114,717 4,453 2,149 (400)(b) 120,919
Real estate acquired by foreclosure 17,022 12,477 150 29,649
Mortgage servicing rights 6,106 7,594 51,162 34,159(b) 99,021
Other identifiable intangible assets 29,315 29,315
Goodwill 19,852 3,151 31,859(b) 54,862
Customers' acceptances 2,948 2,948
Other assets 720,977 26,194 22,023 5,259(b) 774,453
--------- --------- --------- --------- ---------
Total assets $9,458,720 $537,579 $416,776 $(639,350) $9,773,725
========= ========= ========= ========= =========
LIABILITIES
Deposits $6,679,130 $ $ $ 180,000(a) $6,859,130
Federal funds purchased and securities sold
under agreements to repurchase 1,187,614 1,187,614
Other borrowings 424,137 408,184 328,580 (736,764)(c) 424,137
Long term debt 90,788 5,000 37,921 (37,921)(c) 95,788
Acceptances outstanding 2,948 2,948
Other liabilities 417,652 68,738 53,873 10,992(b)(d) 551,255
--------- --------- --------- --------- ---------
Total liabilities 8,802,269 481,922 420,374 (583,693) 9,120,872
CAPITAL
Common stock 70,417 100 1 4,193(e) 74,711
Surplus 84,035 18,454 5,433 (22,747)(e) 85,175
Retained earnings 504,829 37,103 (9,032) (37,103)(e) 495,797
Deferred compensation on restricted stock
incentive plan (2,830) (2,830)
--------- --------- --------- --------- ---------
Total shareholders' equity 656,451 55,657 (3,598) (55,657) 652,853
--------- --------- --------- --------- ---------
Total liabilities and equity capital $9,458,720 $537,579 $416,776 $(639,350) $9,773,725
========= ========= ========= ========= =========
</TABLE>
_________________
(a) To reflect cash received from the MNMC and SNMC acquisitions in the
form of mortgage loan custodial accounts reduced by the purchase price
paid from MNMC of $114,042.
(b) To reflect the revaluation under purchase accounting of the acquired
assets and liabilities related to the MNMC acquisition. The purchase
price was allocated based upon preliminary estimates of value and is
subject to change. Also reflected in this adjustment is the
reclassification of certain SNMC amounts to conform with FTNC
presentation.
(c) To reflect the replacement of investment securities with the warehouse
loans of MNMC and SNMC and the retirement of debt instruments of MNMC
and SNMC which will be replaced with core deposits of FTB.
(d) To reflect the accrual of one time expenses related to the MNMC
acquisition.
(e) To reflect the elimination of MNMC capital in purchase accounting and
the conversion of all SNMC capital instruments into 1,717,461 shares
of FTNC common stock with a par value of $2.50 (based on a purchase
price before any closing adjustments of $66,980,982 and a FTNC stock
price of $39). The FTNC stock price used in SNMC's conversion may
actually vary within the range of $36 to $42.
PF-2
<PAGE> 52
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FTNC MNMC(f) SNMC Adjustment Pro Forma
----------- -------- -------- ------------ -----------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 289,056 $ 19,582 $ 15,189 $ $ 323,827
Interest on investment securities 136,263 1 (12,023)(a) 124,241
Interest on trading account securities 6,708 6,708
Interest on other earning assets 2,792 321 (659)(b) 2,454
---------- ------- ------ ------- --------
Total interest income 434,819 19,904 15,189 (12,682) 457,230
---------- ------- ------ ------- --------
Interest expense:
Interest on deposits 144,189 144,189
Interest on short-term borrowings 28,142 9,520 10,565 (9,520)(a) 38,707
Interest on long-term debt 6,965 237 3,149 10,351
---------- ------- ------ ------- --------
Total interest expense 179,296 9,757 13,714 (9,520) 193,247
---------- ------- ------ ------- --------
Net interest income 255,523 10,147 1,475 (3,162) 263,983
Provision for loan losses 27,065 27,065
---------- ------- ------ ------- --------
Net interest income after
provision for loan losses 228,458 10,147 1,475 (3,162) 236,918
---------- ------- ------ ------- --------
Noninterest income:
Bond division 69,243 69,243
Service charges on deposit accounts 41,324 41,324
Bank card 19,098 19,098
Trust service 15,079 15,079
Securities gains (losses) 1,494 1,494
Mortgage loan origination fees 2,152 17,831 7,007 26,990
Mortgage servicing 4,172 7,796 17,501 29,469
Profits from sale of mortgage loans and
servicing 1,203 20,669 13,332 35,204
Other 33,557 5,672 5,686 44,915
---------- ------- ------ ------- --------
Total noninterest income 187,322 51,968 43,526 282,816
---------- ------- ------ ------- --------
Noninterest expense:
Salaries and employee benefits 153,374 35,643 26,852 215,869
Operations services 19,495 483 1,490 21,468
Occupancy 15,320 2,532 2,535 20,387
Communications and courier 13,541 1,498 15,039
Equipment rentals, depreciation, and
maintenance 11,889 1,648 13,537
Deposit insurance premium 11,562 11,562
Amortization of intangible assets 5,971 1,145 11,487 4,912(c) 23,515
Other 47,865 15,612 9,624 73,101
---------- ------- ------ ------- --------
Total noninterest expense 279,017 58,561 51,988 4,912 394,478
---------- ------- ------ ------- --------
Income before income taxes 136,763 3,554 (6,987) (8,074) 125,256
Applicable income taxes 46,726 3,466 (5,502)(d)(f) 44,690
---------- ------- ------ ------- --------
Net income (loss) $ 90,037 $ 88 $ (6,987) $ (2,572) $ 80,566
========== ======= ====== ======= ========
Net income (loss) per common share $ 3.20 $ .88 $ (77.63) $ 2.69
Weighted average shares outstanding 28,177,968 100,000 90,000 29,895,429(e)
</TABLE>
_________________
(a) To reflect the loss of interest earned on investment securities which
would be replaced with the warehouse loans of MNMC and reflected in
the resulting reduction in interest expense on short-term borrowings
which would be replaced with core deposits of FTB.
(b) To reflect the loss of interest earned on funds that would have been
used for the MNMC acquisition net of custodial deposits received.
(c) To reflect the incremental amortization resulting from the MNMC
acquisition intangibles.
(d) To reflect the tax effect of the interest
and amortization adjustments related to the MNMC acquisition. Also
reflected is an adjustment related to the effect of the acquisition
on SNMC's net operating loss carryforward.
(e) Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the 1,717,461
shares of FTNC common stock that would be issued based on a purchase
price for SNMC of $66,980,982 and a FTNC stock price of $39. The
actual stock price used in SNMC's conversion may actually
vary within the range of $36 to $42, and the actual purchase price is
subject to closing adjustments (none of which are expected to be
material).
(f) Reflects an adjustment of $5 million to conform loss reserves of MNMC
to the valuation and other accounting policies and practices applied
consistently on a mutually satisfactory basis with those of FTNC.
This adjustment was not tax effected by MNMC. The tax effect has been
included in the adjustment column under Applicable income taxes.
PF-3
<PAGE> 53
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1992
(Based on Two Months Results of Operations of SNMC)(f)
<TABLE>
<CAPTION>
FTNC MNMC SNMC(f) Adjustment Pro Forma
----------- ----------- --------- ----------- ------------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 395,710 $ 37,452 $ 2,685 $ (21,503)(a) $ 435,847
Interest on investment securities 184,394 2 162,893
Interest on trading account securities 10,285 10,285
Interest on other earning assets 8,848 452 (1,028)(b) 8,272
---------- -------- ------- ------- --------
Total interest income 599,237 37,906 2,685 (22,531) 617,297
---------- -------- ------- ------- -------
Interest expense:
Interest on deposits 234,753 234,753
Interest on short-term borrowings 30,789 20,022 1,876 (20,022)(a) 32,665
Interest on long-term debt 10,761 319 629 11,709
---------- -------- ------- ------- --------
Total interest expense 276,303 20,341 2,505 (20,022) 279,127
---------- -------- ------- ------- --------
Net interest income 322,934 17,565 180 (2,509) 338,170
Provision for loan losses 43,171 43,171
---------- -------- ------- ------- --------
Net interest income after
provision for loan losses 279,763 17,565 180 (2,509) 294,999
---------- -------- ------- ------- --------
Noninterest income:
Bond division 80,275 80,275
Service charges on deposit accounts 51,679 51,679
Bank card 24,177 24,177
Trust service 20,103 20,103
Securities gains (losses) (1,678) (1,678)
Mortgage loan origination fees 2,397 25,928 553 28,878
Mortgage servicing 6,043 10,415 3,782 20,240
Profits from sale of mortgage loans and
servicing 939 33,282 1,002 35,223
Other 41,074 8,658 460 50,192
---------- -------- ------- -------- -------
Total noninterest income 225,009 78,283 5,797 309,089
---------- -------- ------- -------- -------
Noninterest expense:
Salaries and employee benefits 187,569 45,631 3,861 237,061
Operations services 23,585 616 534 24,735
Occupancy 20,705 3,198 540 24,443
Communications and courier 16,977 2,121 19,098
Equipment rentals, depreciation, and
maintenance 16,157 1,994 18,151
Deposit insurance premium 15,194 15,194
Amortization of intangible assets 12,148 1,324 1,518 7,730 (c) 22,720
Other 68,141 14,410 1,569 84,120
---------- -------- ------- -------- -------
Total noninterest expense 360,476 69,294 8,022 7,730 445,522
---------- -------- ------- -------- -------
Income before income taxes 144,296 26,554 (2,045) (10,239) 158,566
Applicable income taxes 55,131 10,356 (4,482)(d) 61,005
---------- -------- ------- -------- -------
Net income (loss) $ 89,165 $ 16,198 $ (2,045) $ (5,757) $ 97,561
========== ======== ======= ======== =======
Net income (loss) per common share $ 3.19 $ 161.98 $ (22.72) $ 3.29
Weighted average shares outstanding 27,971,865 100,000 90,000 29,689,326(e)
</TABLE>
_________________
(a) To reflect the loss of interest earned on investment securities which
would be replaced with the warehouse loans of MNMC and reflected in
the resulting reduction in interest expense on short-term borrowings
which would be replaced with core deposits of FTB.
(b) To reflect the loss of interest earned on funds that would have been
used for MNMC acquisition net of custodial deposits received.
(c) To reflect the incremental amortization resulting from the MNMC
acquisition intangibles.
(d) To reflect the tax effect of the interest
and amortization adjustments related to the MNMC acquisition. Also
reflected is an adjustment related to the effect of the acquisition
on SNMC's net operating loss carryforward.
(e) Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by
the 1,717,461 shares of FTNC common stock that would be issued based
on a purchase price for SNMC of $66,980,982 and a FTNC stock price of
$39. The actual stock price used in SNMC's conversion may actually
vary within the range of $36 to $42, and the actual purchase price is
subject to closing adjustments (none of which are expected to be
material).
(f) Represents the results of operations for the period from November 4,
1992 through December 31, 1992 which represents the company being
acquired. The results of operations data for the ten months ended
October 31, 1992 are not directly comparable to subsequent period
primarily due to the substantial difference in the basis of
capitalized servicing rights, as well as the difference in the capital
structure of SNMC in the pre- and post-acquisition periods.
PF-4
<PAGE> 54
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1992
(Based on Two Months Results of Operations of SNMC and Ten Months of its
Predecessor)(f)
<TABLE>
<CAPTION>
FTNC MNMC SNMC(f) Adjustment Pro Forma
----------- ----------- --------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 395,710 $ 37,452 $ 12,346 $(21,503)(a) $ 445,508
Interest on investment securities 184,394 2 162,893
Interest on trading account securities 10,285 10,285
Interest on other earning assets 8,848 452 (1,028)(b) 8,272
---------- ---------- ---------- ---------- ----------
Total interest income 599,237 37,906 12,346 (22,531) 626,958
---------- ---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 234,753 234,753
Interest on short-term borrowings 30,789 20,022 7,313 (20,022)(a) 38,102
Interest on long-term debt 10,761 319 629 11,709
---------- ---------- ---------- ---------- ----------
Total interest expense 276,303 20,341 7,942 (20,022) 284,564
---------- ---------- ---------- ---------- ----------
Net interest income 322,934 17,565 4,404 (2,509) 342,394
Provision for loan losses 43,171 43,171
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 279,763 17,565 4,404 (2,509) 299,223
---------- ---------- ---------- ---------- ----------
Noninterest income:
Bond division 80,275 80,275
Service charges on deposit accounts 51,679 51,679
Bank card 24,177 24,177
Trust service 20,103 20,103
Securities gains (losses) (1,678) (1,678)
Mortgage loan origination fees 2,397 25,928 5,251 33,576
Mortgage servicing 6,043 10,415 23,336 39,794
Profits from sale of mortgage loans and
servicing 939 33,282 8,512 42,733
Other 41,074 8,658 2,942 52,674
---------- ---------- ---------- ---------- ----------
Total noninterest income 225,009 78,283 40,041 343,333
---------- ---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 187,569 45,631 21,265 254,465
Operations services 23,585 616 2,131 26,332
Occupancy 20,705 3,198 2,201 26,104
Communications and courier 16,977 2,121 19,098
Equipment rentals, depreciation, and
maintenance 16,157 1,994 18,151
Deposit insurance premium 15,194 15,194
Amortization of intangible assets 12,148 1,324 7,758 9,055(c) 30,285
Other 68,141 14,410 11,219 93,770
---------- ---------- ---------- ---------- ----------
Total noninterest expense 360,476 69,294 44,574 9,055 483,399
---------- ---------- ---------- ---------- ----------
Income before income taxes 144,296 26,554 (129) (11,564) 159,157
Applicable income taxes 55,131 10,356 $ (4,668)(d) 60,819
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 89,165 $ 16,198 $ (129) $ (6,896) $ 98,338
========== ========== ========== ========== ==========
Net income (loss) per common share $ 3.19 $ 161.98 $ (0.03) $ 3.31
Weighted average shares outstanding 27,971,865 100,000 4,098,000 28,689,326(e)
</TABLE>
_________________
(a) To reflect the loss of interest earned on investment securities which
would be replaced with the warehouse loans of MNMC and reflected in
the resulting reduction in interest expense on short-term borrowings
which would be replaced with core deposits of FTB.
(b) To reflect the loss of interest earned on funds that would have been
used for MNMC acquisition net of custodial deposits received.
(c) To reflect the incremental amortization resulting from the MNMC
acquisition intangibles and from the new basis established when SNMC
Management purchased the mortgage company being pushed back to January
1, 1992.
(d) To reflect the tax effect of the interest and amortization adjustments
related to the MNMC acquisition. Also reflected is an adjustment
related to the effect of the acquisition on SNMC's net operating loss
carryforward.
(e) Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the 1,717,461
shares of FTNC common stock that would be issued based on a purchase
price for SNMC of $66,980,982 and a FTNC stock price of $39. The
actual stock price used in SNMC's conversion may actually vary within
the range of $36 to $42, and the actual purchase price is subject to
closing adjustments (none of which are expected to be material).
(f) Reflects the ten month results of operations of the predecessor and
the two month results of operations of the company being acquired
combined. These combined results do not necessarily reflect the
results of operations as they would have been if the acquisition had
been consummated at the beginning of the period presented.
PF-5
<PAGE> 55
Board of Directors
Highland Capital Management Corp.
Memphis, Tennessee
Independent Auditor's Report
We have audited the accompanying balance sheet of HIGHLAND CAPITAL MANAGEMENT
CORP. as of December 31, 1992 and the related statements of earnings, retained
earnings, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Highland Capital Management
Corp. as of December 31, 1992 and its result of operations for the year then
ended in conformity with generally accepted accounting principles.
/s/ CANNON & COMPANY
Certified Public Accountants
Memphis, Tennessee
November 24, 1993
F-1
<PAGE> 56
Board of Directors
Highland Capital Management Corp.
Memphis, Tennessee
We have compiled the following financial statements and additional information
of HIGHLAND CAPITAL MANAGEMENT CORP.:
Balance Sheets and Statements of Cash Flows
December 31, 1991
September 30, 1993 and 1992
Statements of Operations and Statement of Retained Earnings
Years Ended December 31, 1991 and 1990
Nine Months Ended September 30, 1993 and 1992
Additional Information - Selected Financial Data (page F-12)
Years Ended December 31, 1992, 1991, 1990, 1989 and 1988
These financial statements were compiled in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of Highland Capital Management Corp.
We have not audited or reviewed the accompanying above mentioned financial
statements and, accordingly, do not express an opinion or any other form of
assurance on them.
The financial statements for the year ended December 31, 1992 were audited by
us, and we expressed an unqualified opinion on them in our report also dated
November 24, 1993. These audited financial statements are included with the
above compiled financial statements.
/s/ CANNON & COMPANY
Certified Public Accountants
Memphis, Tennessee
November 24, 1993
F-2
<PAGE> 57
HIGHLAND CAPITAL MANAGEMENT CORP.
BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
AND SEPTEMBER 30, 1993 AND 1992
(See Accountants' Reports)
<TABLE>
ASSETS
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1992 1991 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 229,184 $ 228,202 $ 325,663 $ 318,893
Accounts Receivable 908,646 759,982 975,240 841,642
Refundable Income Taxes 4,269
Intangible Assets 250
----------- --------- --------- -------------
Total Current Assets 1,142,099 988,434 1,300,903 $ 1,160,535
PROPERTY PLANT AND EQUIPMENT 25,726 35,658 16,132 28,416
----------- ---------- ---------- -------------
Total Assets $ 1,167,825 $ 1,024,092 $ 1,317,035 $ 1,188,951
=========== =========== =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 25,802 $ 6,622 $ 1,077 $ 12,844
Accrued Profit Sharing 165,028 157,446 123,627 123,770
Income Taxes Payable 1,866 4,955 46,642 33,190
Deferred Income Taxes 335,128 285,976 378,940 314,612
----------- ---------- ---------- -------------
Total Current Liabilites 527,824 454,999 550,286 484,416
----------- ---------- ---------- -------------
SHAREHOLDERS' EQUITY
Common Stock, No Par Value, $1,000 Stated
Value, 200 Shares Authorized, 100 Shares
Issued and Outstanding 100,000 100,000 100,000 100,000
Retained Earnings 540,001 469,093 666,749 604,535
----------- ---------- ---------- -------------
Total Shareholders' Equity 640,001 569,093 766,749 704,535
----------- ---------- ---------- -------------
Total Liabilities and Shareholders' Equity $ 1,167,825 $ 1,024,092 $1,317,035 $ 1,188,951
========== ========== ========== ============
The accompanying notes form an integral part of these financial statements.
</TABLE>
F-3
<PAGE> 58
HIGHLAND CAPITAL MANAGEMENT CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
(See Accountants' Reports)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, September 30,
1992 1991 1990 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Investment Advisor Fees $ 3,397,131 $ 2,722,157 $ 2,226,151 $ 2,902,880 $ 2,473,394
EXPENSES (3,287,940) (2,509,016) (2,294,166) (2,689,529) (2,280,617)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) FROM OPERATIONS 109,191 213,141 (68,015) 213,351 192,777
OTHER INCOME 14,498 21,783 26,192 6,931 11,811
---------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES 123,689 234,924 (41,823) 220,282 204,588
FEDERAL AND STATE INCOME TAX
EXPENSE (BENEFIT) (52,781) (78,128) 9,576 (93,534) (69,146)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 70,908 $ 156,796 $ (32,247) $ 126,748 $ 135,442
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE $ 709.08 $ 1,567.96 $ (322.47) $ 1,267.48 $ 1,354.42
========== ========== ========== ========== ==========
The accompanying notes form an integral part of these financial statements.
</TABLE>
F-4
<PAGE> 59
HIGHLAND CAPITAL MANAGEMENT CORP.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
(See Accountants' Reports)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, September 30,
1992 1991 1990 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
(DEFICIT) - BEGINNING OF
THE PERIOD $ 469,093 $ 312,297 $ 344,544 $ 540,001 $ 469,093
NET INCOME (LOSS)
FOR THE PERIOD 70,908 156,796 (32,247) 126,748 135,442
----------- ---------- ---------- ------------ -----------
RETAINED EARNINGS
(DEFICIT) - END OF
THE PERIOD $ 540,001 $ 469,093 $ 312,297 $ 666,749 $ 604,535
=========== ========== ========== ============ ===========
The accompanying notes form an integral part of these financial statements.
</TABLE>
F-5
<PAGE> 60
HIGHLAND CAPITAL MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1991
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
(See Accountants' Reports)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1992 1991 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received From Clients $ 3,248,467 $ 2,521,228 $ 2,836,287 $ 2,391,734
Cash Paid to Suppliers (3,246,213) (2,500,752) (2,744,369) (2,296,835)
Income Taxes Paid (10,987) (4,778) (677) (12,275)
Interest Received 14,498 21,783 6,931 11,811
----------- ----------- ----------- ------------
Net Cash Provided by Operating Activities 5,765 37,481 98,172 94,435
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (4,783) (5,901) (1,693) (3,744)
----------- ----------- ----------- ------------
Net Cash Used in Investing Activities (4,783) (5,901) (1,693) (3,744)
NET INCREASE IN CASH AND CASH EQUIVALENTS 982 31,580 96,479 90,691
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 228,202 196,622 229,184 228,202
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 229,184 $ 228,202 $ 325,663 $ 318,893
=========== =========== =========== ============
The accompanying notes form an integral part of these financial statements.
</TABLE>
F-6
<PAGE> 61
HIGHLAND CAPITAL MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS -- CONTINUED
YEARS ENDED DECEMBER 31, 1992 AND 1991
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
(See Accountants' Compilation Reports)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1992 1991 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net Income $ 70,908 $ 156,796 $ 126,748 $ 135,442
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization 14,965 18,889 11,287 11,236
Change in Assets and Liabilities
Decrease (Increase) in Accounts Receivable (148,664) (200,929) (66,594) (81,660)
Decrease (Increase) in Refundable Income Taxes (4,269) 2,240 6,222
Increase (Decrease) in Accounts Payable 19,180 (4,166) (24,725)
Increase (Decrease) in Accrued Profit Sharing 7,582 (6,459) (41,401) (33,676)
Increase (Decrease) in Income Taxes Payable (3,089) 4,441 49,045 28,235
Increase (Decrease) in Deferred Income Taxes 49,152 66,669 43,812 28,636
----------- ------------- ----------- ------------
Total Adjustments (65,143) (119,315) (28,576) 41,007
----------- ------------- ----------- ------------
Net Cash Provided by Operating Activities $ 5,765 $ 37,481 $ 98,172 $ 94,435
=========== ============= =========== ============
The accompanying notes form an integral part of these financial statements.
</TABLE>
F-7
<PAGE> 62
HIGHLAND CAPITAL MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Highland Capital Management Corp. is an independent investment
counseling firm registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940. Operations of the Company began April 1,
1987.
The accompanying financial statements reflect the accrual basis of
accounting which requires recognition of revenue when earned and expenses when
incurred without regard to the exchange of cash.
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
The provisions for income taxes reflect the tax effect of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes. The deferred taxes relates primarily to differences between
cash and accrual basis reporting; such as accounts receivable and accounts
payable. The deferred tax liability represents the future taxes which will be
paid when the accounts receivables and the asssociated income are collected and
the accounts payable and associated expenses are paid.
Property and equipment are stated at cost. Depreciation is provided
using the Modified Accelerated Cost Recovery System (which approximates the
expected usage and economic lives) over the estimated useful lives of the
assets. These lives range from five to seven years. Maintenance and repairs
are charged to expense as incurred; major renewals and betterments are
capitalized. When items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in the determination of net income.
Costs incurred relating to the organization of the Company are being
amortized over five years using the straight-line method.
NOTE 2 - PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1992 is as
follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30, September 30,
1992 1991 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited)
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Furniture and
Fixtures $ 60,516 $ 57,338 $ 60,516 $ 59,476
Office Equipment 65,413 63,807 67,106 65,413
--------- --------- -------- ----------
125,929 121,145 127,622 124,889
Less Accumulated
Depreciation 100,203 85,487 111,490 96,473
--------- ---------- -------- ----------
$ 25,726 $ 35,658 $ 16,132 $ 28,416
========= ========== ======== ==========
</TABLE>
F-8
<PAGE> 63
HIGHLAND CAPITAL MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
NOTE 3 - FEDERAL AND STATE INCOME TAXES
The provision for income taxes from continuing operations consist of
the following components:
<TABLE>
<CAPTION>
December December December September September
1992 1991 1990 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Income Tax
Expense-
Current $ 3,629 $ 11,459 $ $ 49,722 $ 40,510
Income Tax
Expense-
Deferred 49,152 66,669 (9,576) 43,812 28,636
--------- -------- --------- --------- ---------
$ 52,781 $ 78,128 $ (9,576) $ 93,534 $ 69,146
========= ======== ========= ========= =========
</TABLE>
A reconciliation of income tax expense as reflected in the statements of
earnings with income tax expense calculated by applying the blended federal tax
and state tax rates for years ending December 31, 1992, 1991 and 1990 and the
nine month periods ending September 30, 1993 and 1992.
<TABLE>
<CAPTION>
December December December September September
1992 1991 1990 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Blended Tax
Rate 38% 38% 38% 38% 38.9%
Income Taxes
at Statutory
Federal Tax
Rate $ 47,002 $ 89,271 $ (15,892) $ 85,690 $ 77,743
Increase
(Decrease) in
Taxes Resulting
From
Non-Deductible
Expenses 6,700 (9,565) 5,400 (2,416) (5,625)
Depreciation
Differences (761) (1,578) 916 2,491 (2,660)
Effect of
Change in
Tax Rate (7,769)
Other (160) (312)
-------- -------- ----------- ---------- --------
$ 52,781 $ 78,128 $ (9,576) $ 93,534 $ 69,146
======== ======== =========== ========== ========
</TABLE>
F-9
<PAGE> 64
HIGHLAND CAPITAL MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
NOTE 3 -- FEDERAL AND STATE INCOME TAXES -- CONTINUED
The sources of deferred income tax expense (credit) are as follows:
<TABLE>
<CAPTION>
December December December September September
1992 1991 1990 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Accounts
Receivable
and Accrued
Expenses -
Federal $41,383 $54,363 $(8,140) $38,343 $24,110
Accounts
Receivable
and Accrued
Expenses -
State 7,769 12,306 (1,436) 5,469 4,526
------- ------- ------- ------- -------
$49,152 $66,669 $(9,576) $43,812 $28,636
======= ======= ======= ======= =======
</TABLE>
The net deferred tax provision in the accompanying balance sheet
includes the following components:
<TABLE>
<CAPTION>
December 31, December 31, September 30, September 30,
1992 1991 1993 1992
(Audited) (Unaudited) (Unaudited) (Unaudited)
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred Tax
Liabilities $335,128 $285,976 $378,940 $314,612
======== ======== ======== ========
</TABLE>
NOTE 4 -- COMMITMENTS
Office space is leased under an operating lease which expires in March,
1995. The lease agreement provides for monthly rental payments of $5,421
through March 1992, and of $5,596 thereafter.
At December 31, 1992, future minimum payments under the lease are as
follows:
1993 $ 67,152
1994 67,152
1995 16,788
--------
$151,092
========
Rent expense under operating leases for years ended December 31, 1992,
1991 and 1990 were $61,494 and $70,827 and $20,894, and $50,985 and $45,523 for
the nine months ended September 30, 1993 and 1992.
F-10
<PAGE> 65
HIGHLAND CAPITAL MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
AND NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
NOTE 5 -- PROFIT-SHARING PLAN
The Company sponsors a trusteed noncontributory profit-sharing plan
which covers all non-union employees who have completed at least 1/2 year of
service and attained 18 years of age. Under the terms of the Plan,
contributions to the Plan by the Company, which are discretionary in amount,
are allocated to the participants' accounts based upon compensation of the
participants, as defined. Contributions for years ended December 31, 1992, 1991
and 1990 were $165,027, $157,446 and $163,905 and were $123,676 and $125,770
for the nine months ended September 30, 1993 and 1992.
NOTE 6 -- SUBSEQUENT EVENTS
On November 10, 1993, subject to shareholder's approval, the Company
entered into an agreement and Plan of merger, pursuant to which Highland
Capital Management Corp. will be merged with First Tennessee Investment
Management, Inc. (a wholly-owned subsidiary of First Tennessee National
Corporation).
The merger is expected to become effective in February, 1994. By
virtue of the merger all the outstanding stock of Highland Capital Management
Corp. will be converted into stock of First Tennessee National Corporation, and
the Highland Capital Management Corp. stock will be cancelled. First Tennessee
Investment Management, Inc. will change its name to Highland Capital
Management, Corp.
F-11
<PAGE> 66
HIGHLAND CAPITAL MANAGEMENT CORP.
SELECTED FINANCIAL DATA
(See Accountants' Reports)
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1992 1991 1990 1989 1988
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Revenues $3,397,131 $2,722,157 $2,226,151 $2,155,955 $1,798,778
Net Income (Loss) $ 70,908 $ 156,796 $ (32,247) $ 57,151 $ 199,793
Earnings (Loss) Per Common Share 709.08 1,567.96 (322.47) 571.51 1,997.93
<CAPTION>
BALANCE SHEET DATA
December 31, December 31, December 31, December 31, December 31,
1992 1991 1990 1989 1988
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 1,167,825 $1,024,092 $ 806,812 $ 820,565 $ 713,992
Long Term Obligations -- -- -- -- --
Working Capital 614,275 533,435 364,652 385,741 351,155
Cash Dividends -- -- -- -- --
</TABLE>
F-12
<PAGE> 67
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 10TH DAY OF NOVEMBER, 1993
BY AND AMONG
FIRST TENNESSEE NATIONAL CORPORATION
FIRST TENNESSEE INVESTMENT MANAGEMENT, INC.
AND
HIGHLAND CAPITAL MANAGEMENT CORP.
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(A) THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(B) CONVERSION OF HCMC COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(C) NO FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(D) PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. ACTIONS PENDING MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
HCMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
IV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
V. CONDITIONS TO CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
VI. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
VII. EFFECTIVE DATE AND EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
VIII. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 10th day of November,
1993, by and among FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), a Tennessee
corporation, FIRST TENNESSEE INVESTMENT MANAGEMENT, INC. ("FTIM"), a Tennessee
corporation which is a wholly-owned subsidiary of FTNC, and HIGHLAND CAPITAL
MANAGEMENT CORP. ("HCMC"), a Delaware corporation.
RECITALS
(A) FTNC. FTNC has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Tennessee, with its
principal executive offices located in Memphis, Tennessee. As of the date
hereof, FTNC has 50,000,000 authorized shares of common stock, par value $2.50
per share ("FTNC Common Stock"), of which 28,163,993 shares are outstanding as
of September 27, 1993, and 5,000,000 authorized shares of preferred stock, no
par value, none of which are outstanding (no other class of capital stock being
authorized).
(B) FTIM. FTIM has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Tennessee, with its
principal executive offices located in Memphis, Tennessee. FTIM is a
wholly-owned subsidiary of FTNC engaged in the business of providing both
institutional and individual investment management services and is a registered
investment adviser under the Investment Advisers Act of 1940, as amended.
(C) HCMC. HCMC has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, duly
qualified to do business in and in good standing with, the State of Tennessee,
with its principal executive offices located in Memphis, Tennessee. HCMC
likewise is in the business of providing both institutional and individual
investment management services and is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. As of the date hereof, HCMC has
200 authorized shares of common stock, no par value per share ("HCMC Common
Stock"), of which 100 shares are outstanding as of July 31, 1993 (no other
class of capital stock being authorized).
(D) RIGHTS, ETC. Neither FTNC, FTIM nor HCMC has any shares of its
capital stock reserved for issuance, any outstanding option, call or commitment
relating to shares of its capital stock or any outstanding securities,
obligations or agreements convertible into or exchangeable for, or giving any
person any right (including, without limitation, preemptive rights) to
subscribe for or acquire from it, any shares of its capital stock
(collectively, "Rights"), except (i) in the case of FTNC, pursuant to a
Shareholder Protection Rights Agreement, dated as of September 7, 1989, between
FTNC and First Tennessee Bank National Association, as Rights Agent (the "FTNC
Rights Agreement"), (ii) for securities issued as permitted under Section (I)
of Article IV and (iii) as set forth on ANNEX 1 hereto (as to FTNC and FTIM).
(E) INTENTION OF THE PARTIES. It is the intention of the parties to
this Agreement that the Merger for federal income tax purposes shall qualify as
a "reorganization" within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
(F) MATERIALITY. Unless the context otherwise requires, any
reference in this Agreement to materiality with respect to FTNC shall be deemed
to be with respect to FTNC and its subsidiaries, taken as a whole, and with
respect to each of HCMC and FTIM, respectively, shall be deemed to be as to
each such specific corporation, respectively, taken as a whole.
In consideration of their mutual promises and obligations hereunder,
and intending to be legally bound hereby, FTNC, FTIM and HCMC adopt and make
this Agreement and prescribe the terms and conditions hereof and the manner and
basis of carrying it into effect, which shall be as follows:
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I. THE MERGER
(A) THE MERGER. On the Effective Date and at the Effective Time (as
defined in Article VII), HCMC will merge (the "Merger") with and into FTIM,
with FTIM being the surviving corporation (the "Surviving Corporation"),
pursuant to the provisions of, and with the effects provided in, the Tennessee
Code Annotated and the Delaware General Corporation Law. At the Effective Time
(as defined in Article VII), the charter and bylaws of FTIM (as the Surviving
Corporation) shall be the charter and bylaws of FTIM in effect immediately
prior to the Effective Time. At the Effective Time, the directors of FTIM
shall consist of eight (8) persons, including all of the directors of HCMC, as
FTNC shall elect as the directors of the Surviving Corporation and the officers
of HCMC shall become officers of the Surviving Corporation without any
prejudice to the rights of FTNC as the sole shareholder of the Surviving
Corporation. At the Effective Time, the name of FTIM as the Surviving
Corporation following the Merger shall be amended to be "Highland Capital
Management Corp."
(B) CONVERSION OF HCMC COMMON STOCK. By virtue of the Merger,
automatically and without any action on the part of the holder thereof, at the
Effective Time, all of the HCMC Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive shares
of FTNC Common Stock, as described below.
(1) Each share of HCMC Common Stock issued and outstanding at
the Effective Time shall become and be converted into the right to
receive the number of shares of FTNC Common Stock equal to the
Conversion Number. The "Conversion Number" shall be equal to the
quotient of the HCMC Price (hereafter defined) divided by the FTNC
Common Stock Average Price (as hereinafter defined). The Calculation
Period shall consist of the twenty (20) business day period ending on
the fifth business day prior to the Effective Date, as hereafter
defined. The FTNC Common Stock Average Price shall be equal to the
average of the closing prices of the FTNC Common Stock as reported in
the Southwest Edition of The Wall Street Journal on the National
Association of Securities Dealers Automated Quotation System, National
Market System ("NASDAQ") on each of the business days included in the
Calculation Period. For purposes of this Section I.B, a business day
shall be a day on which the New York Stock Exchange is generally open
for trading. The HCMC Price shall be equal to the quotient of (i) the
product of the Total Annual Fees (being the annualized investment
advisory fees accrued for the average of the two (2) calendar quarters
ending June 30, 1993 and September 30, 1993 for those clients of HCMC
which are "Regular Bill Cycle" accounts and the total annual fees for
"New Accounts" and "Irregular Billing Cycle" accounts) as calculated
and set forth on Schedule (B)(1) attached hereto, respectively, for
those accounts of HCMC multiplied by a factor of four and one-half
(4.5) and divided by (ii) the number of shares of HCMC Common Stock
outstanding at the Effective Time.
(2) Each share of FTNC Common Stock issued and outstanding at
the Effective Time (other than shares, if any, held as treasury stock
by FTNC) shall remain outstanding and unchanged after the Merger and,
together with the shares of FTNC Common Stock issuable in the Merger,
shall constitute all of the issued and outstanding shares of the
common capital stock of FTNC.
(3) Subsequent to the date of this Agreement but prior to the
Effective Date, if the outstanding shares of FTNC Common Stock shall
be increased, decreased, changed into or exchanged for a different
number or class of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or if a
stock dividend thereon shall be declared with a record date within
such period, or other like changes in FTNC's capitalization shall have
occurred, the terms and provisions of subsection (1) of this Section
(B) and of Section (D) of Article VI shall be adjusted accordingly.
(4) Each share of common stock of FTIM issued and outstanding
at the Effective Time shall remain outstanding and unchanged after the
Merger.
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(C) NO FRACTIONAL SHARES. Notwithstanding any other provision
hereof, no fractional shares of FTNC Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, FTNC shall pay to each holder of HCMC Common Stock exchanged pursuant
to this Agreement who would otherwise be entitled to a fractional share, an
amount in cash determined by multiplying such holder's fractional interest by
the "Average Price" of a share of FTNC Common Stock (rounded up to the nearest
cent). The "Average Price" of a share of FTNC Common Stock shall be the
average of the closing prices thereof as reported on NASDAQ over the twenty
(20) business days immediately prior to the fifth (5th) calendar day prior to
the Effective Date.
(D) PROCEDURES. Certificates which represent shares of HCMC Common
Stock that are outstanding at the Effective Time (each, a "Certificate") and
are converted into the right to receive shares of FTNC Common Stock pursuant to
the Merger shall, after the Effective Time, be exchangeable by the holders
thereof in the manner provided in the transmittal materials described below for
new certificates representing the shares of FTNC Common Stock into which such
shares have been converted.
On the Effective Date, FTNC shall deliver to each holder of record of
shares of HCMC Common Stock outstanding at the Effective Time transmittal
materials for use in exchanging the Certificates for such shares for
certificates for shares of the FTNC Common Stock into which such shares of the
FTNC Common Stock have been converted pursuant to the Merger. Upon surrender
of a Certificate, together with a duly executed letter of transmittal and any
other required documents to effectuate the transfer, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate for
the number of shares of unregistered FTNC Common Stock to which such holder is
entitled, and such Certificate shall forthwith be cancelled. If any such
delivery is to be made in whole or in part to a person other than the person in
whose name a surrendered Certificate is registered, it shall be a condition to
such delivery or exchange that the Certificate surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such delivery or exchange shall have paid any transfer and other
taxes required by reason of such delivery or exchange in a name other than that
of the registered holder of the Certificate surrendered or shall have
established to the reasonable satisfaction of FTNC or its agent that such tax
either has been paid or is not payable.
No holder of HCMC Common Stock shall be entitled to exercise any
rights as a shareholder of FTNC until such holder shall have properly
surrendered his Certificate(s) (together with all required documents) as set
forth above. No dividend or other distribution payable after the Effective
Time with respect to the FTNC Common Stock shall be paid to the holder of any
unsurrendered Certificate until the holder thereof properly surrenders such
Certificate (together with all required documents), at which time such holder
shall receive all dividends and distributions, without interest thereon,
previously withheld from such holder pursuant hereto. After the Effective
Time, there shall be no transfers on the stock transfer books of HCMC of shares
of HCMC Common Stock which were issued and outstanding at the Effective Time
and converted pursuant to the provisions of the Merger into the right to
receive FTNC Common Stock. If after the Effective Time, Certificates are
presented for transfer to HCMC, they shall be cancelled and exchanged for the
shares of FTNC Common Stock deliverable in respect thereof as determined in
accordance with the provisions of Article I, Section (B) and in accordance with
the procedures set forth in this Paragraph.
After the Effective Time, holders of HCMC Common Stock shall cease to
be, and shall have no rights as, stockholders of HCMC, other than to receive
shares of FTNC Common Stock into which such shares have been converted or
fractional share payments pursuant to this Agreement.
Notwithstanding the foregoing, neither FTNC nor HCMC nor any other
person shall be liable to any former holder of shares of HCMC Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
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In the event any Certificate shall have been lost, stolen or
destroyed, upon receipt of appropriate evidence as to such loss, theft or
destruction and to the ownership of such Certificate by the person claiming
such Certificate to be lost, stolen or destroyed and the receipt by FTNC of
appropriate and customary indemnification, FTNC will issue in exchange for such
lost, stolen or destroyed Certificate shares of FTNC Stock and the fractional
share payment, if any, deliverable in respect thereof as determined in
accordance with this Article I.
II. ACTIONS PENDING MERGER
HCMC. Without the prior written consent of FTNC from and after the
date of this Agreement and until the Effective Time or termination of this
Agreement pursuant to Article VI hereof, HCMC will not:
(1) make, declare or pay any dividend or declare or make any
distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital
stock or authorize the creation or issuance of or issue or sell or
permit any subsidiary to issue or sell any additional shares of HCMC's
capital stock or any options, calls or commitments relating to its
capital stock or any securities, obligations or agreements convertible
into or exchangeable for, or giving any person any right to subscribe
for or acquire, shares of its capital stock except pursuant to plans
or agreements as existing on the date hereof;
(2) except as disclosed in ANNEX 2, pay any bonus to, or increase the
rate of compensation of, any of its directors, officers or employees,
except in the ordinary course of business consistent with past
practice, or enter into any employment contracts with any persons
other than those employment agreements to be executed simultaneously
with the execution of this Agreement and attached hereto as part of
ANNEX 2;
(3) enter into or modify (except as may be required by applicable law
and except for the renewal of any existing plan or arrangement in the
ordinary course of business consistent with past practice) any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees;
(4) substantially modify the manner in which it has heretofore
conducted its business, taken as a whole, or amend its articles of
incorporation or by-laws;
(5) merge or consolidate or agree to merge or consolidate with any
other entity or engage in any similar transaction;
(6) sell, dispose of or discontinue any of its business, assets
(including investment securities held for its own account) or property
except as otherwise permitted under this Agreement;
(7) acquire any assets or business that is material to it;
(8) take any other action not in its ordinary course of business;
(9) take any action which would adversely affect its registration
as an investment adviser under the Investment Advisers Act of 1940, as
amended, the Tennessee Securities Act of 1980, as amended or any other
jurisdiction;
(10) borrow or loan funds except in the ordinary course of business
and not exceeding $10,000.00 in the aggregate up to the Effective
Date;
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(11) fail to (i) meet all of its obligations as they become due; (ii)
use its best efforts, consistent with its past practices, to continue
to solicit new clients and to offer investment advisory services in
the ordinary course of business; (iii) maintain its corporate records;
(iv) keep its accounts receivable current; (v) preserve the business
organization and properties of HCMC intact; (vi) keep available the
services of HCMC's employees; and (vii) preserve the goodwill of
HCMC's clients, suppliers, and others with whom business relationships
exist;
(12) decrease HCMC's fee schedule in effect as of the date hereof or
decrease the fees currently being charged HCMC's investment advisory
clients;
(13) fail to pay or fund (or make provision therefor) all expenses
and liabilities incurred by HCMC with respect to all periods prior to
the Effective Date, including without limitation all salaries and
rents accrued through the Effective Date, and, without limiting the
foregoing, fail to pay or fund all tax liabilities relating to periods
ending on or before the Effective Date, regardless of when such
expenses and liabilities would ordinarily be payable; or
(14) directly or indirectly agree to take any of the foregoing
actions.
FTIM. Without the prior written consent of HCMC, from and after the
date of this Agreement and until the Effective Time or termination of this
Agreement pursuant to Article VI hereof, FTIM will not:
(1) make, declare or pay any dividend or make any distribution on, or
directly or indirectly combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock which would cause
the cash balance of FTIM to decline below $1,000,000.00, or authorize
the creation or issuance of or issue or sell or permit any subsidiary
to issue or sell any additional shares of FTIM's capital stock, or any
options, calls or commitments relating to its capital stock, or any
securities, obligations or agreements convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire,
shares of its capital stock;
(2) pay any bonus to, or increase the rate of compensation of, any of
its directors, officers or employees, except in the ordinary course of
business consistent with past practice, or enter into any employment
contracts with any persons;
(3) enter into or modify (except as may be required by applicable law
and except for the renewal of any existing plan or arrangement in the
ordinary course of business consistent with past practice) any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees;
(4) substantially modify the manner in which it has heretofore
conducted its business, taken as a whole, or amend its articles of
incorporation or by-laws;
(5) merge or consolidate with any other entity or engage in any
similar transaction;
(6) sell, dispose of or discontinue any of its business (except for
FTIM's loss of business resulting from the closing of FTIM's offices
in Chattanooga and Knoxville and the withdrawal of assets under
management which are invested in any proprietary mutual fund for which
First Tennessee Bank National Association serves as investment
adviser), assets (including investment securities held for its own
account) or property except as otherwise permitted under this
Agreement;
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(7) acquire any assets or business that is material to it;
(8) take any other action not in the ordinary course of business of
it, taken as a whole;
(9) take any action which would adversely affect its registration as
an investment adviser under the Investment Advisers Act of 1940, as
amended, or the Tennessee Securities Act of 1980, as amended;
(10) borrow or loan funds except in the ordinary course of business
and not exceeding $10,000.00 in the aggregate up to the Effective
Date;
(11) fail to (i) meet all of its obligations as they become due, (ii)
use its best efforts to continue to solicit new clients and to offer
investment advisory services in the ordinary course of business, (iii)
maintain its corporate records, (iv) keep its accounts receivable
current, (v) preserve the business organization and properties of FTIM
intact, (vi) keep available the services of FTIM's employees, and
(vii) preserve the goodwill of FTIM's clients, suppliers, and others
with whom business relationships exist;
(12) decrease FTIM's fee schedule in effect as of the date hereof or
decrease the fees currently being charged FTIM's investment advisory
clients;
(13) fail to pay or fund all expenses and liabilities incurred by
FTIM with respect to all periods prior to the closing, including
without limitation all salaries and rents, and, without limiting the
foregoing, fail to pay or fund any tax liabilities relating to periods
ending on or before the closing, regardless of when such expenses and
liabilities would ordinarily be payable; or
(14) directly or indirectly agree to take any of the foregoing
actions.
III. REPRESENTATIONS AND WARRANTIES
Each of FTNC and FTIM represent and warrant to HCMC, and HCMC
represents and warrants to each of FTNC and FTIM, that, except as may be
disclosed in an Annex hereto or as previously disclosed in a letter of FTNC for
itself and FTIM or HCMC, respectively, of even date herewith delivered to the
other party:
(A) The facts set forth in the Recitals of this Agreement with
respect to each party are true and correct;
(B) The outstanding shares of capital stock of each party and as to
FTNC, its Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X),
are duly authorized, validly issued and outstanding, fully paid and (subject to
12 U.S.C. Section 55 in the case of a national bank subsidiary and comparable
state statutes, in the case of a state bank subsidiary) non-assessable, and
subject to no preemptive rights;
(C) Neither FTIM nor HCMC has any subsidiaries. Each of FTIM and
HCMC has the power and authority, and is duly qualified in all jurisdictions
[except for such qualifications the absence of which will not have a Material
Adverse Effect (as hereinafter defined)] where such qualification is required
to carry on its business as it is now being conducted and to own all its
material properties and assets; each has all federal, state, local, and foreign
governmental authorizations, including, without limitation, all authorizations
to act as an investment adviser, necessary for it to own or lease its
properties and assets and to carry on its business as it is now being
conducted, except for such powers and authorizations the absence of which,
either individually or in the aggregate, would not have a Material Adverse
Effect;
(D) The shares of capital stock of each of FTIM and HCMC are owned
free and clear of all liens, claims, encumbrances and restrictions on transfer
and there are no Rights with respect to such capital stock;
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(E) Subject, in the case of FTNC to approval of its board of
directors or its executive committee, and subject in the case of FTIM and HCMC
to the receipt of approval of its board of directors and any required
shareholder approvals of this Agreement, and, subject to receipt of required
regulatory approvals, this Agreement is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles;
(F) The execution, delivery and performance of this Agreement by each
of FTNC, FTIM and HCMC, respectively, does not, and the consummation of the
transactions contemplated hereby by each will not, constitute (1) a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of each of them or to which each of them (or any of their respective
properties) is subject, which breach, violation or default, individually or
collectively, is reasonably likely to have a Material Adverse Effect, or enable
any person to enjoin any of the transactions contemplated hereby or (2) a
breach or violation of, or a default under, the certificate or articles of
incorporation or by-laws of each of them or any of FTNC's Significant
Subsidiaries; and the consummation of the transactions contemplated hereby will
not require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the consent or
approval of any other party to any such agreement, indenture or instrument,
other than the required approvals of applicable regulatory authorities referred
to in Sections (A)(2) and (A)(3) of Article V and the approval of the board of
directors (or executive committee thereof) of FTNC and the board of directors
of FTIM and HCMC and the shareholders of FTIM and HCMC referred to in Paragraph
(E) of this Article III and any consents and approvals the absence of which
will not have a Material Adverse Effect;
(G) In the case of FTNC, as of their respective dates, neither its
Annual Report on Form 10-K for the fiscal year ended December 31, 1992, nor any
other document filed subsequent to December 31, 1992 under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act") (including, without limitation, its Quarterly Report
on Form 10-Q for its most recent fiscal quarter ended at least forty-five (45)
days prior to the date of this Agreement), each in the form (including
exhibits) filed with the Securities and Exchange Commission (the "SEC")
(collectively the "Reports") contained, and in the case of HCMC, neither its
audited financial statements for the fiscal year ended December 31, 1992 nor
its unaudited quarterly financial statements for the fiscal quarter ended June
30, 1993, and in the case of FTIM neither its unaudited financial statements
for the year ended December 31, 1992 nor its unaudited financial statement for
the fiscal quarter ended June 30, 1993 (collectively the "Financial
Statements"), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. In the case of FTNC, each of the balance sheets in or
incorporated by reference into the Reports (including the related notes and
schedules), and in the case of FTIM and HCMC, each of the balance sheets in
their respective Financial Statements fairly presents the financial position of
the entity or entities to which they relate as of its date and, in the case of
FTNC and HCMC, each of the statements of income and retained earnings and of
cash flow and changes in financial position or equivalent statements in or
incorporated by reference into FTNC's Reports (including any related notes and
schedules) and HCMC's Financial Statements, fairly presents the results of
operations, retained earnings and cash flows and changes in financial position,
as the case may be, of the entity or entities to which it relates for the
periods set forth therein (subject, in the case of unaudited interim statements
or reports, to normal year-end audit adjustments that are not material in
amount or effect), and in the case of FTNC in accordance with generally
accepted accounting principles applicable to bank holding companies
consistently applied during the periods involved, except as may be noted
therein. None of FTNC, FTIM nor HCMC has any material obligations or
liabilities (contingent or otherwise) except as disclosed in the Reports as to
FTNC and in the Financial Statements as to FTIM and HCMC, and in the case of
FTNC, its consolidated allowance for loan and lease losses, as shown on its
most recent balance sheet or statement of condition contained in its Reports
was adequate, as of the date thereof, within the meaning of generally accepted
accounting principles and safe and sound banking practices;
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(H) There has been no material adverse change in the financial
condition of FTNC and its Significant Subsidiaries, taken as a whole, or of
FTIM or HCMC, since December 31, 1992; nor is there any fact or condition
particularly related to FTNC's business which is known to FTNC which it
reasonably believes might have a Material Adverse Effect on FTNC, which has not
been identified as such and set forth in this Agreement or in an Annex;
(I) All material federal, state, local, and foreign tax returns
required to be filed by or on behalf of FTIM or HCMC have been timely filed or
requests for extensions have been timely filed and any such extension shall
have been granted and not have expired, and all such returns filed are complete
and accurate in all material respects. All taxes shown on returns filed by
FTIM and HCMC have been paid in full or adequate provision has been made for
any such taxes on its balance sheet (in accordance with generally accepted
accounting principles). As of the date of this Agreement, there is no audit
examination, deficiency, or refund litigation with respect to any taxes of FTIM
or HCMC and neither is aware of any basis for the assertion of any claim for
any tax deficiency for which adequate provision has not been made on its
respective balance sheets that would result in a determination that would have
a Material Adverse Effect. All taxes, interest, additions, and penalties due
with respect to completed and settled examinations or concluded litigation
relating to each of FTIM and HCMC have been paid in full or adequate provision
has been made for any such taxes on its respective balance sheets (in
accordance with generally accepted accounting principles). Neither has
executed an extension or waiver of any statute of limitations on the assessment
or collection of any material tax due that is currently in effect;
(J) Except as set forth on ANNEX 3, (1) no material litigation,
proceeding or controversy before any court or governmental agency is pending,
and there is no pending claim, action or proceeding against FTIM or HCMC, which
in the reasonable judgment of each of its Presidents is likely to have a
Material Adverse Effect or to prevent consummation of the transactions
contemplated hereby, and, to the best of each of its knowledge, no such
litigation, proceeding, controversy, claim or action has been threatened or is
contemplated, and (2) except as disclosed on either the FTIM Form ADV or the
HCMC Form ADV, none of FTNC, FTIM or HCMC is subject to any cease and desist
order, written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of, any federal or state
governmental authorities charged with the supervision or regulation of banks or
bank holding companies or engaged in the insurance of bank deposits ("Bank
Regulators") or any state or federal regulatory agency charged with the
supervision of regulations of investment advisers ("Securities Regulators"),
nor has any of them been advised by any Bank Regulator or Securities Regulator
that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar undertaking;
(K) Except as disclosed in ANNEX 4 hereto in the case of FTIM, and
ANNEX 5 hereto in the case of HCMC, and except for this Agreement and
arrangements made in the ordinary course of business, neither FTIM nor HCMC is
bound by any material contract (as defined in Item 601(b)(10)(i) and (ii) of
Regulation S-K) to be performed after the date hereof that has not been
disclosed;
(L) All "employee benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), that cover any of
the employees of FTNC and its subsidiaries, on the one hand, and the employees
of HCMC, on the other, comply in all material respects with all applicable
requirements of ERISA, the Code and other applicable laws; neither FTNC and any
of its subsidiaries nor HCMC has engaged in a "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) with respect to
any such plan which is likely to result in any material penalties or taxes
under Section 502(i) of ERISA or Section 4975 of the Code; no material
liability to the Pension Benefit Guaranty Corporation has been or is expected
by them to be incurred with respect to any such plan which is subject to Title
IV of ERISA ("Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a)(15) of ERISA) currently or formerly maintained by
them or any entity which is considered one employer with it under Section 4001
of ERISA or Section 414 of the Code; no
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Pension Plan had an "accumulated funding deficiency" [as defined in Section 302
of ERISA (whether or not waived)] as of the last day of the end of the most
recent plan year ending prior to the date hereof; the fair market value of the
assets of each Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such Pension
Plan as of the end of the most recent plan year with respect to the respective
Plan ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the most recent actuarial valuation for such Pension Plan
as of the date hereof; no notice of a "reportable event" (as defined in Section
4043 of ERISA) for which the 30-day reporting requirement has not been waived
has been required to be filed for any Pension Plan within the 12-month period
ending on the date hereof; neither FTNC nor any of its subsidiaries, on the one
hand, nor HCMC on the other, has provided, or is required to provide, security
to any Pension Plan pursuant to Section 401(a)(29) of the Code; FTNC and its
subsidiaries and HCMC have not contributed to a "multi-employer plan" as
defined in Section 3(37) of ERISA, on or after September 26, 1980; and FTNC and
its subsidiaries and HCMC do not have any obligations for retiree health and
life benefits under any benefit plan, contract or arrangement except as set
forth on ANNEX 6.
(M) Each of FTIM and HCMC has good title to its properties and assets
(other than property as to which it is lessee) except for such defects in title
which would not, in the aggregate, have a Material Adverse Effect;
(N) None of FTNC, FTIM or HCMC knows of any reason why the regulatory
approvals referred to in Paragraphs (A)(2) and (A)(3) of Article V should not
be obtained without the imposition of any condition of the type referred to in
the proviso following such Paragraph (A)(2);
(O) FTIM and HCMC have all permits, licenses, certificates of
authority, orders, and approvals of, and have made all filings, applications,
and registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit each of them to carry on
its business as it is presently conducted; all such permits, licenses,
certificates of authority, orders, and approvals are in full force and effect,
and to the best knowledge of each of them no suspension or cancellation of any
of them is threatened;
(P) In the case of FTNC, the shares of capital stock to be issued
pursuant to this Agreement, when issued in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights;
(Q) Neither FTIM nor HCMC is a party to, or is bound by, any
collective bargaining agreement, contract, or other agreement or understanding
with a labor union or labor organization, nor is either of them the subject of
a proceeding asserting that it or any such subsidiary has committed an unfair
labor practice or seeking to compel it to bargain with any labor organization
as to wages and conditions of employment, nor is there any strike or other
labor dispute involving either of them pending or threatened;
(R) Neither FTNC nor any of its subsidiaries or HCMC, nor any of
their respective officers, directors or employees, has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions, or finder's fees, and no broker or finder has acted directly
or indirectly for any of them, in connection with this Agreement or the
transactions contemplated hereby;
(S) The information to be supplied by each of FTNC and HCMC for
inclusion in (1) the Registration Statement on Form S-4 and/or such other
form(s) as may be appropriate to be filed under the Securities Act of 1933, as
amended (the "Securities Act"), with the SEC by FTNC for the purpose of, among
other things, registering the FTNC Common Stock to be issued to the
shareholders of HCMC in the Merger (the "Registration Statement"), or (2) the
proxy statement to be distributed in connection with HCMC's meeting of its
shareholders to vote upon this Agreement (as amended or supplemented from time
to time, the "Proxy Statement," and together with the prospectus included in
the Registration Statement, as amended or supplemented from time to time, the
"Proxy Statement/Prospectus") will not at the time such Registration Statement
becomes effective, and in the case of the
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Proxy Statement/Prospectus at the time it is mailed and at the time of the
meeting of shareholders contemplated under this Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading;
(T) In the case of HCMC:
(1) Except for normal advances for business expenses incurred in the
ordinary course of business, no officer, director, or stockholder of
HCMC nor any affiliate of any of the foregoing parties has any loan or
other obligation outstanding to or from HCMC or for which HCMC is or
may be liable under guaranty or otherwise, or has any material
interest in any firm, person or entity with which HCMC has entered
into any contract or lease, or with which HCMC does business and which
would influence that person in doing business with HCMC;
(2) The accounts receivable of HCMC reflected in the Financial
Statements, arose in the ordinary course of business and have been
collected in full or are fully collectible or, if not fully
collectible, have been written off or have had adequate reserves
established therefor. Set forth on ANNEX 7 hereto is a list of all
accounts receivable of HCMC which were billed as of June 30, 1993,
showing the name and address of each debtor, the amount due on each
account, any write-off or reserve against each account, and the period
when the account became due. Such accounts receivable are likewise
fully collectible, unless otherwise indicated. ANNEX 7 shall be
supplemented at the closing to reflect accounts receivable as of the
Effective Date;
(3) Except as noted on ANNEX 8 hereto, HCMC has and will have good
right to use its name in every state in which it now does business and
has all franchises, permits, licenses, trademarks, tradenames,
patents, patent applications, copyrights, trade secrets, computer
software, formula, designs and inventions necessary to conduct its
business as now operated without infringing on the rights of any other
person. HCMC has not infringed or violated in any way any trademark,
tradename, copyright, trade secret rights or contractual relationships
of others, and has not received any notice, claim or protest
respecting any such violations or infringement. HCMC has not given
any indemnification to any person for any such violations or
infringements;
(4) Attached as ANNEX 9 is a list of all of HCMC's investment
advisory clients with assets under management as of September 30,
1993, showing substantially the following information for each client
and as of that date: the client's name, address, fees and assets
under management (as defined in the related investment advisory
agreement) and valued as of September 30, 1993. Each client listed on
ANNEX 9 is being or will be as of the date thereof served by HCMC in
accordance with the information in such Annex and no such client has
indicated to HCMC, orally or in writing, any intent to terminate its
investment advisory contract. Each of the investment advisory
contracts to which HCMC is a party, a representative copy of which,
together with HCMC's current fee schedule, is attached hereto as ANNEX
10 and is a legal, valid and binding obligation of the parties thereto
enforceable in accordance with its terms. HCMC is not in breach,
violation or default under any such agreement and all fees charged
thereunder have been properly calculated in accordance with the terms
thereof. HCMC has no arrangements or understandings relating to the
rendering by HCMC of institutional investment advisory services to
anyone which are not disclosed on ANNEX 9;
(5) All contracts (other than investment advisory contracts) to which
HCMC is a party or by which it is bound and which are material to its
business and are not identified on any other Annex hereto, and all
confidentiality agreements obtained by HCMC with respect to its
business from parties other than FTNC are listed on ANNEX 11 hereto.
HCMC is not obligated under any contract or agreement which materially
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and adversely affects its business, properties, prospects, assets or
condition, financial or otherwise. HCMC has not given any power of
attorney to any person or entity which is presently outstanding or in
force for any purpose whatsoever;
(6) HCMC has heretofore delivered to FTNC a list of all present
employees of HCMC as of the date of this Agreement, a copy of which is
attached as ANNEX 12. Also set forth on such list with respect to
each such employee is the following information: (a) the aggregate
amount paid as salary in fiscal year 1992; (b) the amount of salary
currently being paid on an annualized basis; (c) the nature (e.g.,
cash bonus) and amount of all aggregate direct and indirect
remuneration other than salary paid during fiscal year 1992; (d) the
nature and amount of all aggregate direct remuneration proposed to be
paid during fiscal year 1993; and (e) the terms and a copy of any
employment agreement between HCMC and such employee;
(7) There is no fact or condition particularly related to HCMC's
business which is known to HCMC which it reasonably believes might
adversely affect in a material fashion the business, property,
condition (financial or otherwise), or results of operations or
prospects of HCMC and which has not been identified as such and set
forth in this Agreement or in an Annex;
(8) HCMC's policies with respect to avoiding conflicts of interest
are as set forth in its Form ADV, as amended, which has been delivered
to FTNC. There have been no violations or allegations of violations
of such policies which have occurred or been made;
(9) Except as disclosed in HCMC's most current copy of its Form ADV,
a copy of which has previously been furnished to FTNC, HCMC has not
engaged in and is not now engaging in any act, conspiracy or course of
conduct in violation of any applicable federal or state securities or
other law which would result in a materially adverse change in its
condition (financial or otherwise), results of operation, prospects,
assets, liabilities or business, and has not received any notice,
claim or protest that it is now or has heretofore been so engaged; and
(10) All of the investment advisory business and assets of HCMC and
its affiliates are, and at the Effective Time will be, owned by and
conducted solely through HCMC and no property or asset used or
necessary in connection with its business is owned by any officers,
directors or employees of HCMC or its affiliates. As used in this
Agreement, the term "affiliate" shall mean any person that, directly
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
(U) In the case of FTIM:
(1) Except as set forth on ANNEX 13 and except for normal advances
for business expenses incurred in the ordinary course of business, no
officer, director, or stockholder of FTIM nor any affiliate of any of
the foregoing has any loan or other obligation outstanding to or from
FTIM or for which FTIM is or may be liable under guaranty or
otherwise, or has any material interest in any firm, person or entity
(other than FTNC or First Tennessee Bank National Association) with
which FTIM has entered into any contract or lease, or with which FTIM
does business and which would influence that person in doing business
with FTIM;
(2) The accounts receivable of FTIM reflected in the Financial
Statements arose in the ordinary course of business and have been
collected in full or are fully collectible or, if not fully
collectible, have been written off or have had adequate reserves
established therefor. Set forth on ANNEX 14 hereto is a list of all
accounts receivable of the Memphis office of FTIM which were billed as
of September 30, 1993, showing the name and address of each debtor,
the amount due on each account, any write-off or reserve
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against each account, and the period when the account became due.
Such accounts receivable are likewise fully collectible, unless
otherwise indicated. ANNEX 14 shall be supplemented at the closing to
reflect accounts receivable as of the Effective Date;
(3) Except as noted on ANNEX 15 hereto, FTIM has and will have good
right to use its name in every state in which it now does business and
has all franchises, permits, licenses, trademarks, tradenames,
patents, patent applications, copyrights, trade secrets, computer
software, formula, designs and inventions necessary to conduct its
business as now operated without infringing on the rights of any other
person. FTIM has not infringed or violated in any way any trademark,
tradename, copyright, trade secret rights or contractual relationships
of others, and has not received any notice, claim or protest
respecting any such violations or infringement. FTIM has not given
any indemnification to any person for any such violations or
infringements;
(4) Attached as ANNEX 16 is a list of all of FTIM's investment
advisory clients of the Memphis office with assets under management as
of August 31, 1993, showing substantially the following information
for each client and as of that date, the client's name, address, fees
and assets under management (as defined in the related investment
advisory agreement) and valued as of August 31, 1993. Each client
listed on ANNEX 16 is being or will be as of the date thereof served
by FTIM in accordance with the information in such Annex and no such
client has indicated to FTIM, orally or in writing, any intent to
terminate its investment advisory contract. Each of the investment
advisory contracts to which FTIM is a party, a representative copy of
which, together with FTIM's current fee schedule, is attached hereto
as ANNEX 17 and is a legal, valid and binding obligation of the
parties thereto enforceable in accordance with its terms. FTIM is not
in breach, violation or default under any such agreement and all fees
charged thereunder have been properly calculated in accordance with
the terms thereof. FTIM has no arrangements or understandings
relating to the rendering by FTIM of institutional investment advisory
services to anyone which are not disclosed on ANNEX 16;
(5) All contracts (other than investment advisory contracts) to which
FTIM is a party or by which it is bound and which are material to its
business and are not identified on any other Annex hereto, and all
confidentiality agreements obtained by FTIM with respect to its
business from parties other than HCMC are listed on ANNEX 18 hereto.
FTIM is not obligated under any contract or agreement which materially
and adversely affects its business, properties, prospects, assets or
condition, financial or otherwise. Except as set forth on ANNEX 17,
FTIM has not given any power of attorney to any person or entity which
is presently outstanding or in force for any purpose whatsoever;
(6) FTIM has heretofore delivered to HCMC a list of all present
employees of the Memphis office of FTIM as of the date of this
Agreement, a copy of which is attached as ANNEX 19. Also set forth
on such list with respect to each such employee is the following
information: (a) the aggregate amount paid as salary in fiscal year
1992; (b) the amount of salary currently being paid on an annualized
basis; (c) the nature (e.g., cash bonus) and amount of all aggregate
direct and indirect remuneration other than salary paid during fiscal
year 1992; (d) the nature and amount of all aggregate direct
remuneration proposed to be paid during fiscal year 1993; and (e) the
terms of any employment agreement between FTIM and such employee;
(7) There is no fact or condition particularly related to FTIM's
business which is known to FTIM which it reasonably believes might
adversely affect in a material fashion the business, property,
condition (financial or otherwise), or results of operations or
prospects of FTIM and which has not been identified as such and set
forth in this Agreement or in an Annex;
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(8) FTIM's policies with respect to avoiding conflicts of interest
are as set forth in its Form ADV, as amended, its conflicts of
interest and confidentiality policy and in its Code of Ethics, which
have been delivered to HCMC. There have been no violations or
allegations of violations of such policies which have occurred or been
made;
(9) FTIM has not engaged in and is not engaging in any act,
conspiracy or course of conduct in violation of any applicable federal
or state securities or other law which would result in a materially
adverse change in its financial condition, results of operation,
assets, liabilities or business, and has not received any notice,
claim or protest that it is now or has heretofore been so engaged; and
(10) All of the investment advisory business and assets of the
Memphis office of FTIM are, or at the Effective Time will be, owned by
and conducted solely through FTIM and no property or asset used or
necessary in connection with its business is owned by any employees,
officers or directors of FTIM.
(V) The representations and warranties made by each of FTNC, FTIM and
HCMC, respectively, in this Agreement and any statements by each of them,
respectively, in the exhibits, schedules or Annexes hereto do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make any such representation, warranty or statement made by each of
them, in the light of the circumstances under which they were made, not
misleading.
IV. COVENANTS
Each of FTNC and, as applicable, FTIM hereby covenant to HCMC, and
HCMC hereby covenants to each of FTNC and FTIM, that:
(A) Each shall use its best efforts in good faith to take or cause to
be taken all actions necessary or desirable under this Agreement on
its part as promptly as practicable so as to permit the consummation
of the transactions contemplated by this Agreement at the earliest
possible date and cooperate fully with the other parties hereto to
that end;
(B) In the case of HCMC, it shall (1) take all steps necessary to
duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of approving this Agreement as soon as is
reasonably practicable; (2) recommend to its shareholders that they
approve this Agreement and use its best efforts to obtain such
approval; (3) distribute to its shareholders the Proxy
Statement/Prospectus in accordance with applicable federal and state
law and with its certificates of incorporation or charter, as the case
may be, and bylaws; (4) cooperate and consult with FTNC with respect
to each of the foregoing matters;
(C) In the case of HCMC, it will cooperate in the preparation and
filing of the Proxy Statement/Prospectus and Registration Statement in
order to consummate the transactions contemplated by this Agreement as
soon as is reasonably practicable;
(D) In the case of FTNC, it will advise HCMC, promptly after FTNC
receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification
of the shares of FTNC Common Stock issuable pursuant to this Agreement
for offering or sale in any jurisdiction, of the initiation or threat
of any proceeding for any such purpose or of any request by the SEC
for the amendment or supplement of the Registration Statement or for
additional information;
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(E) In the case of FTNC, it shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all
necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement;
(F) In the case of FTNC, subject to its disclosure obligations
required, in the opinion of its counsel, by law unless approved by the
other parties hereto in advance, none of the parties will issue any
press release or written statement for general circulation relating to
the transactions contemplated hereby;
(G) With respect to FTIM and HCMC, each shall promptly furnish the
other with copies of written communications received by each or any of
its Affiliates or Associates (as such terms are defined in Rule 12b-2
under the Securities Exchange Act as in effect on the date hereof),
from, or delivered by any of the foregoing to, any governmental body
or agency in connection with or material to the transactions
contemplated hereby;
(H) (1) With respect to FTIM and HCMC, upon reasonable notice, it
shall afford the other party hereto, and its officers, employees,
counsel, accountants and other authorized representatives
(collectively, such party's "Representatives") access, during normal
business hours, to all of its properties, books, contracts, tax
returns, commitments and records; each shall enable the other party's
Representatives to discuss its business affairs, condition (financial
and otherwise), assets and liabilities with such third persons,
including, without limitation, its directors, officers, employees,
accountants, counsel and creditors, as the other party considers
necessary or appropriate; and each shall furnish promptly to the other
party hereto (a) a copy of each report, schedule and other document
filed by it pursuant to the requirements of federal or state
securities laws since December 31, 1991, and (b) all other information
concerning its business, properties and personnel as the other party
hereto may reasonably request, provided that no investigation pursuant
to this Paragraph (H) shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the
obligations to consummate this Agreement of, the other party hereto;
(2) with respect to HCMC, it will, upon request, furnish FTNC with all
information concerning it, its directors, officers and stockholders
and such other matters as may be reasonably necessary or advisable in
connection with the Proxy Statement/Prospectus, the Registration
Statement or any other application made by or on behalf of FTNC or
FTIM to any governmental body or agency in connection with or material
to the Merger and the other transactions contemplated by this
Agreement; (3) with respect to FTIM and HCMC, each shall furnish to
the other, in advance, any statement or application made by or on
behalf of the other to any governmental body or agency in connection
with or material to the Merger and the other transactions contemplated
by this Agreement; and (4) FTNC, FTIM and HCMC will not use any
information obtained pursuant to this Paragraph (H) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement and, if this Agreement is not consummated, each such party
will hold all information and documents obtained pursuant to this
Paragraph (H) in confidence unless and until such time as such
information or documents otherwise become publicly available or as
such party is advised by its respective counsel that any such
information or document is required by law to be disclosed, and in the
event of the termination of this Agreement, each party will deliver to
the other party hereto all documents so obtained by such party (and
any copies thereof) from the other;
(I) As to HCMC and FTIM, each shall not solicit or encourage
inquiries or proposals with respect to, or, furnish any information
relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a material portion
of its assets (whether owned by it directly or owned by any of its
subsidiaries) or of a substantial equity interest in, it or any
business combination with it other than as contemplated by this
Agreement; and in the case of FTNC, it shall not solicit a business
combination in which it is not as a practical matter the surviving
corporation; and, in the case of HCMC, it shall notify FTNC and FTIM
immediately and in the case of FTNC or FTIM, it shall notify HCMC
immediately, if any such inquiries or proposals are received by, any
such information is requested from,
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or any such negotiations or discussions are sought to be initiated
regarding FTIM or HCMC; and it shall instruct its officers, directors,
agents, advisors and affiliates to comply with the above;
(J) Each shall notify the other parties hereto as promptly as
practicable of (1) any material breach of any of its representations,
warranties or agreements contained herein and (2) any change in its
condition (financial or otherwise), properties, business, results of
operations or prospects that could have a Material Adverse Effect;
(K) Each shall cooperate and use its best efforts to promptly prepare
and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and to
obtain all necessary permits, consents, approvals and authorizations
of all third parties and governmental bodies or agencies, including,
in the case of FTNC, submission of applications for approval of this
Agreement and the transactions contemplated hereby to the Board of
Governors in accordance with the provisions of the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and to such other
regulatory agencies as required by law;
(L) Each shall (1) permit the other to review in advance and, to the
extent practicable, will consult with the other party on all
characterizations of the information relating to the other party and
any of its respective subsidiaries, which appear in any filing made
with, or written materials submitted to, any third party or any
governmental body or agency in connection with the transactions
contemplated by this Agreement; and (2) consult with the other with
respect to obtaining all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies or
agencies necessary or advisable to consummate the transactions
contemplated by this Agreement and will keep the other party apprised
of the status of matters relating to completion of the transactions
contemplated herein;
(M) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil or administrative,
including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has
been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer, employee, fiduciary or agent of
FTIM or HCMC is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining
to, this Agreement, or any of the transactions contemplated hereby or
thereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their
best efforts to defend against and respond thereto;
(N) In the case of HCMC, it will use its best efforts to cause the
Merger to qualify for pooling-of-interests accounting treatment;
(O) In the case of HCMC, it will use its best efforts to cause each
person who is at the Effective Time or was, at the time of HCMC's
shareholders' meeting referred to in Section (B) of this Article IV,
an "affiliate" of HCMC (as that term is defined in Section (B)(5) of
Article V hereof) to execute and deliver to FTNC written undertakings
in the form satisfactory to FTNC and referenced in Article V, Section
B(5) hereof, in order to cause the Merger to qualify for
pooling-of-interest accounting treatment;
(P) Following the execution and delivery of this Agreement and prior
to the Effective Time (and thereafter as necessary), the parties
hereto shall cooperate with one another to obtain the execution of a
Client's Consent substantially in the form attached hereto as ANNEX
20, relating to the consent or acknowledgment of all of HCMC's clients
listed on ANNEX 9 to the assignment of such contracts pursuant
hereto. In connection with the obtaining of such Clients' Consents,
the parties shall cooperate with one another to make full and complete
disclosures of all facts material to the giving of such consents,
including, without
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limitation, information necessary to satisfy the requirements of the
"brochure rule" under the Investment Advisers Act of 1940, as amended;
Not later than three (3) business days after approval of this
Agreement by the Boards of Directors of FTNC and HCMC, HCMC shall
undertake diligent efforts to notify all of its clients, shall
undertake to send all of such clients Clients' Consents, and shall
undertake to contact personally (by telephone or face-to-face) at
least one of the "Managers," as hereafter defined, of each of such
clients for the purpose of procuring the execution of the Clients'
Consents. HCMC shall use its best efforts to procure such execution
prior to the Effective Date. The term "Managers" as used herein shall
mean persons who have or share the power to decide on behalf of such
client whether to execute a Client's Consent, such as trustees of a
trust, or appropriate officers or directors of a corporation. At
least two (2) weeks prior to the Effective Time, HCMC shall contact
personally (by telephone or face-to-face) a "Manager" (as defined
above) of each such client which has not yet returned an executed
Client's Consent to inquire as to such client's intentions. HCMC
shall deliver to FTNC prior to the Effective Date copies of all
executed Client's Consents and make available for inspection the
originals of such Consents at or prior to the Effective Date;
(Q) FTNC shall amend those of its employee benefit plans in which
HCMC employees may become entitled to participate after the Effective
Date of the Merger ("FTNC Plans") so that such employees shall receive
vesting service credit from their respective dates of hire with HCMC;
such employees shall be credited with benefit service only from the
Effective Date of the Merger; and
(R) HCMC shall freeze the Highland Capital Management Corp. Profit
Sharing Plan ("HCMC Profit Sharing Plan") as of the Effective Date of
the Merger and make no further contributions thereto; HCMC Profit
Sharing Plan shall be maintained as a "frozen plan," with no further
benefit accruing to participants, provided it may remain a qualified,
tax-exempt profit sharing plan under Section 401(a) of the Code, in
so doing, and does not require any change in FTNC Plans by such
maintenance from and after the Effective Date of the Merger. No costs
or liabilities associated with freezing, maintaining or ultimately
terminating the HCMC employee benefit plans shall be borne by FTNC.
V. CONDITIONS TO CONSUMMATION
(A) The respective obligations of FTNC, FTIM and HCMC to effect the
Merger shall be subject to the satisfaction prior to the Effective Time of the
following conditions:
(1) This Agreement and the transactions contemplated hereby shall
have been approved by the Board of Directors or executive committee of
FTNC, the requisite votes of the shareholders of HCMC and by FTNC as
the sole shareholder of FTIM in accordance with applicable law;
(2) The procurement by FTNC of approval of this Agreement and the
transactions contemplated hereby by the Board of Governors, and the
expiration of any statutory waiting periods;
(3) Procurement of all regulatory consents and approvals (including,
without limitation, any required consents or approvals from state
securities authorities) which are necessary to the consummation of the
transactions contemplated by this Agreement; provided, however, that
no approval or consent in Paragraphs (A)(2) and (A)(3) of this Article
V shall be deemed to have been received if it shall include any
conditions or requirements which would reduce the benefits of the
transactions contemplated hereby to such a degree that FTNC or HCMC
would not have entered into this Agreement had such conditions or
requirements been known at the date hereof;
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(4) The satisfaction of all other requirements prescribed by law
which are necessary to the consummation of the transactions
contemplated by this Agreement;
(5) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger;
(6) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any
governmental authority which prohibits, restricts or makes illegal
consummation of the Merger;
(7) Heiskell, Donelson, Bearman, Adams, Williams and Caldwell shall
have delivered its opinion dated as of the Effective Date,
substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and
that, accordingly: (i) no gain or loss will be recognized by FTNC,
FTIM or HCMC as a result of the Merger, (ii) no gain or loss will be
recognized by the shareholders of HCMC who exchange their shares of
HCMC Common Stock solely for shares of FTNC Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a
fractional share interest in FTNC Common Stock); (iii) the tax basis
of the shares of FTNC Common Stock received by shareholders who
exchange all of their shares of HCMC Common Stock solely for shares of
FTNC Common Stock in the Merger will be the same as the tax basis of
the shares of HCMC Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for
which cash is received); and (iv) the holding period of the shares of
FTNC Common Stock received in the Merger will include the period
during which the shares of HCMC Common Stock surrendered in exchange
therefor were held, provided such shares of HCMC Common Stock were
held as capital assets at the Effective Time. In rendering such
opinion, counsel may require and rely upon representations contained
in certificates of officers of HCMC, FTNC, FTIM and others; and
(8) Necessary amendments to FTIM's and HCMC's respective Form ADV
under the Investment Advisers Act of 1940, and any initial
registrations of FTIM as an investment adviser under applicable state
investment advisory statutes shall have been effected and declared
effective by all applicable state securities regulatory bodies; and
(9) The Registration Statement shall have become effective and no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the Securities and Exchange
Commission.
(B) The obligation of FTNC to effect the Merger shall be subject to
the satisfaction prior to the Effective Time of the following additional
conditions:
(1) FTNC and its directors and officers who sign the Registration
Statement shall have received from HCMC's independent certified public
accountants "cold comfort" letters, dated (i) the date of the mailing
of the Proxy Statement/Prospectus to HCMC's shareholders and (ii)
shortly prior to the Effective Date, with respect to certain financial
information regarding HCMC in the form customarily issued by such
accountants at such time in transactions of this type;
(2) FTNC shall have received an opinion, dated the Effective Date, of
Burch, Porter & Johnson in the form and to the effect customarily
received in transactions of this type;
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(3) Each of the representations, warranties and covenants contained
herein of HCMC shall, in all material respects, be true on, or
complied with by, the Effective Date as if made on such Date (or on
the date when made in the case of any representation or warranty which
specifically relates to an earlier date) and FTNC shall have received
a certificate signed by the President and the Treasurer of HCMC, dated
the Effective Date, to such effect;
(4) FTNC shall have received a letter dated as of the Effective Date
from its independent certified public accountants to the effect that
the Merger will qualify for pooling-of-interests accounting treatment
if closed and consummated in accordance with this Agreement;
(5) No litigation or proceeding is pending which (i) has been brought
against HCMC by any governmental agency seeking to prevent
consummation of the transactions contemplated hereby or (ii) in the
reasonable judgement of the President of HCMC is likely to have a
Material Adverse Effect on HCMC;
(6) Each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act and for
purposes of qualifying for "pooling-of-interests" treatment as
described below) of HCMC shall have delivered to FTNC a written
agreement satisfactory to FTNC providing, among other matters, that
such person will not sell, pledge, transfer or otherwise dispose of
any shares of HCMC Common Stock held by such "affiliate" or the shares
of FTNC Common Stock to be received by such "affiliate" in the Merger
(1) in the case of shares of FTNC Common Stock only, except in
compliance with the applicable provisions of the Securities Act and
the rules and regulations thereunder, and (2) during the periods
during which any such sale, pledge, transfer or other disposition
would, under generally accepted accounting principles or the rules,
regulations or interpretations of the SEC, disqualify the Merger for
pooling-of-interests accounting treatment. The parties understand
that such periods in general encompass the period commencing thirty
(30) days prior to the Merger and ending at the time of the
publication of financial results covering at least thirty (30) days of
combined operations of FTNC and HCMC within the meaning of Section
201-01 of the SEC's Codification of Financial Reporting Policies;
(7) Each of the employment and other agreements contemplated to be in
effect as of the Effective Date and identified in ANNEX 21 hereto
shall have been executed and in full force and effect and the
uncollected accounts receivable by FTIM as of the Effective Date shall
have been distributed to or for the benefit of FTNC;
(8) HCMC shall have complied with the notification procedures set
forth in Section IV.(P) above and shall have obtained executed
Clients' Consents in the form of ANNEX 20 hereto signed by clients who
are listed on ANNEX 9. On the Effective Date, HCMC shall deliver a
certificate as to the matters set forth in the foregoing sentence.
Such certificate shall also certify that no clients or entities who
have executed Clients' Consents have revoked such consents or
disclosed to HCMC an intention to do so or to terminate their
investment advisory relationship with the Surviving Corporation or
materially to reduce their assets under management by the Surviving
Corporation.
(C) The obligation of HCMC to effect the Merger shall be subject to
the satisfaction prior to the Effective Time of the following additional
conditions:
(1) HCMC shall have received from FTNC's independent certified public
accountants "cold comfort" letters, dated (i) the date of the mailing
of the Proxy Statement/Prospectus to HCMC's shareholders, and (ii)
shortly prior to the Effective Date, with respect to certain financial
information regarding FTNC in the form customarily issued by such
accountants at such time in transactions of this type;
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<PAGE> 87
(2) HCMC shall have received an opinion, dated the Effective Date, of
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell in the form
and to the effect customarily received in transactions of this type;
(3) Each of the representations, warranties and covenants contained
herein of FTNC and FTIM shall, in all material respects, be true on,
or complied with by, the Effective Date as if made on such date (or on
the date when made in the case of any representation or warranty which
specifically relates to an earlier date) and HCMC shall have received
certificates signed by the President and the Chief Financial Officer
of FTNC, and by the President of FTIM dated the Effective Date, to
such effect;
(4) No litigation or proceeding is pending which (i) has been brought
against FTNC or any of its subsidiaries, or FTIM, by any governmental
agency, seeking to prevent consummation of the transactions
contemplated hereby or (ii) in the reasonable judgment of the
President of FTNC or the President of FTIM is likely to have a
Material Adverse Effect on FTNC or FTIM, as applicable; and
(5) Each of the employment and other agreements contemplated to be in
effect as of the Effective Date and identified in ANNEX 20 shall have
been executed and in full force and effect.
VI. TERMINATION
This Agreement may be terminated prior to the Effective Date, either
before or after its approval by the stockholders of HCMC:
(A) By the mutual consent of FTNC, FTIM and HCMC, if the Board of
Directors of each (or in the case of FTNC, its Executive Committee) so
determines by vote of a majority of the members of its entire Board;
(B) By FTNC and FTIM or HCMC, if Boards of Directors (or in the case
of FTNC, its executive committee) so determines by vote of a majority of the
members of its entire Board, in the event of a material breach by the other
party hereto of any representation, warranty or agreement contained herein
which is not cured or not curable within sixty (60) days after written notice
of such breach is given to the party committing such breach by the other party
hereto;
(C) By FTNC and FTIM or HCMC, if the Boards of Directors (or in the
case of FTNC, its Executive Committee) so determines by vote of a majority of
the members of its entire Board, in the event that the Merger is not
consummated by six (6) months from date of Agreement unless the failure to so
consummate by such time is due to the breach of this Agreement by the party
seeking to terminate;
(D) By FTNC and FTIM , if the Boards of Directors (or in the case of
FTNC, its Executive Committee) so determines, if the FTNC Common Stock Average
Price is less than $37.00 by written notice to the other party delivered within
three (3) days after the last day of the Calculation Period; or
(E) By HCMC, if its Board of Directors so determines, if the FTNC
Common Stock Average Price is greater than $43.00 by written notice to FTIM and
FTNC delivered within three (3) days after the last day of the Calculation
Record; provided, however, that if HCMC delivers such notice, FTNC and FTIM
shall have the option, exercisable by written notice to HCMC delivered within
two (2) days after receipt of the written notice from HCMC, to require HCMC to
consummate the Merger as set forth herein based upon an assumed FTNC Common
Stock Average Price of $43.00, regardless of what such Average Price may
actually be.
In the event of the termination of this Agreement by either FTNC and
FTIM or HCMC, as provided above, this Agreement shall thereafter become void
and there shall be no liability on the part of any party hereto or their
respective officers or directors, except that any such termination shall be
without prejudice to the rights of any party
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hereto arising out of the willful breach by any other party of any covenant or
willful misrepresentation contained in this Agreement.
VII. EFFECTIVE DATE AND EFFECTIVE TIME
On the fifteenth business day of the month following the month during
which the expiration of all applicable waiting periods in connection with
governmental approvals occurs and all conditions to the consummation of this
Agreement are satisfied or waived, or on such earlier or later date as may be
agreed by the parties, a certificate of merger shall be executed in accordance
with all appropriate legal requirements and shall be filed as required by law,
and the Merger provided for herein shall become effective upon such filing or
on such date as may be specified in such certificate of merger. The date of
such filing or such later effective date is herein called the "Effective Date."
The "Effective Time" of the Merger shall be 4:01 P.M. in the State of Tennessee
on the Effective Date (or such other time on the Effective Date as may be
agreed by the parties).
VIII. OTHER MATTERS
(A) CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings indicated:
(1) "Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that, individually or
collectively, is reasonably likely to have a material adverse effect
upon (x) the condition, financial or otherwise, properties, business,
results of operations or prospects of such person and its
subsidiaries, taken as a whole, or (y) the ability of such person to
perform its obligations under, and to consummate the transactions
contemplated by, this Agreement.
(2) "Person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
(B) SURVIVAL. The agreements and covenants of the parties which by
their terms apply in whole or in part after the Effective Time shall survive
the Effective Date. All other representations, warranties, agreements and
covenants shall be deemed to be conditions of this Agreement and shall not
survive the Effective Date. If this Agreement shall be terminated, the
agreements of the parties in Paragraph (H)(4) of Article IV, in the last
unlettered paragraph of Article VI and Paragraphs (F) and (G) of this Article
shall survive such termination.
(C) AMENDMENT; MODIFICATION; WAIVER. Prior to the Effective Date,
any provision of this Agreement may be (i) waived by the party benefitted by
the provision or by the parties or (ii) amended or modified at any time
(including the structure of the transaction) by an agreement in writing between
the parties hereto approved by their respective Boards of Directors (to the
extent allowed by law), except that, after the vote by the shareholders of
HCMC, Paragraph (B) of Article I shall not be amended or revised.
(D) COUNTERPARTS. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
(E) GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Tennessee.
(F) EXPENSES. Each party hereto will bear all expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby.
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<PAGE> 89
(G) DISCLOSURE. Each of the parties and its respective agents,
attorneys and accountants will maintain the confidentiality of all information
provided in connection herewith which has not been publicly disclosed unless it
is advised by its respective counsel that any such information is required by
law to be disclosed.
(H) NOTICES. All notices, requests, acknowledgments and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram, overnight
delivery service or facsimile copy (confirmed in writing) to such party at its
address set forth below or such other address as such party may specify by
notice to the other party hereto:
IF TO HCMC, TO: Highland Capital Management Corp.
6077 Primacy Parkway
Memphis, Tennessee 38119
ATTN: James M. Weir
With Copies to: Burch, Porter & Johnson
650 Morgan Keegan Tower
50 N. Front Street
Memphis, Tennessee 38103
ATTN: Warner B. Rodda, Esq.
IF TO FTNC, TO: FIRST TENNESSEE NATIONAL CORPORATION
4385 Poplar Avenue
Memphis, Tennessee 38117
ATTN: E. Kelton Morris
With Copies to: HEISKELL, DONELSON, BEARMAN,
ADAMS, WILLIAMS & CALDWELL
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
ATTN: Charles T. Tuggle, Jr.
FIRST TENNESSEE NATIONAL
CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Clyde A. Billings, Jr.
(I) NO THIRD PARTY BENEFICIARIES. All terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as expressly
provided for herein, nothing in this Agreement is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
(J) ENTIRE AGREEMENT. This Agreement, together with the Annexes
hereto, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made.
(K) ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the written consent of the other parties.
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<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers as of the day and
year first above written.
FIRST TENNESSEE NATIONAL CORPORATION
By: /s/ Lenore Creson
Title: Secretary
FTNC
FIRST TENNESSEE INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Pruett
Title: President
FTIM
HIGHLAND CAPITAL MANAGEMENT
CORP.
By: /s/ James M. Weir
Title: Treasurer
HCMC
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<PAGE> 91
APPENDIX B
Delaware General Corporation Law
SECTION 262
-----------
- -- Chapter 61, Laws of 1993:
Sec. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making or a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with the provisions of subsection (d) of this
Section and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to Sec. 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections (b) and (c) of
this section. As used in this section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock or a constituent corporation in a merger or consolidation to be
effected pursuant to Sec. 251, 252, 254, 257, 258, [or] 263, or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 stockholders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as provided in
subsection (f) of Sec. 251 of this title.
<PAGE> 92
Sec. 262 (continued)
- -------------------------------------------------------------------------------
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sec. 251,
252, 254, 257, [and] 258, 263, and 264 of this title to accept for such stock
anything except:
(a) Shares of stock of any other corporation surviving or resulting
from such merger or consolidation;
(b) Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 stockholders;
(c) Cash in lieu of fractional shares of the corporations described in
the foregoing subparagraphs a. and b. of this paragraph; or
(d) Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c)
<PAGE> 93
Sec. 262 (continued)
- ----------------------------------------------------------------------------
hereof that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Sec. 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder
<PAGE> 94
Sec. 262 (continued)
- -------------------------------------------------------------------------------
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the
<PAGE> 95
Sec 262 (continued)
- -----------------------------------------------------------------------------
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced, as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in
<PAGE> 96
Sec. 262 (continued)
- ----------------------------------------------------------------------------
connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Tennessee Code Annotated Sections 48-18-501 through 48-18-509
authorize a corporation to provide for the indemnification of officers,
directors, employees and agents in terms sufficiently broad to permit
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended. FTNC has adopted the provisions of the Tennessee statute pursuant
to Article XXVIII of its Bylaws. Also, FTNC has a "Directors' and Officers'
Liability Insurance Policy" which provides coverage sufficiently broad to
permit indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended.
Tennessee Code Annotated, Section 48-12-102, permits the inclusion in
the charter of a Tennessee corporation of a provision, with certain exceptions,
eliminating the personal monetary liability of directors to the corporation or
its shareholders for breach of the duty of care. FTNC has adopted the
provisions of the statute in Article 13 of its charter.
The shareholders of FTNC have approved an amendment to Article XXVIII
of the Bylaws pursuant to which FTNC is required to indemnify each director and
any officers designated by the FTNC Board, and advance expenses, to the maximum
extent not prohibited by law. In accordance with the foregoing, the FTNC Board
is authorized to enter into individual indemnity agreements with the directors
and such officers. Such indemnity agreements have been approved for all of the
directors and certain officers.
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
(a) Exhibits
Number Description
------ -----------
<S> <C>
2 Agreement and Plan of Merger (included as Appendix "A" to the Proxy Statement-Prospectus)
3(a) Restated Charter of FTNC, as amended, incorporated by reference to Exhibit 3(a) to FTNC's Annual Report on Form 10-
K for the fiscal year ended December 31, 1991
3(b) Bylaws of FTNC, as amended, incorporated by reference to Exhibit 3(ii) to FTNC's registration statement on Form S-4
(No. 33-66058), filed December 9, 1993
4(a) Form of Common Stock Certificate, incorporated by reference to Exhibit 3(B) to FTNC's registration statement on
Form S-4 (No. 33-51223), filed November 30, 1993
4(b) Shareholder Protection Rights Agreement, dated as of September 7, 1989, between FTNC and FTB as Rights Agent,
incorporated by reference to FTNC's Registration Statement on Form 8-A, filed September 8, 1989
4(c) Indenture, dated as of June 1, 1987, between FTNC and Security Pacific National Trust Company (New York), Trustee
incorporated by reference to FTNC's Annual Report on Form 10-K for the fiscal year ended December 31, 1991
4(d) FTNC and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 13 on Page 34
of FTNC's 1992 Annual Report to Shareholders. None of such debt exceeds 10% of the total assets of FTNC and its
consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are
not required to be included as exhibits. FTNC agrees to furnish copies of such instruments to the SEC upon
request.
5 Opinion Regarding Legality
8 Opinion Regarding Tax Matters
</TABLE>
II-1
<PAGE> 98
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
23(a) Consent of Arthur Andersen & Co.
23(b) Consent of Baylor and Backus
23(c) Consent of Ernst & Young
23(d) Consent of Cannon & Company
23(e) Consent of Clyde A. Billings, Jr. included in Exhibit 5
23(f) Consent of Heiskell, Donelson, Bearman, Adams, Williams &
Caldwell included in Exhibit 8
24 Powers of Attorney
28 Form of Proxy for Shareholders of HCMC
(b) Financial Statement Schedules--Not applicable
(c) Not Applicable
</TABLE>
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales of the
securities are being made, a post-effective amendment to this Registration
Statement:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect any facts or events arising after the effective
date (or most recent post-effective amendment) which,
individually, or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed or any material
change to such information set forth in the Registration
Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8, and the
information required [or] to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE> 99
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(c) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be the initial bona fide offering
thereof.
(d) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(e) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Proxy
Statement-Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 100
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant has
duly caused its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee, on January 18, 1994.
FIRST TENNESSEE NATIONAL CORPORATION
By:/s/ Susan Schmidt Bies
------------------------------------------------
Susan Schmidt Bies, Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and January 18, 1994
- ---------------------------------- Chief Executive Officer (principal
Ronald Terry executive officer)
/s/ Susan Schmidt Bies Executive Vice President and January 18, 1994
- ---------------------------------- Chief Financial Officer (principal
Susan Schmidt Bies financial officer)
* Senior Vice President and January 18, 1994
- ---------------------------------- Controller (principal
James F. Keen accounting officer)
Director January __, 1994
- ----------------------------------
Jack A. Belz
Director January __, 1994
- ----------------------------------
Robert C. Blattberg
* Director January 18, 1994
- ----------------------------------
John Hull Dobbs
* Director January 18, 1994
- ----------------------------------
Ralph Horn
* Director January 18, 1994
- ----------------------------------
J. R. Hyde, III
* Director January 18, 1994
- ----------------------------------
Joseph Orgill, III
* Director January 18, 1994
- ----------------------------------
Cameron E. Perry
* Director January 18, 1994
- ----------------------------------
Richard E. Ray
Director January __, 1994
- ----------------------------------
Vicki D. Roman
* Director January 18, 1994
- ----------------------------------
Michael D. Rose
</TABLE>
II-4
<PAGE> 101
<TABLE>
<S> <C> <C>
* Director January 18, 1994
- ----------------------------------
William B. Sansom
Director January __, 1994
- ----------------------------------
Gordon P. Street
* Director January 18, 1994
- ----------------------------------
Ronald Terry
* Director January 18, 1994
- ----------------------------------
Norfleet R. Turner
By: /s/ Clyde A. Billings, Jr. January 18, 1994
-----------------------------------
Clyde A. Billings, Jr.
*As Attorney-in-Fact
</TABLE>
[The Power of Attorney is included herein as Exhibit 24.]
II-5
<PAGE> 1
Exhibit 5
FIRST TENNESSEE NATIONAL CORPORATION
January 18, 1994
Board of Directors
First Tennessee National Corporation
165 Madison Avenue
Memphis, TN 38103
Gentlemen:
I have acted as counsel to First Tennessee National Corporation, a
Tennessee corporation (the "Company"), in connection with the registration on
Form S-4, Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), of 485,218 shares (the
"Securities") of Common Stock, par value $2.50 per share, of the Company and
associated stock purchase rights (the "Rights") to be issued pursuant to the
Shareholder Protection Rights Agreement dated as of September 7, 1989 (the
"Rights Agreement") between the Company and First Tennessee Bank National
Association, as Rights Agent (the "Rights Agent"). The Securities are to be
issued to shareholders of the common stock of Highland Capital Management Corp.
("HCMC") pursuant to the terms of the Agreement and Plan of Merger dated
November 10, 1993, by and among the Company, First Tennessee Investment
Management, Inc. and HCMC (the "Agreement"), in exchange for shares of HCMC's
common stock owned by such shareholders. I have examined the originals or
copies, certified or otherwise identified to may satisfaction, of such
corporate records, certificates and other documents, and such questions of law,
as I have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, it is my opinion that:
1. When the Securities have been duly issued pursuant to the
terms of the Agreement, the Securities will be validly issued,
fully paid and nonassessable.
2. Assuming that the Rights Agreement has been duly authorized,
executed and delivered by the Rights Agent, then when the
Securities have been validly issued, the rights attributable
to the Securities will be validly issued.
In connection with my opinion set forth in paragraph (2) above, I note
that the question whether the Board of Directors of the Company might be
required to redeem the Rights at some future time will depend upon the facts
circumstances existing at that time and, accordingly, is beyond the scope of
such opinion.
<PAGE> 2
The foregoing opinion is limited to the federal laws of the United
States and the laws of the State of Tennessee, and I am addressing no opinion
as to the effect of the laws of any other jurisdiction.
In rendering the foregoing opinion, I have relied to the extent I deem
such reliance appropriate as to certain matters on statements, representations
and other information obtained from public officials, officers of the Company
and other sources believed by me to be responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to me in the Proxy
Statement-Prospectus that is a part of the Registration Statement. In giving
such consent, I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ Clyde A. Billings, Jr.
<PAGE> 1
Exhibit 8
LAW OFFICES
HEISKELL, DONELSON, BEARMAN, ADAMS, WILLIAMS & CALDWELL
A PROFESSIONAL CORPORATION
TWENTIETH FLOOR -- FIRST TENNESSEE BUILDING
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901)526-2000
FACSIMILE--(901)577-2303
January __, 1994
First Tennessee National Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Re: MERGER WITH HIGHLAND CAPITAL MANAGEMENT CORPORATION - FEDERAL INCOME
TAX CONSEQUENCES
Gentlemen:
We have acted as counsel for First Tennessee National Corporation
("FTNC") in connection with the Agreement and Plan of Merger dated as of
November 10, 1993 (the "Agreement"), by and between FTNC and its subsidiary,
First Tennessee Investment Management, Inc. ("FTIM"), and Highland Capital
Management Corporation ("HCMC"). The Agreement provides that HCMC will be
merged with and into FTIM under the Tennessee Business Corporation Act and
under the Delaware General Corporation Law (the "Merger"). The corporate
existence of HCMC will cease, and FTIM will become the surviving corporation.
FTIM will immediately change its name to "Highland Capital Management
Corporation". Pursuant to the Agreement, each share of HCMC common stock
issued and outstanding at the Effective Date will be converted into shares of
FTNC common stock based on a Conversion Number set by reference to the average
price of the FTNC common stock for the twenty (20) business day period ending
on the fifth business day prior to the Effective Date. No fractional shares of
FTNC common stock will be issued in connection with the Merger. In lieu of
fractional shares, FTNC will make a cash payment equal to the fractional
interest which an HCMC shareholder would otherwise receive multiplied by the
Average Price of FTNC common stock as defined in Section I(C) of the Agreement.
This opinion is provided pursuant to the requirements of Item 4 of Form S-4 and
Section V(A)(7) of the Agreement. Capitalized terms not defined herein shall
have the meaning ascribed to them in the Agreement.
We have been provided with an Officer's Certificate dated
__________________, 1994, in which officers of FTNC make certain
representations on behalf of FTNC regarding the Merger, and we have been
provided with a Certificate dated _____________________, 1994, in which
officers of HCMC make certain representations on behalf of HCMC regarding the
Merger (the "Certificates"). We assume those representations to be not only
statements in the signers' best information but also currently true statements
of fact, and we rely thereon in rendering this opinion.
<PAGE> 2
In rendering the following opinion, we have considered the Agreement,
the Certificates, applicable case law and applicable provisions of the Internal
Revenue Code of 1986, as amended and as presently in effect (the "Code"), and
regulations adopted thereunder, and Revenue Rulings and Revenue Procedures
published thereunder.
Based on the foregoing, and assuming that the representations made in
the Certificates also will be true as of the Effective Date of the Merger as
defined in the Agreement, we are of the opinion that, upon consummation of the
Merger in accordance with the terms and conditions of the Agreement, for
federal income tax purposes:
(a) Provided that the Merger qualifies as a statutory merger under
the Tennessee Business Corporation Act and the Delaware
General Corporation Law, the Merger will be a reorganization
within the meaning of Section 368(a) of the Code, and FTNC,
FTIM and HCMC will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by HCMC, FTIM or FTNC by
reason of the Merger.
(c) No gain or loss will be recognized by the shareholders of HCMC
upon receipt of FTNC common stock in exchange for their HCMC
common stock, except as described below with respect to
stockholders who receive cash in lieu of fractional share
interests in FTNC common stock.
(d) The basis of the FTNC common stock received by HCMC
shareholders who exchange HCMC common stock for FTNC common
stock will be the same as the basis of the HCMC common stock
surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is
received).
(e) The holding period of the FTNC common stock received by a HCMC
stockholder will include the period during which the HCMC
common stock surrendered in exchange therefor was held,
provided that such HCMC common stock was held by such HCMC
stockholder as a capital asset on the Effective Date.
(f) A stockholder of HCMC common stock who receives cash in the
Merger in lieu of a fractional share interest in FTNC common
stock will be treated as having received cash in redemption of
such fractional share interest. Provided that such HCMC
common stock was held by such HCMC stockholder as a capital
asset on the Effective Date, the receipt of such cash should
generally result in capital gain or loss equal to the
difference between the amount of cash received and the portion
of such HCMC stockholder's adjusted basis in the shares of
HCMC common stock allocable to the fractional share interest.
Such capital gain or loss will be long-term capital gain or
loss if the holding period for the shares of HCMC common stock
for which cash is received is more than one (1) year.
<PAGE> 3
The shares of HCMC common stock referred to herein do not include any
stock rights, rights or options to acquire HCMC common stock.
Based on the foregoing assumptions, we are further of the opinion that
under the corporate income or excise tax laws of the States of Tennessee and
Delaware, no gain or loss will be recognized by HCMC, FTIM or FTNC by reason of
the merger.
This opinion is limited to the effect of the income tax laws of the
United States of America and the States of Tennessee and Delaware, and we have
expressed no opinion as to the laws of any jurisdiction other than the United
States of America and these states. We have not considered the effects of the
transaction on the stockholders of HCMC under the income tax laws of the states
in which they reside, and we have not considered the effects on the
transaction, if any, of sales and use taxes or any other state and local taxes
except for corporate income or excise taxes. We express no opinion as to the
federal income tax consequences of the exchange of HCMC shares by any
individual who receives such shares as compensation and holds them at the
Effective Date subject to any restriction related to employment.
Changes to the Code, regulations, rulings thereunder, and changes by
the courts and the interpretation of the authorities relied upon, may be
applied retroactively and may affect the opinion expressed herein.
The foregoing opinion is furnished to you solely in connection with
the above-described transaction and may not be relied upon by any other person
or entity, or used for any other purpose. Unless a prior written consent of
our firm is obtained, this opinion is not to be quoted or otherwise referred to
in any report, proxy statement, or registration statement, and is not to be
filed with or furnished to any governmental agency or other entity or person,
except as otherwise required by law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4, relating to the issuance of shares of FTNC
common stock in the Merger, to be filed by FTNC with the Securities and
Exchange Commission, and to all references to this firm in the Prospectus that
is a part of the Registration Statement.
Very truly yours,
HEISKELL, DONELSON, BEARMAN,
ADAMS, WILLIAMS & CALDWELL, P.C.
By: __________________________
A Member Thereof
<PAGE> 1
Exhibit 23 (a)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report dated
January 19, 1993, incorporated by reference in First Tennessee National
Corporation's Form 10-K for the year ended December 31, 1992, and to all
references to our firm included in this registration statement
Arthur Andersen & Co.
Memphis, Tennessee
January 17, 1994
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report for the
years ended December 31, 1991 and 1990 dated February 21, 1992, except with
respect to the information discussed in Note 27, as to which the date is
October 21, 1992, incorporated by reference in First Tennessee National
Corporation's Form 10-K for the year ended December 31, 1992, and to all
references to our firm included in this registration statement.
Baylor and Backus
Certified Public Accountants
Johnson City, Tennessee
January 14, 1994
<PAGE> 1
Exhibit 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-4) and related Prospectus of First Tennessee National Corporation for
the registration of 485,218 shares of its common stock of our report dated
March 19, 1993, with respect to the consolidated financial statements of
Maryland National Mortgage Corporation for the year ended December 31, 1992,
included in Form 8-K, dated October 1, 1993, of First Tennessee National
Corporation, filed with the Securities and Exchange Commission.
Ernst & Young
Baltimore, Maryland
January 13, 1994
<PAGE> 1
Exhibit 23(d)
Consent of Independent Public Accountants
We hereby consent to the inclusion in this registration statement on Form S-4
of our Audit report dated November 24, 1993, and our compilation report also
dated November 24, 1993, on the financial statements of Highland Capital
Management Corporation. We also consent to the reference to our firm under the
caption "Experts."
Cannon & Company
Memphis, Tennessee
January 18, 1994
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint SUSAN SCHMIDT BIES, JAMES F.
KEEN, and CLYDE A. BILLINGS, JR., jointly and each of them severally, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to execute and sign the Registration Statement on Form S-4 to be
filed with the Securities and Exchange Commission, pursuant to the provisions
of the Securities Act of 1933, by First Tennessee National Corporation
("Corporation") relating to the issuance of its Common Stock, par value $2.50
per share, pursuant to the Agreement and Plan of Merger dated as of November
10, 1993, by and among the Corporation, First Tennessee Investment Management,
Inc. and Highland Capital Management Corp. and, further, to execute and sign
any and all pre-effective and post-effective amendments thereto and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, or their or his or her
substitute or substitutes, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all the acts that said
attorney-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald Terry Chairman of the Board and Chief Executive January 18, 1994
Officer (principal executive officer)
/s/ Susan Schmidt Bies Executive Vice President and Chief financial January 18, 1994
Officer (principal financial officer)
/s/ James F. Keen Senior Vice President and Controller January 18, 1994
(principal accounting officer)
/s/ John Hull Dobbs Director January 18, 1994
/s/ Ralph Horn Director January 18, 1994
/s/ J. R. Hyde, III Director January 18, 1994
/s/ Joseph Orgill, III Director January 18, 1994
/s/ Cameron E. Perry Director January 18, 1994
/s/ Richard E. Ray Director January 18, 1994
/s/ Michael D. Rose Director January 18, 1994
/s/ William B. Sansom Director January 18, 1994
/s/ Gordon P. Street, Jr. Director January 18, 1994
/s/ Norfleet R. Turner Director January 18, 1994
</TABLE>
<PAGE> 1
Exhibit 28
HIGHLAND CAPITAL MANAGEMENT CORP.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HIGHLAND CAPITAL MANAGEMENT
CORP. FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ____________, 1994)
The undersigned hereby appoints _______________, ________________ and
____________ or any of them with full powers of substitution, as attorneys and
proxies for the undersigned, to represent and vote all shares of Common Stock
of Highland Capital Management Corp. ("HCMC") standing in my name on the books
and records of HCMC at the close of business on __ ______________, 1994 which
the undersigned is entitled to cast at the Special Meeting of Shareholders to
be held at the office of HCMC, 6077 Primacy Parkway, Suite 228, Memphis,
Tennessee, on ____________, 1994 at 10:00 a.m. CST and at any and all
adjournments as follows:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger dated as of November 10,
1993 (the "Merger Agreement"), by and among First Tennessee National
Corporation ("FTNC"), First Tennessee Investment Management, Inc. ("FTIM")
and HCMC pursuant to which HCMC will merge with and into FTIM with FTIM
surviving the merger. ------- ------- -------
2. At their discretion, on such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof. ------- ------- --------
</TABLE>
NOTE: The Board of Directors is not aware of any other business that may come
before the meeting.
<PAGE> 2
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS
STATED IF NO CHOICE IS MADE THEREON.
Should the undersigned be present and elect to vote at the Special
Meeting or any adjournment thereof, and, after notification to the Secretary of
HCMC at the Special Meeting of the shareholder's decision to terminate this
Proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting
called for the __ day of ____________, 1994; and the Proxy Statement-Prospectus
dated the __ day of ________, 1994 prior to the execution of this Proxy.
<TABLE>
<S> <C>
---------------------------------
Print Name of Shareholder
Date:
---------------------- ---------------------------------
Signature of Shareholder
---------------------------------
Print Name of Shareholder
---------------------------------
Date: Signature of Shareholder
--------------------
(Please sign exactly as your name appears on the
envelope in which this card was mailed. When signing as
attorney, executor, administrator, trustee or guardian,
please give your full title. If more than one trustee,
all should sign. If shares are held jointly, each
holder should sign.
</TABLE>
