<PAGE> 1
As filed with the Securities and Exchange Commission on November 22, 1994
Registration No. 33-56243
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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<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:
CLYDE A. BILLINGS, JR. DIANE S. OWENS
Vice President & Counsel Youngblood & Owens, Ltd.
First Tennessee National Corporation 600 North Pearl Street
165 Madison Avenue Suite 600
Memphis, Tennessee 38103 Dallas, Texas 75201
(901) 523-5679 (214) 969-5700
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 the Merger Agreement have been
satisfied.
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: / /
<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 PROSPECTU
- -------------------------- --------------------------------
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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; Certain Regulatory Considerations; 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 Validity of Common Stock; 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 CIB; Index to CIB Financial
Than S-2 or S-3 Companies 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 Applicaple
Authorizations are not to be Solicited or in
an Merger Offer
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i
<PAGE> 3
________________________, 1994
Dear Carl I. Brown and Company Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Carl I. Brown and Company ("CIB") to be held at the main office of CIB, 612
West 47th Street, Kansas City, Missouri, on ________________, 199__ at 10:00
a.m., local time.
At this meeting, you will have an opportunity to consider and vote on
the terms of an Agreement and Plan of Merger, (the "Agreement") by and among
CIB, First Tennessee National Corporation ("FTNC") and its wholly-owned
subsidiary, First Tennessee Bank National Association. The Agreement provides,
among other things, that First Tennessee Interim Corporation, a wholly-owned
subsidiary of FTNC, will merge with and into CIB (the "Merger") with CIB as the
surviving corporation, that immediately prior to the Merger FTNC will direct
that all shares of CIB Common Stock, as the surviving corporation, be issued
directly to FTB, and that thereby CIB will become a wholly-owned subsidiary of
FTB.
The Agreement generally provides for a tax-free exchange in which CIB
shareholders will receive shares of FTNC common stock in exchange for shares of
CIB common stock.
The proposed Merger has been unanimously approved by the Boards of
Directors of both FTNC and CIB.
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 CIB 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. For your convenience,
there is included a postage-paid, addressed envelope for your proxy card. No
additional postage is required if mailed in the United States.
THE MERGER IS AN IMPORTANT STEP FOR CIB AND ITS SHAREHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER.
Sincerely,
L. Gregory Brown, President
<PAGE> 4
CARL I. BROWN AND COMPANY
================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ____________________,199_
================================================================================
Notice is hereby given that a Special Meeting of Shareholders of Carl
I. Brown and Company ("CIB") has been called by the Board of Directors and will
be held at the main office of CIB, 612 West 47th Street, Kansas City, Missouri,
on ____________________, 199__ at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of September 6, 1994 (the "Agreement") by and among
First Tennessee National Corporation ("FTNC"), First Tennessee Bank National
Association, a wholly-owned subsidiary of FTNC ("FTB"), and CIB. The Agreement
provides for the Merger of First Tennessee Interim Corporation with and into
CIB (the "Merger") with CIB as the surviving corporation and provides that
immediately prior to the Merger FTNC will direct that all shares of CIB Common
Stock, as the surviving corporation, be issued directly to FTB, as a result of
which CIB will become a wholly-owned subsidiary of FTB, 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,
Eric S. Brown, Secretary
Kansas City, Missouri
Dated: ____________________, 1994
THE BOARD OF DIRECTORS OF CIB UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF CIB COMMON STOCK VOTE TO APPROVE THE PROPOSAL.
<PAGE> 5
PROXY STATEMENT
CARL I. BROWN AND COMPANY
SPECIAL MEETING TO BE HELD ON _________________, 199__
PROSPECTUS
FIRST TENNESSEE NATIONAL CORPORATION
1,235,657 SHARES OF COMMON STOCK
This Proxy Statement-Prospectus is being furnished to the shareholders
of common stock, par value $1.00 per share (the "CIB Common Stock"), of Carl I.
Brown and Company, a Kansas corporation, in connection with the solicitation of
proxies by the CIB Board of Directors (the "CIB Board") for use at the Special
Meeting of CIB shareholders to be held at 10:00 a.m., local time, on
________________, 199_, at the main office of CIB, 612 West 47th Street, Kansas
City, Missouri, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, the shareholders of record of CIB 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
September 6, 1994 (the "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
Bank National Association, a wholly-owned subsidiary of FTNC ("FTB"), and CIB.
Pursuant to the Agreement, First Tennessee Interim Corporation ("Interim"), a
wholly-owned subsidiary of FTNC formed for the purpose of accomplishing the
transaction, will merger with and into CIB with CIB surviving the merger (the
"Merger"). Immediately prior to the Merger, FTNC, as sole shareholder of
Interim, will direct that all shares of CIB Common Stock, as the surviving
corporation, be issued directly to FTB, and as a result, CIB will become a
wholly-owned subsidiary of FTB. For a description of the Agreement, which is
included herein in its entirety as Appendix "A" to this Proxy
Statement-Prospectus, see "The Merger."
This Proxy Statement-Prospectus also constitutes a prospectus of FTNC
with respect to up to 1,235,657 shares of FTNC Common Stock offered to the
shareholders of CIB in connection with the Merger. The shares of FTNC Common
Stock to be issued in connection with the Merger are based upon the conversion
each outstanding share of CIB 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 Nasdaq Stock Market on
its National Market. The last reported sale price of FTNC Common Stock on the
Nasdaq Stock Market 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 CIB has been supplied by CIB. This Proxy Statement-Prospectus and
the accompanying proxy card are first being mailed to shareholders of CIB 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 BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY 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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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
Opinion of Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
Determination of Closing Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
Merger; Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
Post-Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Conduct of Business Pending Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Termination; Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
Shareholders' Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
Resale of FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
The Nasdaq Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
CERTAIN REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
Holding Company Structure and Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Interstate Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
FDIC Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Depositor Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
INFORMATION CONCERNING CIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
</TABLE>
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Page
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Management's Discussion & Analysis of Financial Condition & Results of Operations . . . . . . . . . . . . . . - 39 -
Ownership of CIB Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
DESCRIPTION OF FTNC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Shareholder Protection Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
Subordinated Capital Notes due 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
EFFECT OF THE EXCHANGE ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Conflict-of-Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Required Vote for Authorization of Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Shareholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Provisions in Articles of Incorporation Concerning Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Amendment of Articles of Incorporation or Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Acquisitions of Issuer's Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Voluntary Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Authorized Corporation Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Control Share Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Greenmail Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Dividends and Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Rights of Holders of Capital Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
VALIDITY OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
INDEX TO PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
INDEX TO CIB FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
APPENDIX "A" - Agreement and Plan of Merger
APPENDIX "B" - Section 17-6712 of Kansas' 1972 General Corporation Code
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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"). The reports, proxy statements
and other information filed by FTNC with the SEC can be inspected and copied at
the public reference facilities maintained by 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 and copied at the SEC's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511. Copies of such material can be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C., at prescribed
rates. The FTNC Common Stock is included for quotation on the Nasdaq Stock
Market 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
Agreement. As permitted by the rules and regulations of the SEC, 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 Current Report on Form 8-K, dated October 1, 1993, filed October 18,
1993; (b) FTNC's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and its Forms 10-K/A filed on April 27 and June 29, 1994, amending
its Annual Report on Form 10-K; (c) FTNC's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1994, June 30, 1994, and September 30, 1994, and
its Form 10-Q/A filed on August 19, 1994, amending its Form 10-Q for the
quarter ended March 31, 1994; (d) FTNC's proxy statement dated March 14, 1994,
exclusive of the Board Compensation Committee Report and the Total Shareholder
Return Performance Graph on pages 11-16 thereof; (e) the description of FTNC
Common Stock contained in FTNC's registration statement on Form 10 (File No.
0-4491), 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) the description of the FTNC's rights to purchase Participating
Preferred Stock included in FTNC's registration statement on Form 8-A (File No.
0-4491), filed September 8, 1989, pursuant to Section 12 of the Exchange Act
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.
- 4 -
<PAGE> 9
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
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 CIB 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, CIB 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
Appendix 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. FTNC was
incorporated in Tennessee in 1968. At September 30, 1994, FTNC had consolidated
total assets of approximately $10.4 billion, consolidated total deposits of
approximately $7.6 billion and equity capital of approximately $752.0 million.
At September 30, 1994, FTNC ranked 58th 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, 1994, FTB was the largest commercial
bank headquartered in Tennessee both in terms of total assets and deposits. At
September 30, 1994, FTB had total assets of approximately $10.0 billion, total
deposits of approximately $7.1 billion and equity capital of approximately
$658.9 million. FTB conducts a broad range of retail and commercial banking
and fiduciary services and had 212 banking locations at September 30, 1994.
FTB also offers a comprehensive range of financial services, including bond
broker/agency services, mortgage banking and check clearing, to companies
nationally. 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 mortgage
banking, 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.
CIB. CIB is a Kansas corporation, which was incorporated in 1978. It
is a full service mortgage banking company that originates, acquires, markets
and services first mortgage loans through 54 offices in 19 states. At July
31, 1994, CIB serviced a mortgage loan portfolio of $2.6 billion and had total
assets of approximately $139.4 million and equity capital of approximately $9.4
million.
The executive offices of CIB are located at 612 West 47th Street,
Kansas City, Missouri, 64112 and the telephone number is (816) 931-8988.
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 _____________________, 199_ at
10:00 a.m., local time, at the main office of CIB, 612 West 47th Street, Kansas
City, Missouri. The purpose of the Special Meeting is to consider and vote
upon a proposal to approve the Agreement.
- 6 -
<PAGE> 11
VOTE REQUIRED; RECORD DATE
Only CIB shareholders of record at the close of business on
_____________________, 1994 (the "CIB Record Date") will be entitled to vote at
the Special Meeting. For purposes of the Special Meeting, a quorum consists of
a majority of the shares issued and outstanding. If a quorum exists at the
Special Meeting, the affirmative vote of a majority of the outstanding shares
entitled to vote thereon is necessary to approve the Agreement. "Abstentions"
will be considered present for quorum purposes and will have the same effect as
a vote against approval of the Agreement. Broker "non votes" will not be
considered present, and will not otherwise have any effect on the vote. See
"The Special Meeting-Vote Required." As of the CIB Record Date, there were
172,800 shares of CIB Common Stock entitled to be voted.
As of the CIB Record Date, the directors and executive officers of CIB
and their affiliates beneficially owned 14,635 shares, or 8.5% of the
outstanding shares of CIB Common Stock.
As of the CIB Record Date, FTNC, its subsidiaries and its directors
and executive officers owned no shares of CIB Common Stock.
TERMS OF THE MERGER
On the Closing Date (defined below) First Tennessee Interim
Corporation ("Interim"), a newly chartered and wholly-owned subsidiary of FTNC
formed for the purpose of effecting the Merger, will merge with and into CIB
with CIB surviving the Merger. Immediately prior to the Merger, FTNC, as sole
shareholder of Interim, will direct that all shares of CIB Common Stock, as the
surviving corporation, be issued directly to FTB, and as a result, CIB will
become a wholly-owned subsidiary of FTB.
On the Closing Date, subject to the provisions of the Escrow Agreement
(see "The Merger -- Additional Agreements"), each share of CIB Common Stock
outstanding will be exchanged for the number of shares of FTNC Common Stock
equal to the Base Purchase Price (defined below), subject to adjustment (the
"Closing Purchase Price"), divided by the Closing Measurement Price (defined
below) divided by 172,800 (the "exchange ratio"). The exchange ratio is
subject to adjustment for certain stock dividends and splits,
recapitalizations, and other like changes in FTNC's capitalization. (See "The
Merger -- Determination of Closing Purchase Price.")
The Closing Purchase Price equals the Base Purchase Price
($53,250,000) subject to (i) an adjustment increasing or decreasing such amount
by the amount by which the unpaid principal balance of CIB's mortgage Servicing
Portfolio (as defined below) exceeds or is less than $2,859,450,502,
respectively, multiplied by 1.05% (the "Portfolio Adjustment"); and (ii) an
adjustment increasing or decreasing such amount by the amount by which CIB's
Tangible Net Assets (as defined below) exceed or are less than $9,295,469
respectively (the "Tangible Asset Adjustment"). Such dollar amount as adjusted
under (i) and (ii) above is hereinafter referred to as the "Closing Purchase
Price." See "The Merger -- Determination of Closing Purchase Price." For
purposes of the Tangible Asset Adjustment, Tangible Net Assets is defined as
CIB's assets (less capitalized servicing rights, capitalized costs,
covenant-not-to compete and non-solicition payments, and other intangible
assets) minus liabilities of CIB. For purposes of the Portfolio Adjustment,
CIB's mortgage "Servicing Portfolio" are those mortgage loans serviced or
master serviced by CIB pursuant to mortgage servicing agreements, together with
loans held in the warehouse. The Closing Purchase Price will be adjusted after
the Closing Date in the manner described under "The Merger -- Post-Closing
Adjustments."
The Closing Measurement Price is the average of the closing prices of
FTNC Common Stock as quoted on the Nasdaq Stock Market during the twenty (20)
trading days ending on the tenth (10th) trading day prior to the Closing Date,
subject to certain adjustments. If the Closing Measurement Price is equal to
or less than $35 per share, FTNC has certain additional rights. See "The
Merger -- Merger; Fractional Shares."
- 7 -
<PAGE> 12
Based on an assumed Closing Measurement Price of $45.00 per share and
an assumed Final Purchase Price, based on CIB's good faith estimates of the
Closing Portfolio and Tangible Net Assets of CIB as of the Closing Date Balance
Sheet Date, and assuming that the Closing Purchase Price equals such Final
Purchase Price (as those terms are defined herein or in the Agreement), at
Closing the exchange ratio would be 5.56173. Actual amounts may vary from the
assumed amounts. See "The Merger -- Determination of Closing Purchase Price."
CLOSING DATE
The Closing Date for the Merger will be January 3, 1995, or if all
conditions have not been satisfied, then as soon as practicable following
satisfaction of such conditions, or such other later date as is mutually
agreeable to the parties to the Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF CIB BOARD OF DIRECTORS
The CIB Board believes the Merger is fair to and in the best interest
of CIB and its shareholders and recommends that CIB's shareholders vote FOR
approval of the Agreement. The CIB Board believes that the Merger will provide
significant value to the CIB shareholders and also enable them to participate
in opportunities for growth that the CIB Board believes that the Merger makes
possible. See "The Merger -- Background of and Reasons for the Merger." For
information on the interests of certain officers and directors of CIB in the
Merger, see "The Merger -- Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISER
No financial adviser was retained by CIB to render an opinion on the
fairness of the terms of the Merger to the CIB shareholders from a financial
point of view.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of shareholder approval solicited hereby, receipt of necessary
regulatory approval, receipt of various consents from parties to material
contracts with CIB, receipt by FTNC of certain agreements, and satisfaction of
customary closing conditions. See "The Merger -- Conditions to Consummation of
the Merger, "-- Regulatory Approval," "-- Conduct of Business Pending Merger,"
and " -- Additional Agreements."
TERMINATION OF THE AGREEMENT
The Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of FTNC, FTB, CIB and L. Gregory Brown as representative
of the CIB shareholders ("Sellers' Representative") and by FTNC and FTB or CIB
in certain specified situations. See "The Merger -- Termination; Waiver and
Amendment."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
Certain members of CIB's management and the CIB Board have certain
interests in the Merger that are in addition to their interests as shareholders
of CIB generally. These consist of provisions in the Agreement relating to
indemnification and certain covenant-not-to-compete and non-solicitation
payments and employment agreements for L. Gregory Brown, Eric Scott Brown,
Jeffrey Carl Brown, and James H. Lyddon, Jr. and non-competition and
non-solicitation agreements for Carl I. Brown and Molly S. Brown (together,
"the Browns"). See "The Merger -- Interests of Certain Persons in the Merger."
- 8 -
<PAGE> 13
ADDITIONAL AGREEMENTS
Certain additional agreements, including an Escrow Agreement, a
Sellers Agreement, a Sellers' Representative and Paying Agent Agreement and a
Registration Rights Agreement, are contemplated by the Agreement and are
described in the subsection entitled "The Merger -- Additional Agreements."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Closing Date, shareholders of CIB 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 CIB with respect to certain important matters, including,
but not limited to, their rights to acquire issuer stock, act by written
consent, dissolve the corporation, amend the charter and bylaws, submit
shareholder proposals or nominations of director candidates, dissent with
respect to their shares, remove directors, call special meetings of
shareholders, pay dividends, engage in transactions which could involve a
potential conflict of interest, and exercise preemptive rights, the rights of
the holders of debt securities, the required shareholder vote as to certain
matters, indemnification provisions, and statutory and other restrictions on
certain share acquisitions. For a summary of these differences, see "Effect of
the Merger on Rights of Shareholders."
SHAREHOLDERS' DISSENTERS' RIGHTS
Under applicable Kansas law, shareholders of CIB Common Stock who file
a written objection to the Merger prior to the vote at the Special Meeting and
who do not vote in favor of the Merger and who demand in writing to be paid the
value of their shares, have the right to be paid the value of such stock agreed
to by CIB and the shareholder, or if agreement cannot be reached, as determined
by an appraisal pursuant to a petition filed with the district court. SUCH
DISSENTERS' RIGHTS WILL BE LOST, HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF THE
KGCC ARE NOT FULLY AND PRECISELY SATISFIED. See "The Merger -- Shareholders'
Dissenters' 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 CIB
or FTNC as a result of the Merger and CIB's shareholders will not recognize
gain or loss upon the receipt of FTNC Common Stock in exchange for CIB 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 Sellers of an opinion of counsel, dated as of the Closing 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 CIB under generally accepted accounting
principles ("GAAP"). Consummation of the Merger is conditioned upon receipt by
FTNC of a letter from its independent public accountants to the effect that the
Merger should be accounted for in such manner. See "The Merger -- Accounting
Treatment."
MARKET PRICES OF COMMON STOCK
The FTNC Common Stock is included for quotation on the Nasdaq Stock
Market on its National Market (symbol: FTEN). The following table sets forth
the high and low closing price of FTNC Common Stock as reported on the Nasdaq
Stock Market on a quarterly basis since 1991 through___________________________,
- 9 -
<PAGE> 14
1994. The price of FTNC Common Stock has been adjusted for a 3-for-2 stock
split effected in the form of a 50% stock dividend, which was distributed on
May 22, 1992.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------- ---------------------------------- ------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
47 3/4 45 1/4 39 3/4 40 1/2 43 1/2 47 43 1/4 37 1/4 38 36 3/4 34 7/8
43 1/2 37 3/4 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>
There is no established public trading market for CIB Common Stock,
and trading in such shares is extremely sporadic. Since January 1, 1992
through the date of this Proxy Statement-Prospectus, management of CIB is not
aware of any sales of CIB Common Stock.
The following table sets forth the closing price per share of FTNC
Common Stock and the equivalent per share price for CIB Common Stock, using an
assumed Closing Purchase Price of $43,248,000 (see "The Merger -- Determination
of Closing Purchase Price;" "-- Post-Closing Adjustments.") and giving effect
to the Merger as of September 2, 1994, the last business day preceding public
announcement of the execution of the Agreement; and as of
_____________________, 1994, the last practicable date prior to the mailing of
this Proxy Statement-Prospectus. The equivalent price per share of CIB Common
Stock at each specified date represents the closing price of a share of FTNC
Common Stock on such date multiplied by 5.51349 and ____________, respectively,
assuming that to be the exchange ratio provided for in the Agreement.
FTNC Equivalent Price
Common Stock Per CIB Bank Share
------------ ---------------------
September 2, 1994 $47.25 $ 260.51
_____________________, 1994 __.__ _,___.__
CIB shareholders are advised to obtain current market quotations for
FTNC Common Stock. The market price of FTNC Common Stock at the Closing Date
may be higher or lower than the market price at the time the Agreement was
executed, at the date of mailing of this Proxy Statement-Prospectus, at the
time of the Special Meeting, or at the time of calculation of the exchange
ratio.
EQUIVALENT AND PRO FORMA SHARE DATA
The following table presents selected comparative unaudited per share
data for FTNC Common Stock and CIB Common Stock on a historical basis and for
FTNC Common Stock on a pro forma combined basis and CIB 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 CIB, 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 CIB Financial Information."
- 10 -
<PAGE> 15
FIRST TENNESSEE NATIONAL CORPORATION
EQUIVALENT AND PRO FORMA SHARE DATA (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
-------------------- ------------------------------------
1994 1993 1993 1992(4) 1991
------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Income Per Common Share:(1)
FTNC $ 3.40 $ 2.61 $ 3.31 $ 3.00 $ 2.52
CIB 15.53 11.34 7.68 6.04 .62
FTNC pro forma 3.38 2.59 3.26 2.93 2.44
CIB pro forma equivalent 18.80 14.40 18.13 16.30 13.57
Fully Diluted Income Per Common Share:(1)
FTNC $ 3.35 $ 2.57 $ 3.26 $ 2.80 $ 2.49
CIB 15.53 11.34 7.68 6.04 .62
FTNC pro forma 3.33 2.55 3.21 2.75 2.41
CIB pro forma equivalent 18.52 14.18 17.85 15.29 13.40
Dividends Declared Per Common Share:(2)
FTNC $ 1.26 $ 1.08 $ 1.50 $ 1.26 $ 1.14
CIB -- -- -- -- --
FTNC pro forma 1.26 1.08 1.50 1.26 1.14
CIB pro forma equivalent 7.01 6.01 8.34 7.01 6.34
Book Value Per Common Share (end of
period):(3)
FTNC $ 23.35 $ 21.31 $ 21.65 $ 19.71 $ 18.96
CIB 54.18 42.40 38.73 31.04 23.86
FTNC pro forma 22.96 20.91 21.22 19.30 18.45
CIB pro forma equivalent 127.70 116.30 118.02 107.34 102.61
</TABLE>
(1) Pro forma income per share is calculated using combined historical
income for FTNC and CIB 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 combining FTNC's historical
average shares with the historical average shares of CIB as adjusted
by an exchange ratio of 5.56173. The exchange ratio of 5.56173 is
based on a price of approximately $45.00 for FTNC's Common Stock and
an estimated Final Purchase Price by adjusting the Base Purchase Price
for certain criteria per the Agreement. The pro forma equivalent
income per share amount is computed by multiplying the FTNC pro forma
amount by the exchange ratio.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC.
(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 CIB's Common Stock at an exchange ratio of 5.56173.
CIB's pro forma equivalent book value per common share is based on the
exchange ratio.
(4) SNMC Management Corporation (SNMC) was acquired by FTNC in 1994 and was
accounted for as a pooling of interests. Therefore, the results of
operations and statement of condition for SNMC is included from the
inception of the company, which was November 1, 1992.
- 11 -
<PAGE> 16
FIRST TENNESSEE NATIONAL CORPORATION
SELECTED FINANCIAL DATA AND RATIOS (UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
----------------------- --------------------------------------------------------------
1994 1993 1993 1992(3) 1991 1990 1989
----------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Interest Income and Other Income:
FTNC $ 790,303 $ 695,063 $ 959,789 $ 856,503 $ 857,428 $ 841,090 $ 806,826
CIB 71,066 40,884 63,868 23,997 12,776 17,126 16,989
FTNC pro forma 861,369 735,947 1,023,657 880,500 870,204 858,216 823,815
Net Income Applicable to Common Stock:
FTNC $ 109,248 $ 83,231 $ 106,082 $ 90,421 $ 74,732 $ 59,103 $ 39,627
CIB 2,687 1,962 1,328 1,106 119 617 50
FTNC pro forma 111,355 85,193 107,410 91,527 74,851 59,720 39,677
Net Income per Common Share:
FTNC $ 3.40 $ 2.61 $ 3.31 $ 3.00 $ 2.52 $ 1.97 $ 1.32
CIB 15.53 11.34 7.68 6.04 .62 3.21 .26
FTNC pro forma(1) 3.38 2.59 3.26 2.93 2.44 1.92 1.27
Dividends Declared per Common Share:
FTNC $ 1.26 $ 1.08 $ 1.50 $ 1.26 $ 1.14 $ 1.09 $ .96
CIB -- -- -- -- -- -- --
FTNC pro forma(2) 1.26 1.08 1.50 1.26 1.14 1.09 .96
Total Assets (end of period):
FTNC $10,446,866 $10,158,897 $10,366,697 $9,400,626 $9,006,308 $7,721,067 $7,376,750
CIB 139,363 187,622 193,579 121,355 62,327 43,955 71,889
FTNC pro forma 10,586,229 10,346,519 10,560,276 9,521,981 9,068,635 7,765,022 7,448,639
Long-Term Debt and Capital Leases
(end of period):
FTNC $ 92,311 $ 93,656 $ 92,723 $ 130,063 $ 131,443 $ 132,174 $ 133,418
CIB 1,750 -- -- -- -- -- --
FTNC pro forma 94,061 93,656 92,723 130,063 131,443 132,174 133,418
Performance Ratios:
Return on Average Assets:
FTNC 1.45% 1.19% 1.11% 1.05% .95% .80% .56%
CIB 1.60 1.62 .84 1.20 .22 1.07 .09
FTNC pro forma 1.45 1.19 1.10 1.05 .94 .80 .56
Return on Average Shareholders' Equity:
FTNC 20.12% 17.04% 16.07% 14.98% 13.84% 11.61% 8.08%
CIB 41.73 39.94 22.03 22.24 2.76 18.13 1.80
FTNC pro forma 20.37 17.26 16.12 15.04 13.75 11.66 8.03
Shareholders' Equity to Total Assets
(end of period):
FTNC 7.20% 6.69% 6.69% 6.68% 6.25% 6.74% 6.78%
CIB 6.72 3.91 3.46 4.42 7.35 9.18 3.86
FTNC pro forma 7.19 6.64 6.63 6.65 6.26 6.75 6.75
</TABLE>
(1) Pro forma income per share is calculated using combined historical
income for FTNC and CIB 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 combining FTNC's historical
average shares with the historical average shares of CIB as adjusted
by an exchange ratio of 5.56173. The exchange ratio of 5.56173 is
based on approximately $45.00 for FTNC's Common Stock and an
estimated Final Purchase Price by adjusting the Base Purchase Price
for certain criteria per the agreement.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC.
(3) SNMC Management Corporation (SNMC) was acquired by FTNC in 1994 and was
accounted for as a pooling of interests. Therefore, the results of
operations and statement of condition for SNMC is included from the
inception of the company, which was November 1, 1992.
- 12 -
<PAGE> 17
THE SPECIAL MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of CIB
Common Stock is accompanied by a proxy card furnished in connection with the
CIB 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., local time, on ___________________, 199__, at the main
office of CIB, 612 West 47th Street, Kansas City, Missouri. Only holders of
record of CIB 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, the shareholders will consider and vote upon (a) a proposal to
approve the Agreement and (b) such other matters as may properly be brought
before the Special Meeting or any adjournments or postponements thereof.
HOLDERS OF CIB COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO CIB IN THE ENCLOSED,
POSTAGE PAID ENVELOPE.
Any holder of CIB 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 card bearing a later date to CIB, at the main office,
612 West 47th Street, Kansas City, Missouri 64112, Attention: Secretary,
provided such notice or proxy is actually received by CIB before the vote of
shareholders. The shares of CIB Common Stock represented by properly executed
proxy cards 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, proxy cards received will be voted FOR approval
of the Agreement. If any other matters are properly presented at the Special
Meeting for consideration, the persons named in the CIB proxy card enclosed
herewith will have discretionary authority to vote on such matters in
accordance with their best judgment. The CIB Board is unaware of any matter to
be presented at the Special Meeting other than the proposal to approve the
Agreement.
The cost of soliciting proxies from holders of CIB Common Stock will
be borne by CIB. Such solicitation will be made by mail but also may be made
by telephone or in person by the directors, officers and employees of CIB (who
will receive no additional compensation for doing so). In addition, if
necessary, CIB will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their
principals.
CIB SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
VOTE REQUIRED
If a quorum (defined below) exists at the Special Meeting, the
affirmative vote of the holders of a majority of the outstanding shares of CIB
Common Stock entitled to vote thereon is necessary to approve the Agreement. A
failure to return a properly executed proxy card or to vote in person at the
Special Meeting can affect the ability to obtain a quorum at the Special
Meeting and could affect the outcome of the vote. As of the CIB Record Date,
there were 172,800 shares of CIB Common Stock outstanding 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 represented in person or by proxy 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 approval of the Agreement.
Broker "non votes", if any, will not be considered present for quorum purposes,
and will not otherwise have any effect on the vote.
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<PAGE> 18
As of the CIB Record Date, the directors and executive officers of CIB
and their affiliates beneficially owned a total of 14,635 shares or 8.5% of the
outstanding shares of CIB Common Stock.
As of the CIB Record Date, FTNC, its subsidiaries, and its directors
and executive officers owned no shares of CIB Common Stock.
RECOMMENDATION
FOR THE REASONS DESCRIBED BELOW, THE CIB BOARD HAS UNANIMOUSLY
APPROVED THE AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTEREST OF CIB AND
ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF CIB VOTE FOR APPROVAL OF
THE 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 Agreement, is qualified in its entirety by
reference to the Agreement, which is incorporated herein by reference and
attached hereto as Appendix "A."
BACKGROUND OF AND REASONS FOR THE MERGER
Background.
In October of 1993, representatives of Charbonneau-Klein, Inc.,
Houston, Texas, discussed with representatives of CIB the possibility that FTNC
might be interested in acquiring a mortgage company with a performance record
similar to CIB's.
In February of 1994, a representative of Charbonneau-Klein discussed a
possible merger between FTNC and CIB with Jeffrey C. Brown, an officer and
director of CIB. The discussion centered on the operational plans of FTNC and
the estimated purchase price based on CIB preliminary financial information.
In July of 1994, representatives of CIB presented a summary of the
business of CIB to representatives of FTNC in Kansas City, Missouri.
During the months of July and August, 1994, FTNC conducted its due
diligence investigation of CIB, and, on September 6, 1994 after consultation
with its counsel and accountants the CIB Board unanimously approved the
Agreement.
At a special meeting held on September 6, 1994, the FTNC and FTB
Boards unanimously approved the Agreement.
Reasons for the Merger.
During the three years ended October 31, 1993, the mortgage banking
industry experienced rapid growth, due in large part to a decline in mortgage
interest rates to levels not seen in the industry for 25 years. With the
advent of "non cost" mortgage refinancing, borrowers were able to refinance
their existing mortgages at a lower rate for little or no money paid at
closing. This financing alternative, coupled with the lower mortgage interest
rates, created an opportunity for mortgage banks and mortgage brokers.
Additionally, the decrease in the number of savings and loans during this
period caused borrowers to seek mortgage banks, where the service and price
were in most instances better and less-expensive. CIB's originations
increased from approximately $400 million for the year ended October 31, 1991
to over $3 billion for the year ended October 31, 1993.
In the last quarter of 1993, mortgage interest rates increased to
pre-1990 levels and the opportunity for mortgage banks to refinance
existing mortgages was to a large extent over. Competition for new mortgage
financing for home purchases increased and mortgage related profit margins
decreased. As a result, a consolidation in the mortgage banking industry
began, and commercial banks began acquiring mortgage banking companies for
their fee revenue and their projected long-term revenue growth. The
competitive advantage of privately-held mortgage companies, such as CIB,
decreased through this period of increased competition and higher interest
rates. The increase in competition also required increased capital and
liquidity to fund the purchase and origination of mortgages. Management of CIB
believes that these needs could be better met by larger commercial banks and
bank-owned mortgage banks than by privately-held mortgage companies.
Additionally, the increased regulatory supervision of mortgage banks and the
lending community in general became more and more onerous for a smaller,
privately-held mortgage bank.
In reaching its determination that the Merger and Agreement are fair
to, and in the best interest of CIB and its shareholders, the CIB Board
consulted with its advisors as well as CIB's management, reviewed and relied
upon historical and projected financial results of both CIB and FTNC, and
considered the following factors among others. The CIB Board considered an
analysis of the stock market valuations of comparable public companies, and an
analysis of the liquidation value of CIB. The CIB Board also reviewed (a) the
Agreement and related exhibits, (b) certain publicly available business and
financial information relating to FTNC, (c) certain financial forecasts and
other data for CIB, (d) current historical price range and trading volume data
of the FTNC Common Stock, the respective companies' earnings, book value and
cash flow per share and the capitalizaiton and financial condition of CIB and
FTNC, (e) the publicly available terms of prior acquisitions of mortgage banking
companies by FTNC, and (f) available public information describing selected
comparable transactions and other similar publicly traded financial
institutions.
The CIB Board did not assign any specific or relative weight to the
foregoing factors in their considerations.
OPINION OF FINANCIAL ADVISER
CIB has not obtained an opinion from a financial adviser as to the
fairness of the terms of the Merger to the CIB shareholders from a financial
point of view.
DETERMINATION OF CLOSING PURCHASE PRICE
On the Closing Date, subject to the provisions of the Escrow Agreement
(see "-- Additional Agreements"), each share of CIB Common Stock outstanding
will be exchanged for the number of shares of FTNC Common Stock equal to the
Base Purchase Price (defined below), subject to adjustment (the "Closing
Purchase Price"), divided by the Closing Measurement Price (defined below)
divided by 172,800 (the "exchange ratio"). If subsequent to the date of the
Agreement and within the time periods specified in Sections 2.2(c) and (d)
thereof the oustanding shares of FTNC Common Stock are increased, decreased,
changed into or exchanged for a different number or class of shares by reason
of a reclassification, recapitalization, split-up, combination or exchange of
shares or if a stock
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<PAGE> 19
dividend is declared thereon, or other like changes in FTNC's capitalization
have occurred, the exchange ratio and the provision addressing a Closing
Measurement Price of $35.00 or less will be adjusted accordingly for such
event.
The Closing Purchase Price equals the Base Purchase Price
($53,250,000) subject to (i) an adjustment increasing or decreasing such amount
by the amount by which the unpaid principal balance of CIB's mortgage Servicing
Portfolio (as defined below) exceeds or is less than $2,859,450,502,
respectively, multiplied by 1.05% (the "Portfolio Adjustment"); and (ii) an
adjustment increasing or decreasing such amount by the amount by which CIB's
Tangible Net Assets (as defined below) exceed or are less than $9,295,469
respectively (the "Tangible Asset Adjustment"). Such dollar amount as adjusted
under (i) and (ii) above is hereinafter referred to as the "Closing Purchase
Price." For purposes of the Tangible Asset Adjustment, Tangible Net Assets is
defined as CIB's assets (less capitalized servicing rights, capitalized costs,
covenant-not-to compete and non-solicitation payments, and other intangible
assets) minus liabilities of CIB. For purposes of the Portfolio Adjustment,
CIB's mortgage "Servicing Portfolio" are those mortgage loans serviced or
master serviced by CIB pursuant to mortgage servicing agreements, together with
loans held in the warehouse. The Closing Purchase Price will be adjusted after
the Closing Date in the manner described under "The Merger -- Post-Closing
Adjustments."
The Closing Measurement Price is defined in the following subsection
"-- Merger; Fractional Shares."
Based on an assumed Closing Measurement Price of $45.00 per share and
an assumed Final Purchase Price of $43,248,000, based on CIB's good faith
estimates of the Closing Portfolio and Tangible Net Assets of CIB as of the
Closing Date Balance Sheet Date, and assuming the Closing Purchase Price equals
such Final Purchase Price (as those terms are defined herein or in the
Agreement), at Closing the exchange ratio would be 5.56173.
THERE ARE FREQUENTLY DIFFERENCES BETWEEN ESTIMATES AND ACTUAL RESULTS
BECAUSE EVENTS AND CIRCUMSTANCES FREQUENTLY DO NOT OCCUR AS EXPECTED. THE
CLOSING PURCHASE PRICE AND THE FINAL PURCHASE PRICE (DEFINED BELOW) MAY BE
HIGHER OR LOWER THAN THE ESTIMATE PROVIDED ABOVE, AND THE AMOUNT OF THE
DIFFERENCE COULD BE MATERIAL. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
ESTIMATED FINAL PURCHASE PRICE WILL BE THE AMOUNT OF CONSIDERATION ACTUALLY
RECEIVED BY THE CIB SHAREHOLDERS.
MERGER; FRACTIONAL SHARES
Merger of CIB. On the Closing Date, Interim, a newly chartered and
wholly owned subsidiary of FTNC formed for the purpose of effecting the Merger,
will merge with and into CIB, with CIB being the surviving entity. Immediately
prior to the Merger, FTNC, as sole shareholder of Interim, will direct that all
shares of CIB Common Stock, as the surviving corporation, be issued directly to
FTB, and as a result, CIB will become a wholly owned subsidiary of FTB. As a
result of the Merger, subject to the provisions of the Escrow Agreement (see
"-- Additional Agreements") the CIB Common Stock outstanding immediately prior
to the Merger will be converted into the right to receive shares of FTNC Common
Stock equal to the Closing Purchase Price divided by the Closing Measurement
Price subject to certain adjustments. This amount of FTNC Common Stock divided
by 172,800 equals the exchange ratio. The Closing Measurement Price is the
average of the closing price of the shares of FTNC Common Stock as quoted on
the Nasdaq Stock Market's National Market during the 20 trading days ending on
the tenth (10th) trading day prior to the Closing Date. The Closing
Measurement Price is subject to adjustments for certain dividends, stock
splits, and combinations, recapitalizations, and other similar transactions.
If the Closing Measurement Price is less than or equal to $35 per
share, FTNC has the right to terminate the Agreement; provided, however, that
FTNC has the right to require the CIB shareholders to consummate the
transaction using the actual Closing Measurement Price (equal to or less than
$35 per share) to calculate the aggregate number of shares of FTNC Common Stock
to be issued.
All of the shares of common stock of Interim ("Interim Common Stock")
issued and outstanding immediately prior to the Merger shall by virtue of the
Merger be converted into and exchanged for 172,800 shares
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<PAGE> 20
of the common stock of CIB as the surviving corporation in the Merger. From
and after the Merger, each outstanding certificate theretofore representing
shares of Interim Common Stock shall be deemed to evidence ownership of and to
represent the number of shares of CIB Common Stock into which such shares of
Interim shall have been converted. Promptly after the Merger, CIB shall issue
FTB, as directed by FTNC, a certificate or certificates representing such
shares of CIB Common Stock in exchange for the certificates which formerly
represented shares of Interim Common Stock, which shall be cancelled.
Fractional Shares. No fractional shares of FTNC Common Stock will be
issued in connection with the transaction. In lieu of fractional shares, FTNC
will make a cash payment equal to the fractional interest which a CIB
Shareholder would otherwise receive multiplied by the Closing Measurement
Price. Each outstanding share of FTNC Common Stock will remain outstanding and
unchanged as a result of the transaction.
POST-CLOSING ADJUSTMENTS
Adjustments. The Closing Purchase Price payable at the Closing will
be determined using Servicing Portfolio and Tangible Net Asset figures
determined as of the Estimation Date. As soon as practicable after the Closing
Date, and no later than 90 days thereafter, FTNC will deliver to the Sellers'
Representative (L. Gregory Brown) the following information in order to
calculate the "Final Purchase Price": (i) the Closing Date balance sheet
prepared in accordance with GAAP, except for certain adjustments related to
consistency in methodologies, accrual of termination costs, and accruals with
respect to convenant-not-to-compete and non-solicitation payments; (ii) a
schedule calculating the Tangible Net Assets as of the Closing Date Balance
Sheet Date (the last day of the month immediately preceding the Closing Date),
(iii) a schedule of the Servicing Portfolio as of the Closing Date Balance
Sheet Date; (iv) a schedule calculating the Tangible Asset Adjustment and the
Portfolio Adjustment (collectively, the "Closing Adjustment Documents"). The
Final Purchase Price will be calculated according to the same formula used to
calculate the Closing Purchase Price. Within 20 days after delivery of the
Closing Adjustment Documents to the Sellers' Representative, the Sellers'
Representative may dispute the Closing Adjustment Documents. If the Sellers'
Representative disputes FTNC's calculations contained in the Closing Adjustment
Documents and provides notice to FTNC within such 20 day period, the parties
will negotiate in good faith to resolve such dispute. If FTNC and the Sellers'
Representative are unable to resolve the dispute within 20 days after FTNC
receives notice from the Sellers' Representative, such dispute shall be
submitted to an independent accounting firm, whose resolution shall be final
and binding upon the parties. If (i) the Closing Purchase Price exceeds the
Final Purchase Price or if Sellers are required to make payments to FTNC as
described in the following subsection, then each Seller (as defined in "--
Additional Agreements") will be required to refund such excess to FTNC, at
Sellers' option, in cash or FTNC Common Stock (valued at the Closing
Measurement Price), and (ii) the Final Purchase Price exceeds the Closing
Purchase Price, then FTNC shall deliver to the CIB shareholders additional FTNC
Common Stock valued at the Closing Measurement Price in the amount of such
excess. As to each CIB shareholder who is not a Seller, the Browns agree to
cause such person to refund or pay to FTNC, as such person's option, any amount
due to FTNC under clause (i).
Additional Adjustments. The Final Purchase Price will be reduced by
an amount equal to the amount by which (i) 1.05% of the aggregate unpaid
principal balance of mortgage loans included in the Closing Portfolio, the
servicing or master servicing of which by CIB shall have been terminated
(subject to various conditions and exceptions) and not reinstated within 180
days following the Closing exceeds (ii) the aggregate amount of all termination
fees or charges paid or payable to CIB in connection with the termination.
Such amounts, not payable upon adjustment of the Closing Exchange Price, shall
be payable monthly, but not later than 195 days after the Closing Date. Any
payments pursuant to this paragraph will be accompanied by interest thereon at
the Fed Funds rate.
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<PAGE> 21
CLOSING DATE
The Closing Date of the transaction will be January 3, 1994, or if all
conditions to closing have not been satisfied, then as soon as possible
following satisfaction or such other later date as is mutually agreeable to the
parties.
SURRENDER OF CERTIFICATES
As promptly as practicable after the Closing Date, FTNC will send to
each holder of record of shares of CIB Common Stock transmittal materials for
use in exchanging the CIB certificates for shares of CIB Common Stock for FTNC
certificates for shares of the FTNC Common Stock. Except for those shares of
FTNC Common Stock to be placed into escrow pursuant to the terms of the Escrow
Agreement, CIB shareholders, upon surrender of a CIB certificate to L. Gregory
Brown (the "Paying Agent"), together with a duly executed and completed letter
of transmittal and a duly executed stock power, will receive in exchange
therefor as soon as practicable following the Closing Date a certificate for
the number of shares of FTNC Common Stock to which such holder is entitled.
HOLDERS OF CIB COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM FTNC.
No dividend or other distribution payable after the Closing Date with
respect to FTNC Common Stock will be paid to the holder of any unsurrendered
CIB 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 Closing Date, there will be no transfers on CIB's stock
transfer books of shares of CIB Common Stock issued and outstanding at the
Closing Date. If certificates representing shares of CIB Common Stock are
presented for transfer after the Closing Date, they will be returned to the
presenter together with a form of letter of transmittal and exchange
instructions.
Neither FTNC nor CIB nor any other person will be liable to any former
holder of CIB Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If a certificate for CIB Common Stock has been lost, stolen or
destroyed, FTNC will issue the consideration properly payable in accordance
with the 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.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and
warranties by CIB relating to, among other things: (i) organization; (ii)
capitalization; (iii) subsidiaries of CIB; (iv) due authorization, execution
and delivery, and enforceability of, the Agreement, and related agreements; (v)
conflicts under charters or bylaws, required consents or approvals and
violations of any instruments or law; (vi) no material information provided to
FTNC contains an untrue statement of material fact or omits a material fact;
(vii) required third party and governmental consents; (viii) financial
statements and financial information; (ix) the absence of undisclosed
liabilities; (x) the absence since October 31, 1993, of certain material
changes relating to CIB's business, condition or results of operations; (xi)
legal proceedings; (xii) material contracts and defaults; (xiii) taxes; (xiv)
employees; (xv) employee benefit plans and matters relating to the Employee
Retirement Income Security Act of 1974; (xvi) ownership of and sufficiency and
condition of assets; (xvii) the absence of broker's or finder's fees; (xviii)
insurance; (xix) compliance with environmental laws; (xx) accurate information
supplied by CIB for use in the Registration Statement; and (xxi) cooperation
regarding blue sky securities filings.
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<PAGE> 22
The Agreement also contains various customary representations and
warranties of CIB relating to the mortgage banking business, including, among
other things, (i) mortgage banking licenses and qualifications; (ii) status of
CIB's loan portfolio; (iii) title to mortgage loans and mortgage servicing
agreements; (iv) obligations to repurchase mortgage loans from investors; (v)
validity of mortgage servicing agreements; (vi) compliance with law, including
federal and state mortgage banking agency regulations; (vii) list of investor
commitments; (viii) proper maintenance of custodial accounts; (ix) audits and
investigations by federal and state mortgage banking agencies; (x) advances
pursuant to mortgage servicing agreements; (xi) physical damage to collateral
securing mortgage loans; (xii) proper certification of all mortgage loan pools;
(xiii) proper disbursement of all loan proceeds; (xiv) proper application of
taxes and insurance payments; (xv) correct and complete tax identification
numbers; (xvi) proper accounting for and application of all monies received in
connection with mortgage loans; and (xvii) complete and accurate payoff
statements.
The Agreement also contains various customary representations and
warranties by FTNC and FTB relating to, among other things: (i) organization
and FTNC Common Stock; (ii) due authorization, execution and delivery, and
enforceability of, the Agreement, and related agreements; (iii) conflicts under
charters or bylaws, required consents or approvals and violations of any
instruments or law; (iv) capitalization; (v) financial statements and financial
information; (vi) required third party and governmental consents; (vii) absence
of broker's or finder's fees, except for Charbonneau-Klein, Inc. and Goldman,
Sachs & Co.; (viii) financing; (ix) no material information provided to CIB
contains any untrue statement of material fact or omits a material fact; (x)
legal proceedings (xi) absence of undisclosed liabilities; (xii) the absence
since December 31, 1993 of any material change to the business, condition or
results of operations of FTNC or FTB; (xiii) examinations and inquiries of bank
and bank holding company and securities regulators; (xiv) blue sky compliance;
and (xv) accurate information supplied by FTNC and FTB for use in the
registration statement.
Except as otherwise set forth in the Agreement with respect to certain
tax matters, certain recourse loans and certain missing files and other
matters, and with respect to claims arising prior to the expiration of the
specified periods, the representations and warranties shall survive until the
first anniversary of the Closing Date. The representations and warranties
shall survive as to the tax matters until the expiration of the applicable
statute of limitations and extensions thereof, as to recourse loans until the
fifth anniversary of the Closing Date, and as to certain missing files and
other matters, at the option of Sellers' Representative, until the second
anniversary of the Closing Date.
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations. The respective obligations of
each party to consummate the Merger are subject to the satisfaction of the
following conditions at or prior to the Closing Date: (a) all regulatory
approvals required to be obtained in connection with the transactions
contemplated by the Agreement or the operation of CIB by FTB or its
subsidiaries shall have been obtained, all notices required to be filed with
any governmental agency in connection with the transactions contemplated by the
Agreement or the operation of CIB by FTB shall have been filed, all such
regulatory approvals shall be in full force and effect, and all notice periods
and waiting periods required by law or regulation applicable to the
transactions contemplated by the Agreement shall have expired or been
terminated and no adverse action shall have been taken or threatened; (b) none
of the Sellers, CIB, FTNC or FTB shall be subject to any order, decree or
injunction ("Injunction") of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the transactions contemplated by the
Agreement, and no proceeding initiated by a governmental agency or similar
authority seeking an Injunction shall be threatened; provided, that if such an
Injunction is in effect or any proceeding is commenced or threatened pursuant
to which an Injunction is sought, the parties shall cooperate and use
reasonable best efforts expeditiously to remove the impediment prohibiting the
Closing of the Merger; (c) the Closing Measurement Price for the FTNC Common
Stock shall not be less than $35.00 per share; provided, that if it is less
than $35.00, FTNC shall have the right to terminate the Agreement or to require
CIB to close using the actual Closing Measurement Price; (d) no statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by
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<PAGE> 23
any governmental authority which prohibits, makes illegal or materially
restricts consummation of the Merger; (e) FTNC shall have received all state
securities laws and "Blue Sky" permits and other authorizations necessary to
consummate the transactions contemplated by the Agreement; and (f) the SEC
shall have declared effective the S-4 Registration Statement of which this
Proxy Statement-Prospectus is a part and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
Additional Conditions to FTNC's and FTB's Obligations. The
obligations of FTNC and FTB are subject to, among other things, the
satisfaction at or prior to the Closing Date of each of the following
conditions unless waived by FTNC: (a) the obligations of CIB required to be
performed at or prior to the Closing Date pursuant to the terms of the
Agreement shall have been duly performed and complied with in all material
respects and the respective representations and warranties of CIB set forth in
the Agreement shall be true and correct in all material respects (materiality
being defined for this purpose as an amount in excess of $750,000); (b) CIB
shall have received from all parties to any material contract to which CIB is a
party all consents required as a result of the Merger and shall have properly
filed all notices which are required as a result of such Merger; (c) each
director, executive officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act) of CIB 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 or
take any action which would reduce that person's risk with respect to any
shares of CIB Common Stock held by such "affiliate" or the shares of FTNC
Common Stock to be received by such "affiliate" in the Merger (i) 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
(ii) during the periods during which any such sale, pledge, transfer,
disposition or other action would, under GAAP or the rules, regulations or
interpretations of the SEC, disqualify the Merger for pooling-of-interests
accounting treatment; (d) the duly executed Escrow Agreement as described in
the Agreement shall have been delivered to FTB (see "-- Additional Agreements
- -- Escrow Agreement"; (e) FTNC shall have received a legal opinion of CIB's
counsel dated as of the Closing Date, addressing matters customary in similar
transactions; (f) on the Closing Date, commissioned loan officers who
originated not less than 75% of retail loan production from January 1, 1994 to
the Closing Date shall be full-time employees of CIB; (g) there shall not have
been any material adverse change in the business, condition, financial or
otherwise, or results of operations of CIB taken as a whole (as long as CIB's
monthly loan production volume is $100 million, a material adverse change will
not be deemed to have occurred to the extent specified in the Agreement); (h)
FTNC shall have received from CIB's independent certified public accountants
"cold comfort" letters, dated (i) the date of the mailing of the Proxy
Statement-Prospectus and (ii) shortly prior to the Closing Date, with respect
to certain financial information regarding CIB in the form customarily issued
by such accountants at such time in transactions of this type; (i) FTNC shall
have received a duly executed Sellers' Agreement (see "-- Additional Agreements
- -- Sellers Agreement"); (j) FTNC and FTB shall have received an opinion from
Arthur Andersen & Co. allowing the pooling-of-interests accounting treatment of
the Merger; (k) FTNC shall have received written confirmation that the
agreements described in the section entitled "-- Interests of Certain Persons
in the Merger" are in full force and not modified; (l) FTNC and FTB shall have
received an accurate copy of the mortgage loan file inventory described in the
Agreement ; and (m) FTNC and FTB shall have received satisfactory evidence of
the filing of certain releases of liens as described in the Agreement.
Additional Condition to CIB's Obligations. The obligations of Sellers
and CIB are subject to the satisfaction at or prior to the Closing Date of each
of the following additional conditions unless waived by Sellers'
Representative: (a) the obligations of FTNC or FTB required to be performed
by either or both at or prior to the Closing Date shall have been duly
performed and complied with in all material respects and the representations
and warranties of FTNC and FTB set forth in the Agreement shall be true and
correct in all material respects; (b) Sellers shall have received legal
opinions of Heiskell, Donelson, Bearman, Adams, Williams & Caldwell dated as of
the Closing Date, addressing matters customary in similar transactions and
opining that the Merger qualifies as a tax-free reorganization under Section
368(a) of the Code; (c) there shall not have been any material adverse change
in the business, condition, financial or otherwise, or results of operations of
FTNC and FTB, taken as a whole; (d) the approval of CIB's shareholders; and (e)
the FTNC Common Stock shall be approved for quotation on the Nasdaq
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<PAGE> 24
Stock Market's National Market and be registered securities, subject to no
restrictions regarding sale, resale or other transfer other than (i) those
arising pursuant to Rule 145 under the Securities Act and the S-4 Registration
Statement relating to the shares of FTNC Common Stock to be issued shall have
been filed with the SEC and become effective, (ii) the restrictions imposed by
the pooling-of-interests accounting rules and (iii) the terms of the
Registration Rights Agreement. For further information regarding the
restrictions on the resale of FTNC Common Stock see "-- Resale of FTNC Common
Stock."
INDEMNIFICATION
Indemnification by Sellers and CIB. The Agreement provides that CIB
will indemnify and hold harmless FTNC and FTB and each of their affiliates,
from and against any and all liabilities, losses, costs, damages, penalties,
fines, interest, obligations or expenses of any kind whatsoever actually
incurred (collectively "Losses") and all taxes, charges, fees, levies,
penalties, or other assessments imposed by any United States federal, state,
local or foreign taxing authority, including, but not limited to, income,
excise, property, sales, transfer, franchise, payroll, gains, withholding, ad
valorem, social security or other taxes, including any interest, penalties or
additions attributable to taxes (collectively "Taxes") incurred by FTNC, FTB or
any other indemnified person in connection with any of the following: (i) any
breach of any representation or warranty made by CIB in the Agreement, (ii) any
breach of any covenant to be performed by CIB pursuant to the Agreement, (iii)
Buydowns (as defined in the Agreement) effected as a result of VA No-Bids (as
defined in the Agreement) to the extent that any Losses relating thereto are
not indemnifiable by CIB pursuant to (i) above; (iv) certain matters described
in Section 7.1 of the Agreement relating to income tax matters, (v) any Loss
related to legal proceedings to the extent such Loss exceeds certain reserves
on the Closing Date Balance Sheet; (vi) the inability as a practical matter to
foreclose on properties which are collateral for any Recourse Loan (as defined
in the Agreement) as a result of a breach of environmental laws with respect to
such property; and (vii) certain other matters as described in the Agreement.
No CIB Shareholder will have any obligation for indemnity claims in
excess of his pro rata proportionate interest in the Escrow Shares (as defined
below) except as described below in the section entitled "-- Additional
Agreements - Sellers Agreement." The indemnification obligations of CIB and
the right of FTNC or FTB to draw against the Escrow Shares are subject to the
limitations, conditions and procedures described below and in the Agreement,
the Escrow Agreement and the Sellers Agreement (as defined below). (See "--
Additional Agreements.") Under the Agreement except in certain cases related to
recourse loans and to missing files and other matters described in the section
entitled "-- Representations and Warranties," CIB has no indemnification
liability for Losses unless written notice of an indemnity claim is given prior
to the first anniversary of the Closing Date and with respect Taxes unless
written notice of an indemnity claim is given prior to the expiration of the
applicable statute of limitations, giving effect to any extensions thereof.
Indemnification by FTNC and FTB. The Agreement provides, among other
things, that FTNC and FTB shall indemnify and hold harmless Sellers from any
and all losses incurred in connection with the following: (i) any breach of
any representation or warranty made by FTB or FTNC in the Agreement, (ii) any
breach of any covenant to be performed by FTB or FTNC in the Agreement and
(iii) any act or omission of FTB or FTNC following the Closing Date with
respect to the processing, handling or servicing of any assets, including
mortgage loans of CIB, subject to certain exceptions.
REGULATORY APPROVALS
FTNC and CIB will file information with the Department of Justice
("DOJ") and the Federal Trade Commission ("FTC") pursuant to the
Hart-Scott-Rodino Act (the "HSR Act"). The respective obligations of the
parties to the Agreement are conditioned upon all waiting periods (and any
extensions thereof) applicable to the consummation of the Merger under the HSR
Act having expired or been terminated. There can be no assurance that the DOJ
or the FTC will not challenge the Merger, or if such a challenge is made, as to
the result thereof.
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Notwithstanding any termination of the HSR Act waiting period, at any
time before or after the consummation of the Merger, either the DOJ or the FTC
could take such action under the antitrust laws as either deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin consummation of the
Merger. FTNC and CIB believe the consummation of the Merger would not violate
any antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made, or, if a challenge is made, what
the result will be.
FTNC and CIB are not currently aware that any other material
governmental permits, approvals, consents or similar actions are required for
consummation of the Merger, except for compliance with applicable federal and
state securities laws, with which the parties believe they have complied.
CONDUCT OF BUSINESS PENDING MERGER
The Agreement contains certain restrictions on the conduct of CIB's
business pending consummation of the transaction. In particular, the Agreement
provides that, prior to Closing, without the prior written consent of FTNC, CIB
may not, among other things, (a) issue, sell, redeem, repurchase or deliver any
shares of its capital stock or declare or pay a dividend or issue or sell any
securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe to, any shares of its capital stock; (b) effect
any recapitalization, reclassification, stock dividend, stock split or like
change in capitalization; (c) amend its articles of incorporation, bylaws or
similar governing documents; (d) merge or consolidate with, or, except as a
result of foreclosure or repossession in the ordinary course of its mortgage
banking business, acquire substantially all of the assets of or make any
investment in the equity securities of, any other entity; (e) sell, transfer,
lease or encumber any Servicing Rights (as defined in the Agreement) or other
assets, except for mortgage loans and related Servicing Rights in the ordinary
course of business or as specifically provided in the Agreement or purchase any
assets, except for mortgage loans and Servicing Rights related thereto from
third party loan originators; (f) alter or vary CIB's methods or policies of
(1) underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service mortgage loans, (2) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (3) obtaining
financing and credit; (g) grant to any director, officer, employee or
consultant any material increase in compensation or benefits (other than as may
be required under the terms of prior written agreements and other than normal
increases in compensation or benefits made in the ordinary course of business
to officers or employees in accordance with existing personnel policies); (h)
grant any severance or termination pay (other than as may be required under the
terms of prior agreements) to, or enter into or amend any employment or
severance agreement with, any person, other than termination pay paid in
accordance with existing personnel policies to officers or employees; (i) adopt
any new or amend any existing director, officer or employee benefit plans
(including, without limitation, profit sharing, bonus, director and officer
incentive compensation, retirement, medical, hospitalization, life or other
insurance plans, arrangements and commitments); (j) enter into any collective
bargaining agreement; (k) incur any debt, other than (1) debt incurred to fund
or purchase mortgage loans, (2) otherwise in the ordinary course of business or
(3) to pay obligations on existing debt agreements; (l) make any change in
accounting principles or methods, except as required by GAAP or by applicable
regulatory requirements; (m) grant any mortgage or security interest in, or
make any pledge of, or permit any lien or encumbrance to be placed on, any of
its assets or properties other than as permitted by the Agreement; (n) make any
capital expenditures other than in the ordinary course of business or as
necessary to maintain existing assets in good repair which expenditures will in
no event exceed $30,000 on a per occurrence basis and $200,000 in the
aggregate; (o) take any action, or fail to take any action, that is intended or
may reasonably be expected to result in a breach or violation of any of the
respective representations and warranties of CIB contained in the Agreement or
would cause any condition to the transactions contemplated hereby not to be
satisfied, except, in every case, as may be required by law; (p) accelerate,
terminate, or cancel any material contract, lease or license to which it is a
party other than in the ordinary course of business grant, any waiver of any
fee or obligation of any party to any material contract, lease or license, or
enter into any material contract, lease or license that is not terminable
without penalty by CIB upon 60 days or less notice, except for contracts with
respect to branch operations of less than 12 months having total expenses of
not more than $100,000 per location; (q) enter into mortgage loan subservicing
agreements; or (r) agree to do any of the foregoing.
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<PAGE> 26
The Agreement also contains various customary covenants and
agreements, including agreement to cooperate, use best efforts and obtain
appropriate consents. In addition, prior to the Closing Date Balance Sheet
Date CIB will increase its foreclosure and other loss reserves and decrease its
capitalized Servicing Rights valuation and increase its contract rights
receivable to the extent necessary to be consistent with methodologies used by
or practices of FTB, and it will, among other things, take the following
action: (a) record on its books as of the Closing Date Balance Sheet Date
certain covenant not to compete and non-solicitation payments and the
associated deferred tax asset; (b) sell at fair market value prior to the
Closing Date Balance Sheet Date certain real estate and personal property and
pay in full certain receivables with respect to insurance, CIB preferred stock,
Brown Air Transport, Inc., and officer draw accounts; (c) prior to the Record
Date, redeem all outstanding CIB Preferred Stock; and (d) relocate to a
centralized location all mortgage loan files and file appropriate documents to
release certain mortgage liens.
The Agreement also requires FTB to lend CIB funds requested by CIB to
pay outstanding valid liabilities of CIB including amounts required to pay in
full CIB's warehouse and operating lines of credit on the Closing Date.
NO SOLICITATION
CIB has agreed with FTNC that until the Closing Date or termination of
the Agreement, neither it nor any of its affiliates will nor will any of them
authorize or permit any of their respective shareholders, officers, directors,
employees, representatives, agents or other persons controlled by any of them
to solicit or encourage or facilitate inquiries or proposals with respect to
any merger, consolidation, sale of substantially all assets, sale of shares of
capital stock or similar transaction involving CIB or entertain, agree to,
endorse, or participate in any discussions or negotiations or provide third
parties with nonpublic information relating to any such inquiry or proposal.
CIB will notify FTNC promptly if any such inquiries or proposals are received
by it, any Sellers or either of the Browns.
TERMINATION; WAIVER AND AMENDMENT
Termination. The Agreement may be terminated on or at any time prior
to the Closing Date as follows: (a) by the mutual written consent of FTB,
FTNC, Sellers' Representative, and CIB; (b) by CIB, if there shall have been
any material breach of any obligation of FTNC or FTB and such breach shall not
have been remedied within 20 days after receipt by FTNC or FTB of notice in
writing specifying the nature of such breach and requesting that it be
remedied; (c) by FTNC and FTB, if there shall have been any material
(quantified as to CIB as an amount or amounts aggregating more than $750,000)
breach of any obligation of CIB and such breach shall not have been remedied
within 20 days after receipt by Sellers' Representative or CIB of notice in
writing specifying the nature of such breach and requesting that it be
remedied; (d) by FTNC and FTB or CIB, if the Closing Date shall not have
occurred on or prior to March 31, 1995, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate the Agreement to
perform or observe its agreements required to be performed or observed by such
party on or before the Closing Date; (e) by FTNC and FTB or CIB as a result of
FTNC's or FTB's inability to obtain necessary approvals and consents; (f) by
Sellers and CIB or FTNC and FTB, as applicable, if the conditions in Sections
8.2 or 8.3 of the Agreement (see "-- Conditions to Consummation of the Merger")
are not satisfied; and (g) by FTNC and FTB if the Closing Measurement Price is
less than or equal to $35 per share, subject to the right of FTNC to require
consummation of the Merger using the actual Closing Measurement Price (see
Section 2.2(c) of the Agreement).
In the event of a termination of the Agreement as provided above, the
Agreement will become void and have no effect, except that the certain
provisions relating to confidentiality and expenses shall survive any such
termination; provided, however, that no such termination shall relieve any
party from liability for any willful breach of the Agreement.
Amendment, Extension and Waiver. Subject to applicable law, CIB, FTNC
and FTB may (i) amend the Agreement; (ii) extend the time for performance of
any acts or obligations; (iii) waive inaccuracies in any
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representations and warranties contained in the Agreement or related documents;
or (iv) waive compliance with any agreements or conditions set forth in certain
sections of the Agreement. Any amendment shall be in writing signed by each of
the parties to the Agreement, and any waiver or extension shall be in writing
signed by the party making the waiver or extension.
ADDITIONAL AGREEMENTS
The following summary of certain additional agreements contemplated by
the Agreement does not purport to be complete and is qualified in its entirety
by reference to the form of such agreements attached as Exhibits "C," "E," "F"
and "J" to the Agreement included as Appendix A.
Escrow Agreement. Pursuant to the terms of the Escrow Agreement, as
soon as practicable after the Closing Date, shares of FTNC Common Stock equal
to $2,000,000 ("Escrow Fund A") and shares of FTNC Common Stock equal to
$2,500,000 ("Escrow Fund B") calculated at the Closing Measurement Price, (the
"Escrow Shares") will be deposited by FTNC directly with FTB as Escrow Agent
and will not then be distributed to the Sellers. The Escrow Shares will serve
as two separate escrow funds (Escrow Fund B for claims by FTNC or FTB for taxes
or indemnifiable tax Losses and Escrow Fund A for all other claims by FTNC or
FTB for indemnifiable losses and mitigation expenses) and will be available to
fulfill any claims made by FTNC, FTB, Sellers or CIB for indemnification for
certain losses pursuant to Articles VII and IX of the Agreement. The escrowed
shares or Reserves (defined below) will be distributed to the Sellers one year
after the Closing Date as to Escrow Fund A and upon the expiration of any
applicable statute of limitation and extensions thereof as to Escrow Fund B;
provided, however, if any Unresolved Claims (as defined in the Agreement)
remain outstanding at either of those times, then escrowed shares or Reserves
in the amount of such Unresolved Claims shall remain in the applicable escrow
fund until such Claims are resolved. See "-- Indemnification."
Commencing at any time after the publication of financial results
covering at least 30 days of combined operations of FTNC and CIB within the
meaning of Section 201-01 of the SEC's Codification of Financial Reporting
Policies, and subject to applicable securities laws, a Seller may direct the
Escrow Agent to sell all or any portion of the Escrow Shares allocable to such
Seller not previously sold, distributed or withdrawn. The proceeds of a sale
shall be held by the Escrow Agent as a reserve (the "Reserve").
If FTNC or FTB makes a claim for indemnification under the Agreement,
the claiming entity will be entitled to a distribution from the applicable
Escrow Fund if the Sellers' Representative consents thereto or fails to object
within ten business days of receipt of notice of a claim for indemnification.
If Sellers' Representative disputes an indemnification claim, no distribution
will be made from the Escrow Fund until such dispute is resolved. The Escrow
Agreement provides for binding arbitration if the parties are unable to reach
agreement on a claim for indemnification.
Expenses of the Escrow Agent and the Sellers' Representative will be
paid subsequent to the payment of all indemnity claims at the end of the escrow
period by withdrawals of Escrow Shares or distributions of Reserves
proportionately as to each Seller.
Sellers Agreement. The Sellers Agreement contains representations and
warranties from the Sellers that each Seller has and will convey good and
marketable title to the CIB Common Stock to be exchanged by such Seller for
FTNC Common Stock, that Sellers own 90.5% of the CIB Common Stock and that such
CIB Common Stock is free and clear of all encumbrances. The term "Sellers"
means the four Missouri limited partnerships created by Carl I. Brown and the
four Missouri limited partnerships created by Molly S. Brown into which all
shares of CIB Common Stock owned by Carl and Molly Brown have been transferred.
Collectively, the limited partnerships own approximately 91% of the CIB Common
Stock.
Sellers, the Browns, FTNC and FTB agree that as to any claims of FTNC
or FTB arising from CIB's breach of any representation, warranty or covenant in
or CIB's indemnity obligations under the Agreement, FTNC
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<PAGE> 28
or FTB will proceed first against Escrow Fund A or B, as applicable, and if the
claims remain unsatisfied, then FTNC will proceed against the Sellers and the
Browns as provided below.
Each of the Sellers unconditionally guarantees CIB's indemnity
obligations as to taxes in an amount not to exceed the Final Purchase Price and
unconditionally guarantees all of CIB's other indemnity obligations in an
amount not to exceed $3 million.
Each of the Browns unconditionally guarantees CIB's indemnity
obligations in an amount not to exceed the aggregate fair market value of
distributions and the unpaid balance of any loans received from certain grantor
retained annuity trusts or from Sellers or both, subject to certain provisions
requiring the exhaustion of Escrow Fund B or Escrow Fund A, as applicable, the
making of claims first against Sellers, and the making of claims first against
certain distributees of Sellers.
The guaranties of the Sellers and the Browns expire at the same times
as the indemnity obligations of CIB expire under the Agreement. Also, Sellers
agree to maintain their existence as limited partnerships; not to incur any
debt except certain notes executed by Sellers in favor of CIB with a principal
balance of $1 million and certain notes dated by April 15, 1995 with a
principal balance of $4 million and a maturity not later than July 15, 1995;
not to permit loans to any partners except certain loans to Carl I. Brown with
a principal balance of $1 million; and with certain exceptions, not to make any
distributions except to the extent the distributee assumes Sellers' obligations
under Sellers' Agreement to the extent of the distributions.
If the Final Purchase Price is less than the Closing Purchase Price or
if Sellers are required to make payments to FTNC, each Seller shall refund or
pay to FTNC, at such Seller's option, either (i) cash or (ii) FTNC Common Stock
proportionate to the amount of FTNC Common Stock received by such Seller at
Closing valued at the Closing Measurement Price equal to the difference between
the Final Purchase Price and the Closing Purchase Price and/or equal to
payments required to be made for servicing run-off. See "-- Post Closing
Adjustments."
Sellers and the Browns agree that none of them will take any action or
fail to take any action that would cause the Merger to fail to qualify for
pooling-of-interests accounting treatment.
Sellers' Representative and Paying Agent Agreement. Pursuant to the
Sellers' Representative and Paying Agent Agreement ("Representative
Agreement"), all of the CIB shareholders will appoint L. Gregory Brown ("LGB")
as to matters dealing with the purchase price and tax indemnification claims
and Jeffrey D. Zimmerman ("JDZ") with respect to all other indemnification
claims to serve as their representative with respect to the matters set forth
in the Agreement, the Representative Agreement, and the Escrow Agreement. Upon
execution and delivery of the Representative Agreement, each CIB shareholder
will have (i) appointed LGB or JDZ, as applicable, as his sole representative,
agent, proxy and attorney-in-fact for all purposes of the Agreement and the
Escrow Agreement and (ii) agreed that such agency and proxy are coupled with an
interest, and are therefore irrevocable without the consent of LGB and JDZ and
shall survive the death, incapacity, bankruptcy, dissolution or liquidation of
any CIB shareholder.
LGB or JDZ, as applicable, will have the power and authority to act on
each CIB shareholders' behalf to do, among other things, the following (in each
case in accordance with the Agreement and the Escrow Agreement): (i) to take
all actions which he considers necessary or desirable in connection with the
defense, pursuit or settlement of any adjustments to the Closing Exchange Price
and any claims for indemnification pursuant to the Agreement, Escrow Agreement
or any of the agreements or transactions contemplated thereby and (ii) to
direct the Escrow Agent to disburse remaining Escrow Shares and any Reserves in
the Escrow Fund or the Tax Escrow Fund upon termination of the Escrow
Agreement.
Registration Rights Agreement. Pursuant to the Registration Rights
Agreement (the "Rights Agreement"), FTNC will file a shelf registration
statement as soon as practicable after the Closing Date to register the shares
of
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FTNC Common Stock to be received by the Sellers pursuant to the Merger. The
registration statement will be kept effective until the earliest of two years
from the Closing Date, completion of two Offerings under the registration
statement or the date as of which Sellers own less than 10 percent of the
shares of FTNC Common Stock initially received by Sellers pursuant to the
Merger.
L. Gregory Brown, as Sellers' Representative, will be required to give
at least 10 days prior notice of the intent of a Seller to participate in an
Offering under the registration statement. Any Offering must be completed
within a 30-day period, cannot be for less than 1 percent of FTNC's shares then
outstanding, and must be underwritten by a managing underwriter acceptable to
FTNC if the market value of the FTNC Common Stock to be sold exceeds $20
million. FTNC retains the right to postpone completion of an Offering for up
to 90 days in certain situations specified in Section 4(d) of the Rights
Agreement, but an Offering will not be deemed to have occurred if it is in
progress and FTNC postpones the Offering before 23 days of the Offering period
have expired. FTNC will bear all expenses except underwriting discounts and
commissions and the fees of counsel to any underwriters or Sellers. FTNC and
Sellers who sell under the Rights Agreement will provide customary
indemnification to each other.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of CIB's management and the CIB Board have certain
interests in the Exchange that are in addition to their interests as
shareholders of CIB generally. The CIB Board was aware of these interests and
considered them, among other matters, in approving the Agreement and the
transactions contemplated thereby. Indemnification provided to Sellers is
described above in the section entitled "-- Indemnification."
Employment After The Exchange. CIB has entered into two-year
employment agreements commencing on the Closing Date with L. Gregory Brown,
Eric Scott Brown, Jeffrey Carl Brown, and James H. Lyddon, Jr. which provide to
each an annual base salary of $600,000, $360,000, $360,000 and $360,000,
respectively, and customary fringe benefits. The agreements contain four-year
(or if longer, until 365 days after the last day of employment) covenants not
to compete. Under the agreements, the four individuals will receive
$1,020,000, $660,000, $660,000, and $660,000, respectively, as
covenant-not-to-compete and non-solicitation payments.
Covenants not to Compete. Carl I. Brown and Molly S. Brown have
entered into covenants not to compete with CIB. Generally, these covenants
prohibit competition by the Browns in the geographic areas where CIB is
currently operating and prohibit the solicitation of CIB's officers or
employees for positions with a competing business for a four-year period from
the Closing Date.
SHAREHOLDERS' DISSENTERS' RIGHTS
Shareholders of CIB who follow the procedures specified in Section
17-6712 of the KGCC ("Section 17-6712") will be entitled to receive payment of
the value of their shares of CIB Common Stock, exclusive of any element of
value arising from the expectation or accomplishment of the Merger. THE
PROCEDURES SET FORTH IN SECTION 17-6712 MUST BE STRICTLY COMPLIED WITH.
FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER
OF DISSENTERS' RIGHTS UNDER SECTION 17-6712.
The following discussion of the provisions of Section 17-6712 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.
Under Section 17-6712, a shareholder of CIB electing to exercise
dissenters' rights must do all of the following:
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(1) Deliver to CIB, before the taking of the vote on the Merger, a
written objection to the Merger. This written objection 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 objection be delivered to CIB before the vote on the Merger. Such
written objection should be delivered either in person or by mail (certified
mail, return receipt requested, being the recommended the form of transmittal)
to CIB, 612 West 47th Street, Kansas City, Missouri 64112, Attention:
Secretary, prior to the Special Meeting;
(2) Not vote in favor of the Merger. A failure to vote against
the Merger will not constitute a waiver of dissenters' rights. HOWEVER, ANY
SHAREHOLDER WHO EXECUTES A PROXY CARD AND WHO DESIRES TO PERFECT HIS
DISSENTERS' RIGHTS MUST MARK THE PROXY CARD "AGAINST" THE PROPOSAL RELATING TO
THE MERGER BECAUSE IF THE PROXY CARD IS LEFT BLANK, IT WILL BE VOTED "FOR" FOR
THE PROPOSAL RELATING TO THE MERGER; AND
(3) Deliver to CIB within 20 days after the date that CIB mails
notice to the shareholder that the Merger has become effective (which notice
must be made by CIB within 10 days after the effective date of the Merger) a
written demand for payment of the value of the shareholder's stock.
The written objection and the written demand must be made by or for
the holder of record of the CIB 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 or her stock certificates. If the stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the written objection and the written 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 written objection and
written demand should be executed by or for all joint owners. An authorized
agent, including one of two or more joint owners, may execute the written
demand and written objection 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 CIB stock as nominee for
others may exercise its dissenters' rights with respect to the shares held for
all or less than all of the others. In such case, the written objection and
written demand should set forth the number of shares covered by it. Where no
number of shares is expressly mentioned, the written objection and the written
demand will be presumed to covered all shares standing in the name of such
record owner.
As stated above, within 10 days after the effective date of the
Merger, CIB is required to, and will, notify each shareholder who properly
filed a written objection and whose shares were not voted in favor of the
Merger that the Merger has become effective. If any such shareholder, within
20 days after the date of mailing of such notice, makes a demand in writing for
payment of the value of the shareholder's stock, CIB will pay to such
shareholder, within 30 days after the expiration of the 20-day period, the
value of the shareholder's stock on the effective date of the Merger, exclusive
of any element of value arising from the expectation or accomplishment of the
Merger. If, during the 30-day period, CIB and any such shareholder fail to
agree upon the value of such stock, any such shareholder or CIB may demand a
determination of the value of the stock of all such shareholders by an
appraiser or appraisers to be appointed by the district court by filing a
petition with the district court within four months after the expiration of the
30-day period. If no such petition is filed within the four-month period,
dissenters' rights will be lost for all shareholders who had previously
demanded appraisal of their shares. Shareholders of CIB seeking to exercise
dissenters' rights should not assume that CIB will file a petition with respect
to the appraisal of the value of their shares or that CIB will initiate any
negotiations with respect to the value of such shares. ACCORDINGLY,
SHAREHOLDERS OF CIB WHO WISH TO EXERCISE THEIR DISSENTERS' RIGHTS SHOULD REGARD
IT AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO PERFECT THEIR DISSENTERS'
RIGHTS IN THE MANNER PRESCRIBED IN SECTION 17-6712.
CIB is required to file with the clerk of the district court, within
10 days after service of a copy of any petition filed by any shareholder, a
duly verified list containing the names and addresses of all shareholders who
have demanded payment for their shares and with whom agreements as to the value
of their shares have not been reached by CIB. The clerk of the district court
is required to give notice of the time and place fixed for the hearing
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of the petition by registered or certified mail to CIB and to such shareholders
shown upon the list at the addresses therein stated and by publishing a notice
at least once in a newspaper of general circulation in the county in which the
court is located.
The district court is required to determine the shareholders who have
complied with the provisions of Section 17-6712 and is required to appoint an
appraiser or appraisers to determine the value of their shares. The appraisers
appointed by the district court are required to afford a reasonable opportunity
to the parties to submit to them pertinent evidence on the value of the shares.
The appraiser or appraisers are required to determine the value of the stock
and file a report as to such value with the district court. The district court
by its decree will determine the value of the stock and will direct payment of
such value, together with interest, if any, as hereinafter provided, to the
shareholders entitled thereto by CIB. At the time of appointment of
appraisers, the district court will require shareholders who hold certificated
shares and who demand payment therefor to submit their certificates to the
clerk of the district court pending such appraisal proceedings. If any
shareholder fails to comply with this direction, the district court will
dismiss the proceeding as to such shareholder.
The cost of any appraisal, including a reasonable fee to and the
reasonable expenses of the appraiser, but exclusive of fees of counsel and of
experts retained by any party, will be determined by the district court and
taxed upon the parties or any of them as appears to be equitable, except that
the cost of publication and notification by registered or certified mail will
be paid by CIB. On application of any party, the district court will determine
the amount of interest, if any, to be paid upon the value of the stock.
Any shareholder who has demanded payment of the shareholders' stock
will not thereafter be entitled to vote such stock for any purpose or be
entitled to the payment of dividends or other distributions on the stock,
except dividends and other distributions payable to shareholders of record at a
date prior to the effective date of the Merger unless the appointment of
appraisers is not applied for within the time provided in Section 17-6712, or
the proceeding is dismissed as to such shareholder, or unless such shareholder
with the written approval of CIB delivers to CIB a written withdrawal of the
shareholder's objections to and an acceptance of the Merger, in any of which
cases the right of such shareholder to payment for the shareholder's stock will
cease.
Although CIB believes that the price per share to be paid in the
Merger is fair, CIB cannot make any representation of the outcome of the
appraisal of value as determined by the district court, and shareholders should
recognize that such an appraisal could result in a determination of a lower,
higher or equivalent value. Moreover, CIB may or may not argue in any
appraisal proceeding for a determination of value by the district court which
is lower than the price per share at the close of the Calculation Period. In
determining the value of the shares, the court is required to take into account
all relevant factors.
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. It may not be applicable to a
shareholder who acquired his shares of CIB Common Stock pursuant to the
exercise of employee stock options or rights or otherwise as compensation. CIB
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 CIB as a result of the Merger, (b) no gain or loss will be
recognized by the CIB shareholders upon the receipt of FTNC Common Stock in
exchange for CIB 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 CIB shareholders in connection with the Merger will be the
same as the basis in the CIB Common Stock surrendered in exchange therefor
(reduced by any amount
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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 CIB
shareholders in connection with the Merger will include the holding period of
the CIB Common Stock surrendered in exchange therefor, provided that the CIB
Common Stock is held as a capital asset at the Closing Date. Consummation of
the Merger is dependent upon, among other conditions, receipt by FTNC and CIB
of an opinion of counsel to FTNC, dated as of the Closing Date, substantially
to this effect.
Consequences of Receipt of Cash in Lieu of Fractional Shares. An CIB
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 Closing 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 CIB Common Stock is
held by such shareholder as a capital asset at the Closing Date.
No IRS Rulings. The parties do not intend to request a ruling from
the IRS regarding the federal income tax consequences of the Merger. An
opinion of counsel will be furnished to the CIB Shareholders stating that the
Merger should qualify as a "reorganization" within the meaning of Section
368(a) of the Code, but any such opinion of counsel is not binding on the IRS.
Consequences of Escrow and Stock Deliverable at Supplemental Closing.
If the Merger qualifies as a tax-free reorganization for federal income tax
purposes, CIB Shareholders who are to receive FTNC Common Stock should not
recognize taxable gain or loss upon the deposit of the FTNC Common Stock in
escrow. However, the IRS may take the position that a portion of the FTNC
Common Stock that is ultimately received from escrow must be treated as a
payment of interest. In addition, the IRS may take a similar position that a
portion of any FTNC Common Stock that is delivered at the Supplemental Closing
must be treated as a payment of interest. If the Merger does not qualify as a
tax-free reorganization for federal income tax purposes, it is unclear under
current law whether the portion of a CIB Shareholder's gain that is
attributable to FTNC Common Stock received after the Closing Date is taxable to
the CIB Shareholder at the time of the Merger or at the later time or times
when the stock is received from escrow or at the Supplemental Closing.
Cash Received by CIB Shareholders Who Dissent. A shareholder of CIB
who perfects his dissenter's rights under the laws of the State of Kansas and
who receives a payment in cash of the value of his shares of CIB 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 CIB 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 CIB will depend on his individual circumstances. Each CIB
shareholder who contemplates exercising his dissenter's rights should consult
his own tax advisor as to the possibility that any payment to him will be
treated as divided income.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by FTNC of
a letter from FTNC's independent public accountants to the effect that the
Merger qualifies for pooling-of-interests accounting treatment if closed and
consummated in accordance with the terms of the Agreement. Under the
pooling-of-interests method of accounting, the historical basis of the assets
and liabilities of FTNC and CIB will be combined at the Closing Date and
carried forward at their previously recorded amounts and the shareholders'
equity accounts of CIB and FTNC will be combined on FTNC's consolidated balance
sheet. FTNC intends to restate retroactively income and other financial
statements of FTNC issued after consummation of the Merger to reflect the
consolidated operations of FTNC and CIB as if the Merger had taken place prior
to the periods covered by such financial statements.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding shares of CIB
Common Stock must be exchanged for FTNC Common Stock. CIB and Sellers have
agreed to take no action not described in a previously provided statement and
have agreed not to fail
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to take any action described in such statement unless FTNC's independent public
accountants confirm that any such proposed action or inaction will not cause
the Merger to fail 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," "-- Selected Financial Data and Ratios" and "Index to
Pro Forma Financial Information."
EXPENSES
The Agreement provides, in general, that each party will each pay its
own expenses in connection with the Agreement and the transactions contemplated
thereby, including fees and expenses of its own brokers, finders, financial
consultants, accountants and counsel. If FTNC terminates the Agreement because
the Closing Measurement Price is less than or equal to $35.00, FTNC will
reimburse CIB its expenses up to $75,000. See "Termination; Waiver and
Amendment."
RESALE OF FTNC COMMON STOCK
The shares of FTNC Common Stock issued pursuant to the Agreement will
be freely transferable under the Securities Act except for shares issued to any
shareholder who may be deemed to be an "affiliate" of CIB for purposes of Rule
145 under the Securities Act as of the date of the Special Meeting. Affiliates
may not sell their shares of CIB 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 CIB generally include individuals or entities that control, are controlled
by or are under common control with CIB and include its directors and executive
officers and the Browns.
It is a condition to FTNC's obligations under the Agreement that each
director, executive officer and other person who is an affiliate of CIB has
entered into and delivered to FTNC an agreement satisfactory to FTNC providing
that such person will not, directly or indirectly, (a) sell, pledge, transfer
or otherwise dispose of or take any action which would reduce such person's
risk with respect to shares of FTNC Common Stock to be received by such person
in the Merger except in compliance with the applicable provisions of the
Securities Act and rules and regulations thereunder, or (b) sell, pledge,
transfer or otherwise dispose of or take any action which would reduce such
person's risk with respect to shares of CIB Common Stock owned by such person
or shares of FTNC Common Stock to be received by such person in the Merger
during the periods when any such sale, pledge, transfer, disposition or action
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 FTNC and CIB.
In addition, certain limitations are imposed on sales under the Rights
Agreement. See "-- Additional Agreements - Registration Rights Agreement."
THE NASDAQ STOCK MARKET
FTNC Common Stock is included for quotation on the Nasdaq Stock Market
on its National Market. The FTNC Common Stock issued to the shareholders of
CIB pursuant to the Agreement will be included for quotation on the Nasdaq
Stock Market.
CERTAIN REGULATORY CONSIDERATIONS
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GENERAL
As a bank holding company, FTNC is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Under the BHCA, bank holding companies may not in general
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. The BHCA also
restricts the types of activities in which a bank holding company and its
subsidiaries may engage. Generally, activities are limited to banking and
activities found by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto.
In addition, the BHCA prohibits the Federal Reserve Board from
approving an application by a bank holding company to acquire shares of a bank
or bank holding company located outside the acquiror's principal state of
operations unless such an acquisition is specifically authorized by statute in
the state in which the bank or bank holding company whose shares are to be
acquired is located. Tennessee has adopted legislation that authorizes
nationwide interstate bank acquisitions, subject to certain state law
reciprocity requirements, including the filing of an application with and
approval of the Tennessee Commissioner of Financial Institutions. The
Tennessee Bank Structure Act of 1974 restricts the acquisition by bank holding
companies of banks in Tennessee. A bank holding company is prohibited from
acquiring any bank in Tennessee as long as banks that it controls retain 16
1/2% or more of the total deposits in individual, partnership and corporate
demand and other transaction accounts and in savings accounts and time deposits
in all federally insured financial institutions in Tennessee, subject to
certain limitations and exclusions. As of December 31, 1993, FTNC estimates
that it held approximately 12% of such deposits. Also, under this act, no bank
holding company may acquire any bank in operation for less than five years or
begin a de novo bank in any county in Tennessee with a population, in 1970, of
200,000 or less, subject to certain exceptions. Under Tennessee law, branch
banking is permitted in any county in the state. As to certain changes in the
laws applicable to banks that have recently been enacted, see "-- Interstate
Act."
FTNC's subsidiary banks (the "Subsidiary Banks") are subject to
supervision and examination by applicable federal and state banking agencies.
FTB is a national banking association subject to regulation and supervision by
the Comptroller of the Currency (the "Comptroller"), as is First Tennessee Bank
National Association Mississippi, which is headquartered in Southaven,
Mississippi. The remaining Subsidiary Banks are Cleveland Bank & Trust Company
and Peoples and Union Bank, which are Tennessee state-chartered banks, and
Planters Bank, which is a Misssissippi state-chartered bank, none of which are
members of the Federal Reserve System, and therefore are subject to the
regulations of and supervision by the Federal Deposit Insurance Corporation
(the "FDIC") as well as state banking authorities. The Subsidiary Banks are
also subject to various requirements and restrictions under federal and state
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon and limitations on the types of investments that may be made
and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Subsidiary Banks. In addition to
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
PAYMENT OF DIVIDENDS
FTNC is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of cash flow of FTNC, including cash
flow to pay dividends on its stock or principal (premium, if any) and interest
on debt securities, is dividends from the Subsidiary Banks. There are
statutory and regulatory limitations on the payment of dividends by the
Subsidiary Banks to FTNC, as well as by FTNC to its shareholders.
Each Subsidiary Bank that is a national bank 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 Subsidiary Bank in any year will exceed the total of (i) its net profits
(as defined and interpreted by regulation) for
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that year plus (ii) the retained net profits (as defined and interpreted by
regulation) for the preceding two years, less any required transfers to
surplus. A national bank also can pay dividends only to the extent that
retained net profits (including the portion transferred to surplus) exceed bad
debts (as defined by regulation).
State-chartered banks are subject to varying restrictions on the
payment of dividends under applicable state laws. Tennessee law imposes
dividend restrictions on Tennessee state banks substantially similar to those
imposed under federal law on national banks, as described above. Mississippi
law prohibits Mississippi state banks from declaring a dividend without the
prior written approval of the Mississippi Banking Commissioner.
If, in the opinion of the applicable federal bank regulatory
authority, a depository institution or a holding company is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the depository institution or holding company, could
include the payment of dividends), such authority may require that such
institution or holding company cease and desist from such practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's or holding company's capital base to an inadequate
level would be such an unsafe and unsound banking practice. Moreover, the
Federal Reserve Board, the Comptroller and the FDIC have issued policy
statements which provide that bank holding companies and insured depository
institutions generally should only pay dividends out of current operating
earnings.
In addition, under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), a FDIC-insured depository institution may
not pay any dividend if payment would cause it to become undercapitalized or
once it is under capitalized. See "-- FDICIA."
At September 30, 1994, under dividend restrictions imposed under
applicable federal and state laws, the Subsidiary Banks, without obtaining
regulatory approvals, could legally declare aggregate dividends of
approximately $238.3 million.
The payment of dividends by FTNC and the Subsidiary Banks may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which FTNC and
its nonbank subsidiaries can borrow or otherwise obtain credit from the
Subsidiary Banks. There are also legal restrictions on the Subsidiary Banks'
purchases of or investments in the securities of and purchases of assets from
FTNC and its nonbank subsidiaries, a bank's loans or extensions of credit to
third parties, collateralized by the securities or obligations of FTNC and its
nonbank subsidiaries, the issuance of guaranties, acceptances and letters of
credit on behalf of FTNC and its nonbank subsidiaries, and certain bank
transactions with FTNC and its nonbank subsidiaries, or with respect to which
FTNC and it nonbank subsidiaries, act as agent, participates or has a financial
interest. Subject to certain limited exceptions, a Subsidiary Bank (including
for purposes of this paragraph all subsidiaries of such Subsidiary Bank) may
not extend credit to FTNC or to any other affiliate (other than another
Subsidiary Bank) in an amount which exceeds 10% of the Subsidiary Bank's
capital stock and surplus and may not extend credit in the aggregate to such
affiliates in an amount which exceeds 20% of its capital stock and surplus.
Further, there are legal requirements as to the type, amount and quality of
collateral which must secure such extensions of credit by these banks to FTNC
or to such other affiliates. Also, extensions of credit and other transactions
between the Subsidiary Bank and FTNC or such other affiliates must be on terms
and under circumstances, including credit standards, that are substantially the
same or at least as favorable to such Subsidiary Bank as those prevailing at
the time for comparable transactions with non-affiliated companies. Also, FTNC
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.
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CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies. The minimum guideline for the ratio of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%, and the
minimum ratio of Tier I Capital (defined below) to risk--weighted assets is 4%.
At least half of the Total Capital must be composed of common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual
preferred stock, less goodwill and certain other intangible assets ("Tier 1
Capital"). The remainder may consist of subordinated debt, other preferred
stock and a limited amount of loan loss reserves. At September 30, 1994, FTNC's
consolidated Tier 1 Capital and Total Capital ratios were 9.94% and 12.36%,
respectively.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum ratio of Tier 1 Capital to average assets, less goodwill and
certain other intangible assets (the "Leverage Ratio"), of 3% for bank holding
companies that meet certain specific criteria, including having the highest
regulatory rating. All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3%, plus an additional cushion of 100 to
200 basis points. FTNC's Leverage Ratio at September 30, 1994 was 7.01%. 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 Federal Reserve
Board has indicated that it will consider a "tangible Tier 1 Capital leverage
ratio" (deducting all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
Each of the Subsidiary Banks is subject to risk-based and leverage
capital requirements similar to those described above adopted by the
Comptroller or the FDIC, as the case may be. FTNC believes that each of the
Subsidiary Banks was in compliance with applicable minimum capital requirements
as of September 30, 1994. Neither FTNC nor any of the Subsidiary Banks has been
advised by any federal banking agency of any specific minimum Leverage Ratio
requirement applicable to it.
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 to certain restrictions on its business. See "-- FDICIA."
All of the federal banking agencies have proposed regulations that
would add an additional risk-based capital requirement based upon the amount of
an institution's exposure to interest rate risk. In addition, bank regulators
continue to indicate their desire generally 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.
HOLDING COMPANY STRUCTURE AND SUPPORT OF SUBSIDIARY BANKS
Because FTNC is a holding company, its right to participate in the
assets of any subsidiary upon the latter's liquidation or reorganization will
be subject to the prior claims of the subsidiary's creditors (including
depositors in the case of bank subsidiaries) except to the extent that FTNC may
itself be a creditor with recognized claims against the subsidiary.
Under Federal Reserve Board policy, FTNC is expected to act as a
source of financial strength to, and commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such
Federal Reserve Board policy, FTNC may not be inclined to provide it. In
addition, 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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Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to 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. The FDIC's claim for damages is superior to claims of
shareholders of the insured depository institution or its holding company but
is subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The Subsidiary Banks are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of the Subsidiary Banks would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against
FTNC's other Subsidiary Banks and a potential loss of FTNC's investment in such
Subsidiary Banks.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") which was enacted on December 19, 1991, substantially revised the
depository institution regulatory and funding provisions of the FDIA and made
revisions to several other federal banking statutes. Among other things,
FDICIA requires the federal banking regulators to take "prompt corrective
action" in respect of FDIC-insured depository institutions that do not meet
minimum capital requirements . FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable
regulations, a FDIC-insured depository institution is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5%, a risk adjusted
Tier 1 Capital Ratio of at least 6% and a Total Capital Ratio of at least 10%
and is not subject to a directive, order or written agreement to meet and
maintain specific capital levels. An insured depository institution is defined
to be adequately capitalized if it meets all of its minimum capital
requirements as described above. In addition, an insured depository
institution will be considered undercapitalized it fails to meet any minimum
required measure, significantly undercapitalized if it is significantly below
such measure and critically undercapitalized if it fails to maintain a level of
tangible equity equal to not less than 2% of total assets. An insured
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
The capital-based prompt corrective action provisions of FDICIA and
their implementing regulations apply to FDIC-insured depository institutions
and are not directly applicable to holding companies which control such
institutions. However, the Federal Reserve Board has indicated that, in
regulating bank holding companies, it will take appropriate action at the
holding company level based on an assessment of the effectiveness of
supervisory actions imposed upon subsidiary depository institutions pursuant to
such provisions and regulations. Although the capital categories defined under
the prompt corrective action regulations are not directly applicable to FTNC
under existing law and regulations, if FTNC were placed in a capital category
FTNC believes that it would qualify as well-capitalized as of September 30,
1994.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may
not accept a capital plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring
the depository institution's capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
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Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
FTNC believes that at September 30, 1994 all of the Subsidiary Banks
were well capitalized under the criteria discussed above.
FDICIA contain numerous other provisions, including new accounting,
audit and reporting requirements, beginning in 1995 termination of the "too big
to fail" doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, new regulatory standards in such areas as asset
quality, earnings and compensation and revised regulatory standards for, among
other things, powers of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days prior notice
of the closing of any branches.
Various other legislation, including proposals to revise the bank
regulatory system and to limit the investments that a depository institution
may make with insured funds, is from time to time introduced in Congress.
INTERSTATE ACT
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Interstate Act"), which was enacted on September 29, 1994, among other
things and subject to certain conditions and exceptions, (i) permits bank
holding company acquisitions commencing one year after enactment of banks of a
minimum age of up to five years as established by state law in any state, (ii)
mergers of national and state banks after May 31, 1997 across state lines
unless the state has opted out of the interestate bank merger provision, (iii)
branching de novo by national and state banks into other states if the state
has opted-in to this provision of the Interstate Act, and (iv) certain
interstate bank agency activities after one year after enactment. Regulations
have not yet been issued under the Interstate Act.
BROKERED DEPOSITS
The FDIC has adopted regulations under FDICIA governing the receipt of
brokered deposits. Under the regulations, a bank cannot accept a rollover or
renew brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDICIA. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. Whether or not it has obtained such a
waiver, an adequately capitalized bank may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates
specified by regulation. There are no such restrictions on a bank that is well
capitalized. Because it believes that all the Subsidiary Banks were well
capitalized as of September 30, 1994, FTNC believes the brokered deposits
regulation will have no material effect on the funding or liquidity of any of
the Subsidiary Banks.
FDIC INSURANCE PREMIUMS
The Subsidiary Banks are required to pay semiannual FDIC deposit
insurance assessments. As required by FDICIA, the FDIC adopted a risk-based
premium schedule which increased the assessment rates for most FDIC-insured
depository institutions. Under the schedule, the premiums initially range from
$.23 to $.31 for every $100 of deposits. Each financial institution is
assigned to one of three capital groups -- well capitalized, adequately
capitalized or undercapitalized -- and further assigned to one of three
subgroups within a capital group, on the basis of supervisory evaluations by
the institution's primary federal and, if applicable, state supervisors and
other information relevant to the institution's financial condition and the
risk posed to the applicable FDIC deposit insurance fund. The actual
assessment rate applicable to a particular institution will, therefore, depend
in part upon the risk assessment classification so assigned to the institution
by the FDIC.
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The FDIC is authorized by federal law to raise insurance premiums in
certain circumstances. Any increase in premiums would have an adverse effect
on the Subsidiary Banks' and FTNC's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by a
federal bank regulatory agency.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits
and certain claims for administrative expenses and employee compensation
against an insured depositary institution would be afforded a priority over
other general unsecured claims against such an institution, including federal
funds and letters of credit, in the "liquidation or other resolution" of such
an institution by any receiver.
INFORMATION CONCERNING CIB
INDUSTRY OVERVIEW
General. Mortgage banking is the business of (i) making mortgage
loans as a direct lender or purchasing mortgage loans from other lenders, (ii)
warehousing mortgage loans pending delivery to third-party investors, (iii)
selling mortgage loans in the secondary mortgage market to third-party
investors either directly or through mortgage pools, (iv) purchasing and
selling the right to service mortgage loans and (v) servicing mortgage loans.
The following descriptions summarize the various phases of the mortgage banking
business; however, practices vary among industry participants according to the
sources and the relative importance of the various phases of business.
History. The primary financial intermediaries that participate in the
mortgage banking market include mortgage bankers, commercial banks, savings and
loan associations and credit unions. Mortgage bankers, including CIB,
traditionally differ from the other participants in the mortgage banking
industry in that they do not operate as depository institutions, use only a
limited amount of their own capital to fund mortgage loans and do not originate
mortgage loans to hold in their own asset portfolios. Mortgage bankers finance
their loan origination activities by drawing on revolving lines of credit
(often referred to as "warehouse" lines) at financial institutions and then
selling the loans to investors either directly or through the secondary market,
using the proceeds of such sales to repay lines of credit. Mortgage bankers
typically enter into commitments to sell loans to third party investors at
predetermined prices prior to actually closing the loans. It is this practice
of using short-term credit to fund loans and then marketing and selling such
loans to third-party investors that distinguishes mortgage bankers from other
types of mortgage lenders.
Mortgage loan origination is a highly competitive business. Mortgage
bankers, as a group, have dramatically increased their market share since the
late 1980's and now dominate this business. The remaining mortgage loan
origination volume is shared in varying percentages among commercial banks,
savings associations, credit unions and other lenders. Previously, thrifts
held the largest share of residential mortgage loan origination volume. As a
result of the significant financial difficulties experienced by the thrift
industry and the more stringent capital requirements imposed by The Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), thrifts'
competitive advantage has been reduced and, as a result, their percentage of
total mortgage loan origination volume has declined significantly.
Mortgage Loan Production. Mortgage loan production generally occurs
in three ways: retail, wholesale and correspondent origination. The making of
mortgage loans directly to homeowners is referred to herein as "retail
origination." The retail origination process involves offering mortgage loan
products directly to customers at specified rates and fees; processing and
verifying loan applications; reviewing borrower creditworthiness and appraised
value (collectively referred to as "underwriting"); reviewing mortgaged
property title; and funding loans
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<PAGE> 40
at closing. Retail origination produces revenue through loan application fees
payable by the borrower when an application is made and through loan
origination and other fees. The referral for underwriting, closing and funding
of mortgage loans from mortgage brokers and other third party originators is
referred to herein as "wholesale production." Correspondent production
generally involves the acquisition of fully funded and closed loans from third
party originators such as banks, savings associations or other mortgage banks.
After producing mortgage loans in one of these ways, depending on a particular
mortgage banker's strategy, the mortgage banker generally markets the loans in
the secondary market and either (i) retains the servicing rights with respect
to the originated loans by selling the mortgage loans "servicing retained" or
(ii) sells such servicing rights by selling the mortgage loans "servicing
released."
Warehousing. Once a loan is originated, it is typically sold forward
for future delivery by the mortgage bank and held by the mortgage bank for a
period of time pending delivery to the secondary market. During the period of
time in which mortgage loans are held prior to delivery to the secondary
market, known as warehousing, mortgage bankers typically pledge funded loans as
security for short-term credit advances from banks or other lenders which are
used to fund new mortgage loans. When interest rates charged by mortgage
bankers on mortgage loans exceed interest rates charged by banks or other
lenders on short-term borrowings, as is generally the case, the warehousing of
mortgage loans generates net interest income. The net interest spread on
mortgage loans held in warehouse is generally positive because interest income
earned on long-term mortgages held in warehouse generally exceeds interest
expense incurred on short-term borrowings.
Secondary Marketing of Loans. Marketing, or the packaging, offering,
sale and delivery of closed mortgage loans to investors, is the activity which
distinguishes a mortgage banker as a financial intermediary from a long-term
portfolio lender or investor. Mortgage loans are packaged and sold in pools as
mortgage-backed securities, or separately as whole loans. Mortgage bankers can
package and sell loans guaranteed by the Veterans Administration ("VA") or
insured by the Federal Housing Association ("FHA") in pools which collateralize
modified pass-through mortgage-backed securities issued by the mortgage bankers
and guaranteed by the Government National Mortgage Association ("GNMA").
Conventional loans that meet the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC") requirements
("conforming conventional loans") can be sold directly to FNMA or FHLMC or
packaged in pools and exchanged for mortgage-backed securities issued by such
agencies which are in turn sold to securities dealers. Conventional mortgage
loans not eligible for sale to FNMA and FHLMC and which generally exceed the
maximum principal amount (which, for a single family residence within the
continental United States is currently $203,150) or that do not otherwise
conform to agency underwriting guidelines (referred to as "nonconforming
conventional loans" or "jumbos"), can be sold as whole loans or packaged into
credit-enhanced mortgage-backed securities. Exchanges of loans into agency
securities and sales of loans are generally made without recourse to the
mortgage banker in the event of default by the borrower, subject, in the case
of VA loans used to form GNMA pools, to limitations on the VA's loan
guarantees.
Mortgage loans are sold in the secondary market "servicing retained"
or "servicing released." Mortgage loans sold to private investors are often
sold servicing retained, although some investors seek to acquire servicing
rights with the purchased loans. Loans sold to FNMA, FHLMC or delivered into a
security guaranteed by FNMA, FHLMC or GNMA are sold servicing-retained,
although the mortgage banker may elect to sell the servicing rights to another
mortgage servicer at the time of the sale of the loan or the issuance of the
mortgage-backed security. These government sponsored investors, together with
private investors who pool and issue their own mortgage-backed securities, have
become the primary outlets for the sale of loans by mortgage bankers. As a
result of the increased liquidity and rapid growth in the market for
mortgage-backed securities, mortgage bankers are able to sell their loan
originations into an active and liquid market.
A mortgage banker may generate marketing gains or losses through the
direct sale of the mortgage loans or mortgage-backed securities that are
originated. Such gains or losses result primarily from two factors. First, a
mortgage banker may make a loan to a borrower at a price (interest rate plus
discount points) that is higher or
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<PAGE> 41
lower than the mortgage lender would receive if it immediately sold the loan in
the secondary market. Such pricing differences most often occur as a result of
competitive conditions in a marketplace. Second, gains or losses may result
from changes in interest rates that affect the market value of the loan from
the time a price commitment is given to a borrower until the loan is committed
to an investor.
During the period of time when loans originated or purchased by a
mortgage banker are warehoused, a mortgage banker can be exposed to interest
rate risk. In order to minimize interest rate risk, a mortgage banker
generally sells the loans forward for future delivery. Mortgage bankers are
also exposed to interest rate risk with respect to mortgages that have not been
funded but for which commitments have been extended (referred to as the
"mortgage pipeline"). Mortgage pipeline hedging may be accomplished by selling
forward for future delivery that percentage of the loans the mortgage banker
expects will close or by other appropriate methods.
Purchase and Sale of Servicing Rights. Many mortgage bankers focus on
achieving the economies of scale that arise from servicing a large loan
portfolio. Purchases and sales of servicing rights bv mortgage servicers have
become common with the evolution of a highly liquid, active market for such
transactions. The market value of servicing rights is based principally on the
estimated net present value of the future servicing income expected from the
mortgage loans within the servicing portfolio.
Mortgage bankers employ several methods to acquire servicing rights.
First, bulk acquisitions entail the purchase of servicing rights to existing
loan portfolios. In most cases, loans associated with servicing rights
acquired through a bulk acquisition have already been sold to investors and
have been serviced by another mortgage servicer for a period of time. Second,
under flow acquisition programs, mortgage bankers enter into on-going
agreements with other mortgage loan originators to purchase specific volumes
and types of mortgage loans and the associated servicing rights over a
specified period at particular servicing premiums. Finally, mortgage bankers
acquire loans and the associated servicing rights from correspondent lenders,
who generally do not originate a sufficient volume of mortgage loans to be able
to create pools, fill an investor's minimum commitment requirement or who may
choose not to maintain a servicing portfolio.
The decision to acquire or sell servicing rights provides a mortgage
banker with an opportunity to control the timing of its cash flow in order to
meet its operational objectives and liquidity requirements. Acquisitions of
mortgage servicing assets and the origination of new mortgage loans (and their
associated servicing rights) each represent investments that yield future cash
flow, as servicing and related fees are received over the life of the mortgage
loans being serviced. Because there is an active and highly liquid market for
the purchase and sale of mortgage servicing rights, mortgage bankers have the
option of selling for cash a portion of a servicing portfolio or the servicing
rights associated with warehouse loans, thereby realizing immediately the
market's assessment of the present value of the future cash flow stream that
the servicing assets are expected to yield.
Servicing. Mortgage servicing involves collecting monthly mortgage
payments, maintaining escrow accounts for the payment of taxes, hazard
insurance and mortgage insurance premiums on behalf of homeowners, remitting
payments of principal and interest promptly to investors on the underlying
mortgages, reporting to those investors on financial transactions related to
such mortgages, and generally administering the loans. Servicing revenue is
generated by fees that are based upon a percentage of the declining principal
amount of the serviced loans and are collected out of each mortgage loan
payment received, plus any ancillary charges. Prepayment and scheduled loan
amortization reduce servicing income.
DESCRIPTION OF BUSINESS
General. CIB is a full service mortgage banker with principal offices
in Kansas City, Missouri. As a mortgage banker, CIB derives its revenues
principally from the origination of one to four family residential mortgages
and the servicing of mortgage loans.
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<PAGE> 42
CIB is privately held and concentrates its origination efforts through
the residential mortgage programs of the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association.
CIB positioned itself strategically in the fourth calendar quarter of
fiscal year 1992 by expanding its retail and wholesale origination branch
offices and by expanding its warehouse credit availability to fund the
anticipated loan origination expansion. Because of the general decrease in
residential mortgage interest rates and the strategic placement of CIB's branch
offices, CIB more than doubled its loan originations during fiscal year 1993.
Competitive Conditions. The business of mortgage banking is highly
competitive. CIB competes with other financial institutions, such as state and
national commercial banks, savings and loan associations, credit unions, and
mortgage bankers and insurance companies for loan originations. Many of CIB's
competitors have financial resources that are substantially greater than those
of CIB. CIB competes by providing competitive pricing, motivating its sales
force through incentive compensation based on volume of loan origination and by
providing high-quality service to borrowers, builders, real estate brokers and
agents and mortgage brokers.
Supervision and Regulation. Mortgage banking is a regulated industry.
CIB is subject to the rules and regulations of, and examination by, FNMA,
FHLMC, FHA, VA, and GNMA, with respect to originating, processing,
underwriting, making, selling, securitizing and servicing residential mortgage
loans. In addition, CIB is subject to regulation at the state and federal
level from agencies like the Department of Housing and Urban Development
("HUD") and the Federal Trade Commission ("FTC") with respect to specific
origination, selling and servicing practices. These rules and regulations
among other things, impose licensing obligations on CIB, establish eligibility
criteria for mortgage loans, prohibit discrimination, provide for inspection
and appraisals of properties, require credit reports on prospective borrowers,
regulate payment features and, in some cases, fix maximum interest rates, fees
and loan amounts. FHA lenders such as CIB are required annually to submit to
the Federal Housing Commissioner audited financial statements, and FNMA, FHLMC,
and FHA require the maintenance of specified net worth levels. CIB's affairs
are also subject to examination by the Federal Housing Commissioner at all
times to assure compliance with FHA regulations, policies and procedures.
Among other federal consumer credit laws, mortgage origination activities are
subject to the Equal Credit Opportunity Act, Federal Truth-In-Lending Act, Real
Estate Settlement Procedures Act and the regulations promulgated thereunder
which prohibit discrimination, kickbacks and referral fees, and require the
disclosure of certain information to borrowers concerning credit and settlement
costs. Many of the aforementioned regulatory requirements are designed to
protect the interests of consumers, while others protect the owners or insurers
of mortgage loans. Failure to comply with these requirements can lead to loss
of approved status, termination of servicing contracts without compensation to
the servicer, demands for indemnification or loan repurchases, class action
lawsuits and administrative enforcement actions.
Certain states require that interest must be paid to mortgagors on
funds deposited by them in escrow to cover mortgage-related payments such as
property taxes and insurance premiums. Proposed federal legislation, if
enacted, would establish a uniform interest payment requirement in all states,
and may therefore impact CIB's current practices with respect to the use of
compensating balances and interest payments, as well as CIB's future net
income. Prior to the enactment of definitive legislation and promulgation of
any related regulations, CIB cannot determine the impact of any such
requirement on its business.
Certain conventional mortgage loans are subject to state usury
statutes. Federally insured or guaranteed loans are exempt from the effect of
such statutes.
Various state laws affect CIB's mortgage banking operations. CIB is
licensed to do business in those states where its operations require such
licensing.
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Property. CIB's corporate and administrative headquarters is located
in its facilities in Kansas City, Missouri. CIB has 54 offices in 19 states.
Seasonality. The mortgage banking business is generally subject to
seasonal trends which reflect the pattern of home sales. These sales typically
peak during the spring and summer and decline to lower levels from November
through February. As a result, CIB's mortgage origination revenues and
earnings typically have been higher in the second and third quarters of each
year than in the first and fourth quarters. Other aspects of CIB's business,
such as servicing and acquisitions, are less affected by seasonality, except to
the extent that the growth of the servicing portfolio is generally higher in
periods of higher production.
Directors and Executive Officers. The members of the Board of
Directors of CIB 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.
The name of each director, his or her age and current principal
occupation (which has continued for at least five years unless otherwise
indicated), the name and principal business of the organization in which his or
her occupation is carried on (which organization is not an affiliate of CIB
unless indicated), his or her directorships, if any, in publicly held
companies, and the year he or she was first elected to a position with CIB are
as follows:
L. Gregory Brown (44) is President, Chief Executive Officer and a
Director of CIB. Mr. Brown has been the President and Chief Executive Officer
since 1988.
Jeffrey C. Brown (37) is National Wholesale Loan Production Manager,
Loan Servicing Manager and Director of CIB. Mr. Brown joined CIB in 1989 after
three years with a publicly traded label manufacturing concern located in
California.
Eric S. Brown (34) is National Loan Production Manager and Director
of CIB. Mr. Brown has been with the Company since 1985.
James H. Lyddon (33) is a Director and the Arizona Wholesale
Production Manager for CIB. Mr. Lyddon joined the Company in 1984.
The executive officers of CIB include the directors identified above
and the following individuals:
Ronald G. Booth, (32) is the Chief Financial Officer of CIB. Mr.
Booth joined CIB in 1990. Prior to 1990, Mr. Booth was with Price Waterhouse.
Michael N. Porter (31) is the Chief Operations Officer of CIB. Mr.
Porter joined CIB in 1987.
Thomas P. Dixon (35) is the Chief Loan Underwriter of CIB. Mr. Dixon
joined CIB in 1984.
No family relationships exist among the individuals listed above,
except for the Browns, who are brothers, and Mr. Lyddon, who is their
brother-in-law.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
The following discussion provides certain information concerning CIB'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 CIB and related notes thereto presented elsewhere in
this Proxy Statement-Prospectus.
Results of Operations Nine Months Ended July 31, 1994 v. July 31,
1993.
Overview. Net income increased from $2.0 million to $2.7 million for
the nine months ended July 31, 1993 and 1994 respectively. This increase was
due to the overall increase in mortgage origination and loan servicing volumes.
Mortgage originations for the nine months ended July 31, 1994 were $2.1 billion
versus $2.0 billion for the same period of 1993. CIB's expansion into new
markets and the generally decreasing interest rate market which occurred during
the first fiscal quarter of 1994 were reflected in these increased origination
volumes.
Total revenues of CIB increased from $36.0 million for the nine months
ended July 31, 1993 to $61.9 million for the same period of 1994. As a
percent of revenues, 39% of total revenues for the nine month period ended July
31, 1994 were generated through the sale of loan servicing rights, compared to
only 17% for the nine months ended July 31, 1993. This increase in the sale of
servicing rights was a result of CIB selling loan servicing to provide cash for
the expansion of operations.
Loan Servicing Fees. Loan servicing fees increased from $6.2 million
for the nine months ended July 31, 1993 to $8.3 million for the same period in
1994. This increase was a result of the increase in the average outstanding
loan servicing portfolio during the period from $2.2 billion to $2.8 billion
as of July 31, 1993 and 1994, respectively.
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<PAGE> 44
Loan Production Revenue. The income derived from the origination of
mortgage loans increased from $6.4 million for the nine months ended July 31,
1993 to $11.6 million for the nine months ended July 31, 1994. The increase in
mortgage originations between the periods was the main reason for the
additional income.
Net Gain on Sales of Mortgage Loans. CIB originates one-half of its
volume through government sponsored loan programs and one-half through
conventional loan programs. For the nine months ended July 31, 1993, the
income derived from the sale of the loans (exclusive of the loan servicing
rights) was $15.5 million. For the nine months ended July 31, 1994, the income
derived from the sale of loans was $15.8 million. This increase was reflective
of CIB's strategy of originating premium rate loans. Through its relationships
with real estate agents and builders, CIB prices its loans to achieve an above
market yield for its investors. In return, investors are willing to pay a
premium for this yield.
Net Interest Income. Net interest income increased from $1.7 million
for the nine months ended July 31, 1993 to $2.3 million for the nine months
ended July 31, 1994. This increase was due mainly to the increase in the
average mortgage loans held for resale as well as an increase in custodial cash
maintained at its warehouse banks.
Personnel Costs. Personnel related costs increased from $24.0 million
to $39.7 million for the nine months ended July 31, 1993 and 1994,
respectively. This increase resulted from the need to staff CIB's increase in
loan origination offices and to support the increased origination efforts.
Amortization of Acquired Servicing Rights. CIB purchases mortgage
loans through its wholesale division. Certain of the costs associated with
purchasing these loans are capitalized in the month in which the mortgages are
sold to the primary investor. A periodic expense is recorded by CIB to reflect
the decrease in value of this capitalized servicing caused by normal principal
payments, early principal payments, and mortgages which have subsequently been
paid off. For the nine months ended July 31, 1993, CIB amortized $315,000 of
capitalized servicing compared to $450,000 for the nine months ended July 31,
1994. This increase was due to the increase in the overall servicing portfolio
level.
Income Taxes. The effective income tax rate increased from 34% for
the nine month period ended July 31, 1993 to 35.5% for the nine month period
ended July 31, 1994.
Results of Operations Fiscal Year 1993 Compared to Fiscal Year 1992.
Overview. CIB had net income of $1.3 million on revenues of $55.9
million for the year ended October 31, 1993 versus net income of $1.1 million
on revenues of $19.8 million for the year ended October 31, 1992. The
servicing portfolio grew $1.2 billion during fiscal year 1993 from $1.7 billion
at October 31, 1992 to $2.9 billion at October 31, 1993.
Loan Servicing Fees. Loan servicing fees increased from $5.1 million
for the year ended October 31, 1992 to $9.1 million for the year ended October
31, 1993. This increase was due to the $1.2 billion increase in the mortgage
servicing portfolio upon which such servicing fees are earned and the change in
the composition of CIB's mortgage servicing portfolio. At October 31, 1992,
CIB's mortgage servicing portfolio was made up of 67% government related
servicing upon which CIB earns higher service fees than conventional mortgage
servicing. As of October 31, 1993, however, CIB's servicing portfolio had
increased to 75% government.
Loan Production Revenue. Fees related to the origination of mortgages
increased from $3.4 million for the year ended October 31, 1992 to $9.4 million
for fiscal year 1993. This increase was mainly due to the increase in loan
origination volume but also due to the increase in the amount of wholesale loan
acquisitions upon which CIB collects fees for the underwriting and document
preparation relative to the mortgage.
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<PAGE> 45
Net Gain on Sales of Mortgage Loans. Gains recognized from the sale of
loans to investors increased from $7.0 million in fiscal year 1992 to $24.9
million in fiscal year 1993. This increase was the result of two factors: the
overall decrease in mortgage interest rates coupled with the pricing strategy
of CIB and the increase in mortgage originations. During 1993, CIB was able to
market its "no cost" originations to allow borrowers to refinance their
existing mortgage without costs. These borrowers used the increased interest
rate yields to pay for the costs of closing. Additionally, mortgage
originations were $1.4 billion for fiscal year 1992 compared to $2.9 billion
for fiscal year 1993.
Net Interest Income. Net interest income increased from $2.3 million
for the year ended October 31, 1992 to $2.7 million for the year ended October
31, 1993. This increase was generally due to the increase in the average
mortgage loans held for resale from $82 million for 1992 to $135 million for
1993.
Personnel Costs. Personnel related costs increased $27.7 million
during 1993 from $11.3 million for the year ended October 31, 1992 to $39.0
million for 1993. This increase was a result of additional staff needed for
the origination and servicing increase of CIB.
Amortization of Acquired Servicing Rights. During 1993, CIB sold
nearly $1 billion in mortgage servicing on a bulk basis compared to only $151
million for the year ended October 31, 1992. As part of a bulk sale of
servicing, CIB reduces the gain on the bulk sale by the amount of capitalized
servicing that is sold and therefore no longer serviced by CIB. Due to the
increased sales and related reductions in capitalized servicing, amortization
expense for the year ended October 31, 1993 was $539,000 compared to $559,000
for the year ended October 31, 1992.
Income Taxes. The effective income tax rate of CIB remained constant
for the two years ended October 31, 1993 at 39% which represents a combined
state and federal income tax rate .
Results of Operations Fiscal Year 1992 Compared to Fiscal Year 1991.
Overview. Mortgage origination volume increased from $407 million for
the year ended October 31, 1991 to $1.4 billion for the year ended October 31,
1992. This increase in origination volume was a result of the decrease in
mortgage interest rates and CIB's expansion of its wholesale and retail
production offices. Net income for the year ended October 31, 1991 was
$118,000 compared to $1.1 million for the year ended October 31, 1992. CIB's
servicing portfolio increased $754 million from $946 million at October 31,
1991 to $1.7 billion as of October 31, 1992 because of the increased
origination volume and management's strategy to retain mortgage servicing.
Loan Servicing Fees. Loan servicing fees increased, as a result of the
increase in the mortgage servicing portfolio, from $4.1 million for the year
ended October 31, 1991 to $5.0 million for the year ended October 31, 1992.
Loan Production Revenue. Fees related to the origination of
mortgage loans increased from $1.7 million for the year ended October 31, 1991
to $3.4 million for the year ended October 31, 1992. This increase was also a
result of the increase in loan originations during fiscal year 1992.
Net Gain on Sales of Mortgage Loans. The net gain on sale of loans
recorded by CIB increased from $2.3 million to $7.0 million for the years ended
October 31, 1991 and 1992, respectively. This increase reflects the increase
in mortgage origination under CIB's overall premium loan pricing strategies.
Net Interest Income. Net interest income increased from $361,000 for
the year ended October 31, 1991 to $2.3 million for the year ended October 31,
1992. This increase was generally due to the increase in the average mortgage
loans held for resale from $48 million for 1991 to $82 million for 1992.
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Personnel Costs. Personnel costs increased as the loan origination
and servicing volume increased. For the year ended October 31, 1991, personnel
related costs were $5.3 million compared to $11.3 million for the year ended
October 31, 1992.
Amortization of Acquired Servicing Rights. Amortization increased
from $114,000 for the year ended October 31, 1991 to $559,000 for the year
ended October 31, 1992. This increase reflects the overall increase in the
amount of capitalized servicing recorded for the two year period. At October
31, 1991, capitalized servicing amounted to $1.1 million compared to $2.4
million recorded as of October 31, 1992.
Inflation. CIB is affected by inflation primarily through the impact
on interest rates. During periods of rising inflation, interest rates
generally tend to increase, causing mortgage loan origination volumes,
particularly loan refinancing activity, to decline. However, during such
periods, mortgage loan prepayment rates tend to slow, extending the average
life of CIB's servicing portfolio and generally enhancing its market and/or
economic value. Conversely, during periods of declining inflation, interest
rates generally tend to decline, resulting in increased mortgage loan
refinancing activity which in turn generates increased mortgage loan
origination volume, which offsets, at least partially, an acceleration of loan
prepayment rates which decreases the average life of CIB's servicing portfolio.
Liquidity and Capital Resources.
As a mortgage banker, CIB funds the closing of loans originated through either
its retail or wholesale origination network through short term borrowings from
banks. These borrowings represent the primary liquidity need for CIB. These
borrowings contain certain financial covenants concerning adjusted tangible net
worth, liquidity, debt to asset ratios and loan product restrictions. To a
lesser extent, liquidity is needed by CIB to fund its portion of the borrowings
related to loan fundings and for general operating purposes.
For the nine months ended July 31, 1994, CIB had a net decrease in cash of
$10.5 million. Net cash used by operating activities was approximately $29.7
million. The most significant use of cash by operations was the repayment of
short term borrowings related to the warehouse fundings of CIB and gain on bulk
sales of acquired servicing rights. Net cash provided by investing activities
was $17.5 million, primarily due to proceeds from bulk sales of acquired
servicing rights of $21.5 million.
CIB had a net increase in cash of $9.7 million for the year ended October 31,
1993. Net cash provided by operating activities for the year ended October 31,
1993, was $6 million. This cash was provided by borrowings under short term
warehouse financing arrangements which exceeded the repayment of these notes.
Investing activities of CIB provided $4.2 million in cash for the year ended
October 31, 1993. This increase in cash was primarily a result of the cash
realized from the bulk sale of loan servicing rights.
Future operating cash flow requirements will be contingent on movements in
mortgage interest rates. A lower mortgage interest rate environment will
result in increases in warehouse funding needs. A higher mortgage interest
rate environment will result in a decrease in warehouse funding requirements.
Upon acquisition, CIB expects these cash flow requirements to be met by FTB.
OWNERSHIP OF CIB COMMON STOCK AND DIVIDENDS
Ownership of Principal Shareholders, Directors and Executive Officers.
As of September 30, 1994, there were 172,800 shares of CIB Common Stock, its
only class of voting securities, outstanding and 24 shareholders of record
of such shares. No CIB Preferred Stock is currently outstanding. The
following table provides information concerning the number of shares of CIB
Common Stock beneficially owned, directly or indirectly, by the directors and
executive officers of CIB Common Stock as of September 30, 1994, and the number
of shares of FTNC Common Stock to be owned by such persons on the Closing Date
of the Merger. Except as set forth below, no person is known by CIB to be the
beneficial owner of more than 5% of the outstanding shares of CIB Common Stock.
The number and percentage of shares of FTNC Common Stock beneficially owned on
the Effective Date of the Merger in the table are based upon a conversion ratio
of 5.56173 FTNC Common Shares for each CIB Common Share and assuming 32,202,722
FTNC Common Shares will be outstanding immediately prior to the Merger. Unless
otherwise noted, the named person has sole voting and investment power with
respect to the shares indicated.
<TABLE>
<CAPTION>
Percent of Total
Number of Number of Share of FTNC FTNC Common
Shares of CIB Percent of Common Stock to Shares to be
Common Total CIB be Beneficially Owned Outstanding on
Beneficial Owner Stock Owned Shares Outstanding on Effective Date Effective Date
---------------- ----------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Carl I. Brown 158,165(1) 91.5(1) 879,671 2.7%
Molly S. Brown 158,165(1) 91.5(1) 879,671 2.7%
L. Gregory Brown 4,760 2.8 26,474 *
Jeffrey Carl Brown 2,626 1.5 14,605 *
Eric Scott Brown 3,992 2.3 22,202 *
James H. Lyddon, Jr. 3,257 1.9 18,115 *
Ronald G. Booth -0-
Michael N. Porter -0-
Thomas P. Dixon -0-
All directors and executive officers as
a group (7 persons including those
named above) 14,635 8.5 81,396 *
</TABLE>
* Less than 1%.
(1) Carl I. Brown's shares beneficially owned include 78,711 shares
beneficially owned by Molly S. Brown, and her shares beneficially owned
include 79,454 shares beneficially owned by Carl I. Brown. Together, they
owned an aggregate of 158,165 CIB shares.
Dividends. The shareholders of CIB Common Stock are entitled to such
dividends as may be declared from time to time by the CIB Board. Since
December 31, 1991, CIB has not declared any dividends.
The Agreement restricts the ability of CIB to declare and pay
dividends. See "The Merger -- Conduct of Business Pending Merger." CIB's
ability to pay dividends also is dependent upon the earnings and financial
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condition of CIB. As of September 30, 1994, due to covenants contained in
CIB's warehouse lines, no amounts could be paid as dividends to CIB's
shareholders.
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 100,000,000 shares
of FTNC Common Stock. As of September 30, 1994, there were 32,202,722 shares
of FTNC Common Stock and no shares of Preferred Stock outstanding.
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 1.8 million shares are reserved for issuance in connection
with other pending acquisitions (See page PF-1 herein), and 322,027 shares of
Preferred Stock are reserved for issuance under the Rights Plan. Also, FTNC
has on file with the SEC an effective shelf registration pursuant to which it
may offer from time to time, at its discretion, senior or subordinated debt
securities, preferred stock, including depository shares, and FTNC Common Stock
at an aggregate initial offering price not to exceed $300 million.
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 100,000,000 shares
of Common Stock, $2.50 par value per share. The holders of the FTNC Common
Stock are entitled to receive, ratably, 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 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 Stock Market, 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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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 or its
affiliates, associates or transferees) for shares of FTNC Common Stock or
Participating Preferred Stock at an exchange ratio of one share of FTNC Common
Stock or 1/100th of a share of Participating Preferred 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 BankAmerica National Trust Company,
formerly Security Pacific National Trust Company
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(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 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 EXCHANGE ON RIGHTS OF SHAREHOLDERS
FTNC is a Tennessee corporation subject to the provisions of the TBCA.
CIB is a Kansas corporation subject to the provisions of Kansas' 1972 General
Corporation Code ("KGCC"). Shareholders of CIB, whose rights are governed by
CIB's Articles of Incorporation and Bylaws and by the KGCC, 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 CIB and is qualified in its entirety by reference to the governing law and
the Articles of Incorporation or Charter and Bylaws of each of CIB and FTNC.
Certain topics discussed below are also subject to federal law and the
regulations promulgated thereunder. See "Certain Regulatory Considerations."
CONFLICT-OF-INTEREST
Both the KGCC and the TBCA generally permit transactions involving a
corporation and an interested director if (i) the material facts are disclosed
and a majority of disinterested directors or a committee of the Board consents,
(ii) the material facts are disclosed and the shareholders (as to CIB) or a
majority of disinterested shares entitled to vote thereon (as to FTNC)
consents, (iii) the transaction is fair to the corporation. 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. The KGCC
permits loans to officers and employees, including officers and employees who
are directors, whenever, in the judgment of the Board, the loan may reasonably
be expected to benefit CIB.
REMOVAL OF DIRECTORS
CIB's Bylaws provide that its entire Board or any director may be
removed, with or without cause, by the vote of the holders of a majority of the
shares then entitled to vote at an election of the directors. If less than the
entire Board is to be removed, no one director may be removed if the votes cast
against his removal would be sufficient to elect him if cumulatively voted at
an election of the entire CIB Board. CIB's Articles do not provide for
cumulative voting for director elections.
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.
SPECIAL MEETINGS OF SHAREHOLDERS
CIB's Bylaws authorize the CIB Board, the CIB president, or
shareholders owning not less than 1/5 of the outstanding shares to call a
special meeting of shareholders for any purpose.
FTNC's Bylaws authorize the Chairman of the FTNC Board or the
Secretary at the request of a majority of the FTNC Board or the holders of not
less than 1/10 of the outstanding shares entitled to vote to call a special
meeting of shareholders for any purpose. Such calls shall state the purpose or
purposes of the proposed meeting.
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REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Both the KGCC and the TBCA provide that the approval of a
corporation's board and of a majority of the outstanding shares entitled to
vote thereon would generally be required to approve a merger or to sell, lease,
exchange or otherwise dispose of substantially all of the corporation's assets.
Under the TBCA, submission by the board of any such action may be conditioned
on any basis, including without limitation, conditions regarding a
super-majority voting requirement or that no more than a certain number of
shares indicate that they will seek dissenters' rights.
The KGCC and the TBCA provide substantially identical exceptions to
the requirement that mergers be approved by a corporation's shareholders. 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 CIB's Articles nor its Bylaws provide procedures for
shareholder proposals or 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 KGCC provides for action by unanimous written consent by all of
the shareholders of CIB without a meeting.
The TBCA provides that action may be taken without a shareholder
meeting. If all shareholders entitled to vote on the action consent to taking
such action without a meeting, then such action is passed if it receives the
affirmative vote of the number of shares necessary to take such action at a
meeting. Action by written consent of the FTNC shareholders is impracticable
given the number of holders of FTNC Common Stock.
PREEMPTIVE RIGHTS
Shares of CIB Common Stock have pre-emptive rights (the right of a
shareholder to acquire porportional amounts of a corporation's unissued shares
upon a decision by the board of directors to issue such shares).
The Charter of FTNC provides that shareholders of FTNC have no
preemptive rights. If FTNC issues additional shares, a dilution of the equity
interest of each share could result.
PROVISIONS IN ARTICLES OF INCORPORATION CONCERNING SALE OF STOCK
CIB's Articles provide that if a CIB shareholder desires to sell,
transfer, pledge or assign his or her stock, CIB has the first right during a
30-day period to buy such stock, and if CIB chooses not to exercise its right,
then the remaining CIB shareholders have the right within a 15-day period to
purchase, on a pro-rata basis, such stock. If none of the other CIB
shareholders exercise their right, then such shares may be sold free of any
restrictions. The price established by the Articles is the value of each share
as of the last day of the prior fiscal year (adjusted by CIB's accountant for
subsequent profit or loss) as agreed to by the CIB shareholders at the last
preceding annual meeting. The price may be paid in five annual installments
with interest as 6% per annum. Similar rights to
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purchase are provided with respect to the shares of any shareholder who is
adjudicated bankrupt or incompetent or who dies.
FTNC's Charter does not contain a provision concerning the sale of
FTNC Common Stock by an FTNC shareholder.
AMENDMENT OF ARTICLES OF INCORPORATION OR CHARTER AND BYLAWS
The KGCC requires an amendment to CIB's Articles to be approved by the
vote of a majority of all the outstanding shares entitled to vote thereon.
CIB's Articles provide that the CIB Board may alter, amend, repeal or add to
the Bylaws, and KGCC also grants such rights to CIB's shareholders.
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 a 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 the FTNC's Board or the 80%
voting requirement for an amendment of the Bylaws.
INDEMNIFICATION
Both the KGCC and the TBCA provide in certain situations for mandatory
and permissive indemnification of directors and officers. The KGCC and the
TBCA also provide that the statutory indemnification is not to be deemed
exclusive of any other rights to which a director seeking indemnification may
be entitled. No such indemnification may be made under the TBCA if a final
adjudication adverse to the director or officer establishes his liability (i)
for any breach of loyalty to the corporation or its shareholders; (ii) for acts
or omissions not in good faith; (iii) for acts or omissions which involve
intentional misconduct or a knowing violation of law; or (iv) for unlawful
distributions. No such indemnification may be made under the KGCC as to any
proceeding by or in the right of the corporation as to which such person is
adjudged liable unless and only to the extent that the court determines that
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
The Articles and the Bylaws of CIB provide for indemnification
consistent with the provisions of the KGCC.
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 indemnification to
the maximum extent not prohibited by law.
ACQUISITIONS OF ISSUER'S STOCK
Under the KGCC, CIB may purchase or otherwise acquire its own shares
unless (i) the capital of the corporation would be impaired except that a
corporation may purchase or redeem any of its own shares which are entitled
upon any distribution of its assets to a preference over another class of its
stock if such shares will be retired upon their acquisition and the capital of
the corporation reduced in accordance with the KGCC, or (ii) as to any of its
shares which are redeemable at the corporation's option, it pays more than the
price at which they may be redeemed, or (iii) it redeems any of its shares
without complying with the applicable provisions of the KGCC.
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Under the TBCA, a corporation may purchase, redeem or acquire its own
shares unless, after such distribution, it would not be able to pay its debts
as they became due in the usual course of business or its total assets would be
less than the sum of its total liabilities plus (unless the Charter provides
otherwise) the amount that would be needed on dissolution to satisfy the claims
of shareholders with greater rights than those receiving the distribution.
FTNC, however, must obtain the approval of the Federal Reserve Board to redeem
its shares if the gross consideration for the redemption, when aggregated with
the consideration paid for all redemptions during the preceding 12 month
period, equals or exceeds 10% of FTNC's consolidated net worth.
VOLUNTARY DISSOLUTION
Both the KGCC and the TBCA provide that a corporation may be dissolved
if its Board proposes dissolution and a majority of the shares entitled to vote
thereon approves the dissolution. 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.
BUSINESS COMBINATIONS
Kansas' Business Combination Act ("KBCA") provides that a party owning
15% or more of stock in a corporation (such party is called an "interested
shareholder") cannot engage in a business combination with the corporation
unless (i) the combination takes place at least three years after the
interested shareholder first acquired 15% or more of the corporation, (ii)
prior to the date the interested shareholder first acquired 15% or more of the
stock, the corporation's board approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (iii) upon consummation of the transaction which resulted in the
stockholder becoming an interest stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, or (iv) on or after the date the interested stockholder
became an interested stockholder, the business combination is approved by the
corporation's board and authorized by the affirmative vote of at least
two-thirds of the corporation's outstanding voting stock not owned by the
interested stockholder.
The restrictions contained in the KBCA will not apply if, among other
things: the corporation's shareholders adopt an amendment to its articles
expressly electing not to be governed by the KBCA (which amendment is not
effective until twelve months after adoption); the corporation does not have a
class of voting stock that is listed on a national securities exchange or
quoted on an inter-dealer quotation system or held of record by more than 2,000
stockholders; a stockholder becomes an interested stockholder inadvertently and
as soon as practicable divests sufficient shares to fall outside the definition
of interested stockholder and would not within three years immediately prior to
a business combination between the corporation and the person have been an
interested stockholder but for the inadvertent acquisition; or the business
combination is proposed prior to consummation, and subsequent to the earlier of
the public announcement or notice required under the KBCA, of a proposed
transaction which is a merger not requiring approval of the shareholders, or a
sale or disposition of 50% or more of the corporation's assets or of the market
value of its outstanding stock or a tender offer for 50% or more of the
outstanding voting stock and the proposed transaction is with someone who has
not for three years been an interested stockholder or who became an interested
stockholder with the approval of the corporation's board and the proposed
transaction is approved by a majority of the members of the corporation's board
who were directors prior to the person becoming an interested stockholder
during the previous three years or were recommended for election or elected to
succeed such directors.
Tennessee's Business Combination Act ("BCA") 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 BCA.
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These provisions of the BCA 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 BCA. 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 BCA.
The BCA 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 BCA'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 BCA is unconstitutional as it applies to target corporations organized
under the laws of states other than Tennessee (such as CIB).
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 two 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 CIB).
The KGCC contains no similar provisions with respect to authorized
corporation protection.
CONTROL SHARE ACQUISITIONS
The Kansas Control Share Acquisition Act ("KCSAA") strips a
purchaser's shares of voting rights any time an acquisition of shares in a
covered 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 both a majority vote of all of the outstanding shares and also a
majority vote of all of the shares other than the purchaser's shares. The
purchaser may demand a special meeting of shareholders to conduct such a vote
if the purchaser undertakes to pay the expenses of the special meeting.
The KCSAA applies to corporations which have 100 or more shareholders
and its principal place of business or principal office or substantial assets
in Kansas and either (i) more than 10% of its shareholders reside in Kansas,
(ii) more than 10% of its shares are owned by shareholders who reside in
Kansas, (iii) 2,500 or more shareholders reside in Kansas.
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In certain situations the corporation may call for redemption of not
less than all shares acquired in a control share acquisition at a price equal
to the market value of the shares at the time the call for redemption is given,
and in certain situations, shareholders who objected to according control
shares full voting rights, which ultimately were awarded, and who did not vote
in favor of the control share acquisition and who file written objections are
entitled to dissenters' rights as provided in Section 17-6712. Since CIB has
less than 100 shareholders, the KCSAA is not applicable to CIB.
The Tennessee Control Share Acquisition Act ("TCSAA") strips a
purchaser's shares of voting rights any time an acquisition of shares in a
covered 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 if the purchaser
announces a good faith intention to make the control share acquisition. Under
the TCSAA, the purchaser can demand such a meeting before acquiring a control
share only if it holds at least 10% of the outstanding shares.
The TCSAA applies to corporations which have 100 or more shareholders
and its principal place of business or principal office in Tennessee and either
(i) more than 10% of its shareholders reside in Tennessee, (ii) more than 10%
of its shares are owned by shareholders who reside in Tennessee, or (iii)
10,000 or more shareholders reside in Tennessee, and the corporation elects to
be governed by the TCSAA. In addition, pursuant to the Tennessee Authorized
Corporation Protection Act certain other corporations which do not meet the
criteria of TCSAA may elect to be covered by the TCSAA. FTNC has not elected
to be governed by the TCSAA.
TENDER OFFERS
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 related 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 its shareholders.
No statute similar to the TIPA applies to CIB under the KGCC.
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, such as FTNC. 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 three percent
of the class of the securities purchased if such person has held such shares
for less than two 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 TGA is not applicable to CIB.
DISSENTERS' RIGHTS
Both the KGCC and the TBCA generally provide dissenters' rights for
mergers that would require shareholder approval. The TBCA also provides
dissenters' rights for share exchanges that would require shareholder approval,
sales of substantially all the assets (other than sales that are in the usual
and regular course
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of business and certain liquidations and court-order sales), and certain
amendments to the charter that materially and adversely affect rights in
respect of a dissenter's shares. Under the KGCC, dissenters' rights are not
available as to any shares which are registered on a national securities
exchange or are held of record by not less than 2,000 shareholders unless
otherwise provided in the corporation's articles of incorporation; provided,
however, that the exception is not available if the shareholder is required to
accept for his or her stock anything except stock of the corporation surviving
the Merger or stock of a corporation registered on a national securities
exchange or stock of a corporation who has not less than 2,000 shareholders.
Under TBCA, 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).
DIVIDENDS AND OTHER DISTRIBUTIONS
CIB may declare dividends either out of its surplus as defined by the
KGCC or if there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared or the preceding fiscal year. No dividend may
be declared and paid out of net profits if the capital of the corporation has
been diminished by depreciation in the value of CIB's property or by losses to
an amount less than the aggregate amount of capital represented by all classes
of stock outstanding having a preference upon the distribution of assets until
such deficiency has been repaired.
The TBCA provides that FTNC generally may make dividends and 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.
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 CIB Board has not
adopted a shareholder rights plan.
VALIDITY OF COMMON STOCK
A legal opinion to the effect that the shares of FTNC Common Stock and
associated Rights offered hereby, when issued in accordance with the Agreement,
will be validly issued, fully paid and nonassessable, has been rendered by
Clyde A. Billings, Jr., Vice President and Counsel, First Tennessee National
Corporation. Mr. Billings beneficially owns approximately 10,400 shares of
FTNC Common Stock.
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, a
Professional Corporation, has rendered an opinion, summarized above in the
section entitled "The Exchange -- Certain Federal Income Tax Consequences."
Attorneys in the firm beneficially own approximately 25,000 shares of FTNC
Common Stock.
EXPERTS
The consolidated financial statements of FTNC and its subsidiaries
incorporated in this Proxy Statement-Prospectus by reference from FTNC's Annual
Report on Form 10-K for the year ended December 31, 1993 have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their
report dated January 18,
- 51 -
<PAGE> 56
1994, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of CIB for the years ended October 31, 1993,
1992 and 1991 included in this Proxy Statement-Prospectus have been audited by
Price Waterhouse LLP, as set forth in their reports dated January 10, 1994, and
January 11, 1993, respectively, included herein. These financial statements
are included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing. Representatives of Price
Waterhouse LLP 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.
With respect to the 1991 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 LLP 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 1993 and is incorporated herein by reference.
The consolidated financial statements of Maryland National Mortgage
Corporation and subsidiaries, appearing in First Tennessee National
Corporation's Current Report on Form 8-K, dated October 1, 1993, for the year
ended December 31, 1992, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements
referred to above are incorporated herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
- 52 -
<PAGE> 57
<TABLE>
<CAPTION>
INDEX TO PRO FORMA FINANCIAL INFORMATION
Page
<S> <C>
Pro Forma Combined Condensed Statements of Condition as of September 30, 1994 for FTNC
and July 31, 1994 for CIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 2
Pro Forma Combined Condensed Statements of Condition as of December 31, 1993 for FTNC
and October 31, 1993 for CIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 3
Pro Forma Combined Condensed Statements of Income for the Nine Months Ended
September 30, 1994 for FTNC and July 31, 1994 for CIB . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 4
Pro Forma Combined Condensed Statements of Income for the Year Ended
December 31, 1993 for FTNC and October 31, 1993 for CIB . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 5
INDEX TO CIB FINANCIAL INFORMATION
As of and for the Years Ended October 31, 1993 and 1992
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheet as of October 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Income and Retained Earnings For the Years Ended October 31, 1993 and 1992 . . . . . . . . . . F-3
Statement of Cash Flows for the Years Ended October 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
As of and for the Years Ended October 31, 1992 and 1991
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Balance Sheet as of October 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Statement of Income and Retained Eanrings for the Years Ended October 31, 1992 and 1991 . . . . . . . . . . F-15
Statement of Cash Flows for the Years Ended October 31, 1992 and 1991 . . . . . . . . . . . . . . . . . . . F-16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
As of and for the Nine Months Ended July 31, 1994 and 1993 (Unaudited)
Balance Sheet as of July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Statement of Operations for the Nine Months Ended July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . F-25
Statement of Cash Flows for the Nine Months Ended July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . F-26
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Balance Sheet as of July 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Statement of Operations for the Nine Months Ended July 31, 1993 . . . . . . . . . . . . . . . . . . . . . . F-30
Statement of Cash Flows for the Nine Months Ended July 31, 1993 . . . . . . . . . . . . . . . . . . . . . . F-31
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
</TABLE>
- 53 -
<PAGE> 58
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of
condition and statements of income for the nine months reflect the historical
condensed statements of condition and statements of income for the nine months
ended September 30, 1994, of FTNC, adjusted for the completed acquisition of
Planters Bank, which was accounted for as a pooling-of-interests, and the
historical condensed statements of condition and statements of income for the
nine months ended July 31, 1994, of CIB, giving effect to the Acquisition on a
pooling-of-interests accounting basis.
The following unaudited pro forma combined condensed statements of
condition and statements of income for the year ended, reflect the historical
consolidated condensed statements of condition and statements of income of FTNC
for the year ended December 31, 1993, adjusted for the completed acquisitions
of Planters Bank, Cleveland Bank and Trust Company, Highland Capital Management
Corp., and SNMC Management Corporation, which were accounted for as
poolings-of-interest, and accordingly, reflect the financial position and
results of operations of all companies on a combined basis, and the historical
statement of condition and statement of income of CIB, as of October 31, 1993,
giving effect to the Acquisition on a pooling-of-interests accounting basis.
The exchange ratio used in the pro forma statements was calculated
based on an assumed Closing Measurement Price for FTNC Common Stock of $45.00
per share and an assumed Final Purchase Price, based on CIB's good faith
estimates of the Closing Portfolio and Tangible Net Assets of CIB as of the
Closing Date Balance Sheet Date (as those terms are defined in the Agreement).
The Closing Measurement Price and the Final Purchase Price may vary from the
assumed amounts, and FTNC has the right to terminate the Agreement if the
Closing Measurement Price equals or is less than $35.00 per share. Pro forma
results presented for the six month period and for the year are not necessarily
indicative of the results which may be expected for any interim period or for
the year as a whole.
On October 1, 1994, FTNC acquired Emerald Mortgage Company, Lynnwood,
Washington ("Emerald"), which was merged into Sunbelt National Mortgage
Corporation, for approximately 152,000 shares of FTNC Common Stock. At
September 30, 1994, Emerald had approximately $1.1 million in assets and $0.5
million in capital. The transaction is not included in the following pro forma
combined condensed statements of condition or income.
On September 22, 1994, FTNC announced the execution of a definitive
agreement to acquire Community Bancshares, Inc. ("CBI"). CBI will be merged
with and into FTNC, and based on $45.75 for FTNC Common Stock, each CBI
shareholder will receive .39067 shares of FTNC Common Stock for each share of
CBI stock, for a total of approximately 1.34 million FTNC shares. The number
of FTNC shares will be adjusted if the FTNC Common Stock price is outside the
range of $43.52 to $51.00. The transaction is subject to regulatory and CBI
shareholder approvals and is expected to close in the first quarter of 1995.
On October 19, 1994, FTNC announced the execution of a definitive
agreement to acquire Peoples Commercial Services Corp. ("PCSC"). PCSC will be
merged with and into FTNC, and at a price of $42 or greater per share of FTNC
Common Stock, each PCSC shareholder will receive 3.1658 shares of FTNC Common
Stock for each share of PCSC stock, for a total of approximately 420,000 shares
of FTNC Common Stock. The number of FTNC shares will be adjusted if the price
of FTNC Common Stock is less thant $42. The acquisition will be accounted for
as a purchase, and the FTNC Board has approved the repurchase of the amount of
FTNC Common Stock necessary to complete the acquisition. The transaction is
subject to regulatory and PCSC shareholder approvals and is expected to close
in the first half of 1995.
PF - 1
<PAGE> 59
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF CONDITION
AS OF
<TABLE>
<CAPTION>
FTNC (1) CIB Adjust-
(Thousands) September 30, 1994 July 31, 1994 ment (2) Pro Forma
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 890,728 $ 7,830 $ $ 898,558
Investments in bank time deposits 2,745 2,745
Trading account securities inventory 223,227 223,227
Assets available for sale 1,655,826 117,847 1,773,673
Investment securities held to maturity 937,221 937,221
Net loans 6,011,184 6,011,184
Premises and equipment, net 148,492 2,339 150,831
Real estate acquired by foreclosure 21,609 21,609
Mortgage servicing rights 70,436 3,052 73,488
Other identifiable intangible assets 26,450 26,450
Goodwill 61,561 61,561
Customers' acceptances 3,562 3,562
Other assets 393,825 8,295 402,120
------------- ---------- --------- -------------
Total assets $ 10,446,866 $ 139,363 $ $ 10,586,229
============= ========== ========= =============
LIABILITIES
Deposits $ 7,593,883 $ $ $ 7,593,883
Federal funds purchased and securities
sold under agreements to repurchase 1,155,809 1,155,809
Other borrowings 492,930 113,206 606,136
Long term debt 91,701 1,750 93,451
Acceptances outstanding 3,562 3,562
Other liabilities 356,984 15,046 372,030
------------- ---------- --------- -------------
Total liabilities 9,694,869 130,002 -- 9,824,871
SHAREHOLDERS' EQUITY
Preferred stock 1,072 (1,072)
Common stock 80,507 200 2,202 82,909
Surplus 94,397 598 (1,469) 93,526
Retained earnings 594,083 7,830 601,913
Treasury stock (339) 339
Net unrealized loss on marketable
equity securities (13,931) (13,931)
Deferred compensation on restricted
incentive plan (3,059) (3,059)
------------- ---------- --------- -------------
Total shareholders' equity 751,997 9,361 761,358
------------- ---------- --------- -------------
Total liabilities and shareholders' equity $ 10,446,866 $ 139,363 $ $ 10,586,229
============= ========== ========= =============
</TABLE>
(1) FTNC amounts as of September 30, 1994 do not include the acquisition of
Emerald Morgage Company which closed October 1, 1994 or the pending
acquisitions of Community Bancshares and Peoples Commercial Service Corp.
which are immaterial.
(2) Reflects the conversion of all 172,800 shares of all CIB common stock
outstanding at July 31, 1994, into 961,067 shares of FTNC's $2.50 par
value common stock (using an exchange ratio of 5.56173 which is based on
an FTNC stock price of approximately $45.00 and an estimated Final
Purchase Price by adjusting the Base Purchase Price for criteria per the
agreement). Per the agreement CIB will redeem all outstanding CIB
Preferred Stock prior to its shareholders' meeting. All treasury stock
will be retired.
PF-2
<PAGE> 60
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF CONDITION
AS OF
<TABLE>
<CAPTION>
FTNC (1) CIB Adjust- Year End
(Thousands) December 31, 1993 October 31, 1993 ment (2) Pro Forma
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 760,747 $ 18,321 $ (1,072) $ 777,996
Investments in bank time deposits 7,637 7,637
Trading account securities inventory 178,663 178,663
Assets held for sale 1,152,721 163,532 1,316,253
Investment securities 2,220,087 2,220,087
Net loans 5,329,249 5,329,249
Premises and equipment, net 136,230 1,747 137,977
Real estate acquired by foreclosure 31,658 31,658
Mortgage servicing rights 82,625 3,358 85,983
Other identifiable intangible assets 28,905 28,905
Goodwill 62,565 62,565
Customers' acceptances 4,871 4,871
Other assets 370,739 6,621 377,360
--------------- -------------- --------- -------------
Total assets $ 10,366,697 $ 193,579 $ (1,072) $ 10,559,204
=============== ============== ========= =============
LIABILITIES
Deposits $ 7,402,581 $ $ $ 7,402,581
Federal funds purchased and securities
sold under agreements to repurchase 1,014,644 1,014,644
Other borrowings 746,561 180,112 926,673
Long term debt 92,043 92,043
Acceptances outstanding 4,871 4,871
Other liabilities 412,413 6,775 419,188
--------------- -------------- --------- -------------
Total liabilities 9,673,113 186,887 -- 9,860,000
SHAREHOLDERS' EQUITY
Preferred stock 1,072 (1,072)
Common stock 80,200 200 2,176 82,576
Surplus 90,077 598 (2,515) 88,160
Retained earnings 525,682 5,161 530,843
Treasury stock (339) 339
Deferred compensation on restricted stock
incentive plan (2,375) (2,375)
--------------- -------------- --------- -------------
Total shareholders' equity 693,584 6,692 (1,072) 699,204
--------------- -------------- --------- -------------
Total liabilities and shareholders' equity $ 10,366,697 $ 193,579 $ (1,072) $ 10,559,204
=============== ============== ========= =============
</TABLE>
(1) FTNC amounts as of December 31, 1993 include the acquisitions of SNMC
Management Corporation, Cleveland Bank and Trust Company, Highland
Capital Management Corp., and Planters Bank which have closed during
1994 and were accounted for as poolings of interests.
(2) Reflects the conversion of 172,800 shares of all CIB common stock
outstanding at April 30, 1994, into 961,067 shares of FTNC's $2.50 par
value common stock (using an exchange ratio of 5.56173 which is based on
an FTNC stock price of approximately $45.00 and an estimated Final
Purchase Price by adjusting the Base Purchase Price for criteria per the
agreement). Per the agreement CIB will redeem all outstanding Preferred
Stock prior to its shareholders' meeting. All treasury stock will be
retired.
PF - 3
<PAGE> 61
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
FTNC (1) CIB
(Thousands) September 30, 1994 July 31, 1994 Pro Forma
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 381,904 $ 11,402 $ 393,306
Interest on investment securities 93,583 93,583
Interest on trading securities inventory 9,449 9,449
Interest on other earning assets 5,619 5,619
------------- -------------- ------------
Total interest income 490,555 11,402 501,957
------------- -------------- ------------
Interest expense:
Interest on deposits 150,545 150,545
Interest on other borrowings 45,278 9,120 54,398
Interest on long-term debt 6,787 6,787
------------- -------------- ------------
Total interest expense 202,610 9,120 211,730
------------- -------------- ------------
Net interest income 287,945 2,282 290,227
Provision for loan losses 12,558 12,558
------------- -------------- ------------
Net interest income after provision
for loan losses 275,387 2,282 277,669
------------- -------------- ------------
Noninterest income:
Bond division 63,759 63,759
Service charges on deposit accounts 46,853 46,853
Mortgage banking 88,102 59,664 147,766
Bank card 22,620 22,620
Trust service 20,738 20,738
Securities gains 22,580 22,580
Other 35,096 35,096
------------- -------------- ------------
Total noninterest income 299,748 59,664 359,412
------------- -------------- ------------
Noninterest expense:
Employee compensation, incentives, & benefits 226,735 39,679 266,414
Operations services 24,702 336 25,038
Occupancy 22,110 2,626 24,736
Communications and courier 19,699 3,650 23,349
Equipment rentals, depreciation, and
maintenance 17,709 3,241 20,950
Deposit insurance premium 12,250 12,250
Amortization of intangible assets 16,326 512 16,838
Other 78,089 7,738 85,827
------------- -------------- ------------
Total noninterest expense 417,620 57,782 475,402
------------- -------------- ------------
Income before income taxes 157,515 4,164 161,679
Applicable income taxes 48,267 1,477 49,744
------------- -------------- ------------
Net income $ 109,248 $ 2,687 $ 111,935
------------- -------------- ------------
Net income per common share $ 3.40 $ 15.53 $ 3.38
------------- -------------- ------------
Weighted average shares outstanding (2) 32,132 173 33,093
------------- -------------- ------------
</TABLE>
(1) FTNC amounts as of September 30, 1994 do not include the pending
acquisition of Emerald Mortgage Company which closed October 1, 1994 or
the pending acquisitions of Community Bancshares and Peoples Commercial
Services Corp. which are immaterial.
(2) Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the FTNC equivalent
weighted average shares for CIB. The exchange ratio used in the CIB
calculation was 5.56173, an estimate based on an FTNC stock price of
approximately $45.00 and an estimated Final Purchase Price by adjusting
the Base Purchase Price for certain criteria per the agreement.
PF - 4
<PAGE> 62
FIRST TENNESSEE NATIONAL CORPORATION
PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
FTNC (1) CIB
(Thousands) December 31, 1993 October 31, 1993 Pro Forma
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 435,039 $ 10,600 $ 445,639
Interest on investment securities 176,764 176,764
Interest on trading securities inventory 9,304 9,304
Interest on other earning assets 3,875 3,875
----------------- --------------- ------------
Total interest income 624,982 10,600 635,582
----------------- --------------- ------------
Interest expense:
Interest on deposits 197,103 197,103
Interest on short-term borrowings 55,106 8,029 63,135
Interest on long-term debt 9,315 9,315
----------------- --------------- ------------
Total interest expense 261,524 8,029 269,553
----------------- --------------- ------------
Net interest income 363,458 2,571 366,029
Provision for loan losses 35,697 35,697
----------------- --------------- ------------
Net interest income after provision
for loan losses 327,761 2,571 330,332
----------------- --------------- ------------
Noninterest income:
Bond division 91,525 91,525
Service charges on deposit accounts 57,420 57,420
Mortgage banking 85,640 53,268 138,908
Bank card 28,467 28,467
Trust service 26,532 26,532
Securities gains 805 805
Other 44,418 44,418
----------------- --------------- ------------
Total noninterest income 334,807 53,268 388,075
----------------- --------------- ------------
Noninterest expense:
Employee compensation, incentives, & benefits 265,851 39,677 305,528
Operations services 28,482 223 28,705
Occupancy 24,863 1,565 26,428
Communications and courier 21,544 3,315 24,859
Equipment rentals, depreciation, and
maintenance 20,264 2,058 22,322
Deposit insurance premium 16,014 16,014
Amortization of intangible assets 30,811 538 31,349
Other 84,069 6,278 90,347
----------------- --------------- ------------
Total noninterest expense 491,898 53,654 545,552
----------------- --------------- ------------
Income before income taxes 170,670 2,185 172,855
Applicable income taxes 64,588 857 65,445
----------------- --------------- ------------
Net income $ 106,082 $ 1,328 $ 107,410
================= =============== ============
Net income per common share $ 3.31 $ 7.68 $ 3.25
Weighted average shares outstanding (2) 32,080 173 33,041
----------------- --------------- ------------
</TABLE>
(1) FTNC amounts as of December 31, 1993 include the acquisitions of SNMC
Management Corporation, Cleveland Bank and Trust Company, Highland
Capital Management Corp., and Planters Bank which have closed during 1994
and have been accounted for as poolings of interests.
(2) Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's weighted average shares by the FTNC equivalent weighted
average shares for CIB. The exchange ratio used in the CIB calculation
was 5.56173, an estimate based on an FTNC stock price of approximately
$45.00 and an estimated Final Purchase Price by adjusting the Base
Purchase Price for certain criteria per the agreement.
PF - 5
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
January 10, 1994
To the Board of Directors and
Stockholders of Carl I. Brown and Company
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Carl I. Brown and Company at October 31,
1993 and 1992, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
F-1
<PAGE> 64
CARL I. BROWN AND COMPANY
BALANCE SHEET
October 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
ASSETS
Mortgage loans held for resale, net
(Note 2) $163,531,893 $107,196,665
Cash and cash equivalents 18,320,752 8,591,703
Receivables from related parties (Note 11) 459,767 306,646
Accrued interest and other receivables 5,105,431 672,962
Prepaid expenses and other assets 626,106 341,016
Acquired servicing rights, net of
amortization (Note 3) 3,357,557 2,448,247
Property and equipment, net (Note 4) 1,746,584 1,722,582
Deferred income tax benefit 430,473 74,928
------------ ------------
Total assets $193,578,563 $121,354,749
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse lines of credit (Note 5) $178,906,885 $112,319,554
Other notes payable (Note 5) 1,204,894 1,701,153
Accrued interest and other accruals 2,522,792 897,516
Income taxes payable (Note 6) 327,297 678,399
Accounts payable and other liabilities 3,924,752 393,864
------------ ------------
Total liabilities 186,886,620 115,990,486
------------ ------------
Common stock, $1 par value, 200,000 shares
authorized and issued 200,000 200,000
Preferred stock, $100 par value, 2,000,000 shares
authorized, 10,720 shares issued and outstanding 1,072,000 1,072,000
Additional paid-in capital 598,078 598,078
Retained earnings 5,161,297 3,833,617
Treasury stock (27,200 shares in 1993
and 1992) (Note 8) (339,432) (339,432)
------------ ------------
Total stockholders' equity 6,691,943 5,364,263
------------ ------------
Commitments and contingencies (Note 9) - -
------------ ------------
Total liabilities and
stockholders' equity $193,578,563 $121,354,749
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-2
<PAGE> 65
CARL I. BROWN AND COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Years Ended October 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
REVENUES
Interest income $10,599,668 $ 6,488,776
Interest expense (Note 5) 7,902,326 4,188,633
----------- -----------
Net interest income 2,697,342 2,300,143
Loan production revenue 9,384,784 3,434,250
Loan servicing fees 9,093,271 5,053,181
Net gain on sales of mortgage loans 24,872,862 7,007,728
Gain on sales of loan servicing rights 3,690,667 938,345
Gain on bulk sales of loan servicing rights (Note 3) 6,226,398 1,074,727
----------- -----------
55,965,324 19,808,374
----------- -----------
EXPENSES
Salaries and commissions 38,957,437 11,286,686
General and administrative expenses 14,823,077 6,691,516
----------- -----------
53,780,514 17,978,202
----------- -----------
Income before income tax expense 2,184,810 1,830,172
Income tax expense (Note 6) 857,130 724,657
----------- -----------
Net income 1,327,680 1,105,515
Retained earnings, beginning of year 3,833,617 2,728,102
----------- -----------
Retained earnings, end of year $ 5,161,297 $ 3,833,617
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-3
<PAGE> 66
CARL I. BROWN AND COMPANY
STATEMENT OF CASH FLOWS
For the Years Ended October 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,327,680 $ 1,105,515
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 498,855 329,444
Amortization of acquired
servicing rights 539,228 558,614
Gain on bulk sales of acquired
servicing rights (6,226,398) (1,074,727)
Changes in assets and liabilities:
Mortgage loans held for resale (56,335,228) (50,030,210)
Net proceeds under line-of-credit
agreements 66,587,331 57,832,305
Receivables from related parties (153,121) 412,704
Accrued interest and other receivables (4,432,469) 1,413,512
Prepaid expenses and other assets (402,644) (56,162)
Accrued interest and other accruals 1,625,276 588,268
Accounts payable and other liabilities 3,530,888 (143,434)
Deferred income taxes (355,545) (158,175)
Income taxes payable (351,102) (404,547)
Other, net 152,425 -
------------ ------------
Total adjustments 4,677,496 9,267,592
------------ ------------
Net cash provided by operating activities 6,005,176 10,373,107
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from bulk sales of acquired
servicing rights 9,317,167 1,442,195
Payment for purchase of acquired
servicing rights (4,539,307) (2,289,941)
Purchases of property and equipment (982,152) (1,629,256)
Proceeds from sale of property and equipment 424,424 238,770
------------ ------------
Net cash used in investing activities 4,220,132 (2,238,232)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (321,932)
Change in other notes payable (496,259) 455,074
------------ ------------
Net cash (used in) provided by financing activities (496,259) 133,142
------------ ------------
Net increase in cash and cash equivalents $ 9,729,049 $ 8,268,017
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-4
<PAGE> 67
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY AND BUSINESS
Carl I. Brown and Company (the Company) is a mortgage bank, in which
capacity it originates, sells and services loans for others. The Company
is approved by the Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA), the Federal Home Loan
Mortgage Corp. (FHLMC), and the Department of Housing and Urban
Development (HUD).
MORTGAGE LOANS HELD FOR RESALE
Mortgage loans held for resale are valued at the lower of aggregate cost
or market. Market is determined by forward sales commitments from
investors, quoted security prices, and other commitments and guarantees.
The Company uses forward sales commitments to lessen the degree of risk
that interest rate fluctuations have on the sale of mortgages and
mortgage-backed securities. Gains or losses associated with these
transactions are generally deferred and recognized upon the delivery of
the underlying asset. Open contracts and the costs thereof are used in
determining the market value and cost of mortgage loans held for sale.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and all highly liquid investments
with an original maturity of three months or less.
ACQUIRED SERVICING RIGHTS
In conjunction with the acquisition of mortgage loans, the Company
capitalizes the portion of the purchase price which represents the
premium paid for the right to service the mortgage loans. The amount
initially capitalized is reduced by gains recognized on the sale of the
mortgage loans. Acquired servicing rights are amortized in proportion
to, and over the period of, estimated net servicing income.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed over the assets' estimated useful lives or lease
terms, if shorter, using the straight-line method. Maintenance and
repairs are expensed as incurred.
ESTIMATED FORECLOSURE LOSSES
As a servicer of mortgage loans, the Company will incur certain losses in
the event it becomes necessary to carry out foreclosure actions on loans
serviced. Generally, such losses relate to Federal Housing
Administration or Veterans Administration loans which are insured or
guaranteed on a limited basis. Substantially all other serviced loans
are fully guaranteed against such losses by the securitizing government
agency. The allowance for estimated losses on foreclosure is determined
based on delinquency trends and management's evaluation of the
probability that foreclosure actions will be necessary.
F-5
<PAGE> 68
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Year Ended October 31, 1993 and 1992
REVENUES
Loan production revenue is comprised of loan origination, correspondent
program administration fees and other miscellaneous loan fees. Loan
origination fees and direct loan origination costs are deferred and the
net fee or cost is recognized when the related loan is sold. Net deferred
loan origination costs were approximately $319,881 and $286,000 as of
October 31, 1993 and 1992, respectively.
Amounts received as loan discounts are also deferred and recognized as
income as the related loans are sold to investors.
Gains or losses on the sales of mortgage loans are determined at
settlement date and are measured by the difference between the net sales
proceeds and the carrying amount of the underlying mortgage loans.
Excess servicing fees are recorded at estimated market value, which
considers prevailing interest, prepayment and default rates and
represents the value of servicing fees in excess of normal servicing
fees. Normal servicing fee rates are determined based on the rates
generally paid by government and government-sponsored agencies.
Loan servicing income is recognized in the month earned.
Revenue derived from the sale of loan servicing is recognized at the
sales date, which is the date the sales contract is closed and the risks
and rewards of ownership pass to the buyer.
INCOME TAXES
Deferred income taxes are provided for income and expense items which are
reported in different years for financial statement and tax purposes.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." This statement requires income taxes to be accounted for under
the liability method, rather than in accordance with the deferred method
currently being followed. This standard has not been adopted by the
Company. Management, based on the Company's current financial position,
does not believe the effect of implementation will be material. The
Company will adopt FAS 109 during fiscal year 1994.
Income taxes paid during the years ended October 31, 1993 and 1992
totalled $1,609,458 and $1,136,359, respectively.
F-6
<PAGE> 69
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
2. MORTGAGE LOANS HELD FOR RESALE
The Company has mortgage loans held for resale as summarized below:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Principal balances and
deferred origination costs $ 160,950,811 $106,364,363
Premiums (primarily acquired servicing rights) 2,581,082 832,302
------------- ------------
Net $ 163,531,893 $107,196,665
============= ============
</TABLE>
These loans are secured principally by first deeds of trust on
single-family/multi-family residences and commercial properties, and are
pledged as collateral for obligations resulting from the funding of the
loans.
The estimated market value, excluding related servicing rights premiums,
of these loans at October 31, 1993 was $163.6 million. The fair value has
been estimated based upon forward sales commitment prices. For purposes
of developing the estimated market value, the portfolio has been
segregated by product (government and conventional).
As of October 31, 1993, the Company had commitments to loan to borrowers
aggregating approximately $645.7 million. These commitments and mortgage
loans held for resale at October 31, 1993 were offset by forward sales
commitments in the approximate amount of $522 million.
3. LOAN SERVICING AND ACQUIRED SERVICING RIGHTS
As of October 31, 1993 and 1992, the Company was servicing approximately
$2.9 billion and $1.7 billion, respectively, in outstanding principal
balance of loans. In connection with these servicing activities, the
Company receives funds, the majority of which are held in segregated trust
accounts, for payment of principal and interest, real estate taxes and
insurance premiums applicable to mortgage loans being serviced. As of
October 31, 1993 and 1992, the Company was holding approximately $44
million and $24.5 million, respectively, in trust on behalf of its
borrowers and investors. These amounts are not included in the
accompanying financial statements.
In fiscal 1993, the Company sold the servicing rights to loans with an
underlying principal balance of $999 million in bulk sales and recorded an
aggregate gain, net of transaction expenses, of $6.2 million on the sales.
In fiscal 1992, the Company sold the servicing rights to loans with an
underlying principal balance of $151 million in two separate bulk sales
and recorded an aggregate gain, net of transaction expenses, of $1.1
million on the sales.
At October 31, 1993, the Company maintained aggregate fidelity bond and
errors and omissions insurance coverage of $3.9 million.
Acquired servicing rights consisted of the following at October 31:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Acquired servicing
rights $3,714,847 $2,813,840
Accumulated amortization (357,290) (365,593)
---------- ----------
$3,357,557 $2,448,247
========== ==========
</TABLE>
F-7
<PAGE> 70
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATMENTS
For the Years Ended October 31, 1993 and 1992
Changes in acquired servicing rights for the year ended October 31 were as
follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Beginning balance $ 2,448,247 $1,084,392
Acquisitions 4,539,308 2,289,941
Sales (3,090,770) (367,472)
Amortization (539,228) (558,614)
----------- ----------
Ending balance $ 3,357,557 $2,448,247
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, including leased property and equipment of the
Company, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Real estate $ 350,374 $ 313,565
Furniture and Equipment 1,638,698 1,486,854
Vehicles 541,798 647,686
---------- ----------
2,530,870 2,448,105
Less accumulated depreciation 784,286 725,523
---------- ----------
$1,746,584 $1,722,582
========== ==========
</TABLE>
Depreciation expense totalled $381,301 and $215,081 for the years ended
October 31, 1993 and 1992, respectively.
5. CREDIT ARRANGEMENTS
WAREHOUSE LINES OF CREDIT
Financing for loan operations is provided through warehouse lines of
credit with commercial banks aggregating $270 million at October 31,
1993. Amounts drawn on these lines aggregated $179 million and $112
million at October 31, 1993 and 1992, respectively, with interest at
6.25% as of October 31, 1993. Recorded amounts approximate fair value.
Borrowing on the lines of credit are fully collateralized by mortgage
loans held for resale or cash and are required to be repaid upon the sale
of the loans. The lines of credit require the Company to maintain
compliance with various covenant requirements. The Company was in
compliance with these requirements as of October 31, 1993.
OTHER NOTES PAYABLE
F-8
<PAGE> 71
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
The Company also has other notes payable to finance unsecured short-term
borrowings and the purchase of Company-owned real estate and equipment
owned and leased. The amount payable aggregated $1,204,894 and $1,701,153
at October 31, 1993 and 1992, respectively, with interest rates ranging
from 2.0% to 17.7% at October 31, 1993.
Amounts due under these borrowings for fiscal years subsequent to October
31, 1993 are as follows:
<TABLE>
<S> <C>
1994 $ 962,398
1995 94,536
1996 75,054
1997 27,742
Thereafter 45,164
-----------
$ 1,204,894
===========
</TABLE>
Total interest expense on the warehouse lines of credit and other notes
payables was $7,902,326 and $4,188,633 for the years ended October 31,
1993 and 1992, respectively. Total interest paid in fiscal 1993 and 1992
approximated $7,361,609 and $4,011,565, respectively.
6. INCOME TAXES
The provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993 1992
<S> <C> <C>
Current
Federal $ 990,644 $ 743,063
State 154,701 139,499
---------- ----------
Total current 1,145,345 882,562
---------- ----------
Deferred
Federal (244,334) (132,946)
State (43,881) (24,959)
---------- ----------
Total deferred (288,215) (157,905)
---------- ----------
$ 857,130 $ 724,657
========== ==========
</TABLE>
F-9
<PAGE> 72
CARL I. BROWN AND COMPANY
NOTES TO FINANIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
Deferred income taxes reflect the tax impact of timing differences
between the amount of assets and liabilities recognized for financial
reporting purposes and such amounts as measured by tax laws and
regulations. Principal items making up the deferred income tax provision
(benefit) are as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Depreciation $ (26,389) $ (19,998)
Provision for foreclosure losses - (121,553)
Loan acquisition costs (52,131) 53,586
Deferred compensation (104,220) (50,243)
Accrued vacation (98,236) (19,697)
Other (7,239) -
--------- ---------
$(288,215) $(157,905)
========= =========
</TABLE>
Reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993 1992
<S> <C> <C>
Statutory federal income tax provision at 34% $742,835 $622,258
Add tax effect of:
State income taxes, net of federal benefit 92,336 75,597
Other, net 21,959 26,802
-------- --------
$857,130 $724,657
======== ========
</TABLE>
7. EMPLOYEE BENEFITS
The Company had a profit-sharing plan which covered substantially all
salaried employees. Effective November 1, 1992, the Company's
profit-sharing plan was merged into a qualified 401(k) plan that the
Company began offering to its employees coincident with the date of the
merger. The 401(k) plan limits pretax contributions of employees to 15%
of gross annual wages. The Company will match 25% of the first 5% of
employee contributions.
8. STOCKHOLDERS' EQUITY
During 1992, the Company purchased 19,200 shares of its stock from a
former officer and director of the Company for $321,932.
9. COMMITMENTS AND CONTINGENCIES
F-10
<PAGE> 73
CARL I. BROWN AND COMPANY
NOTES TO FINANIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
The Company has entered into various noncancelable operating leases for
office space and certain equipment. Certain of the leases contain
renewal options and escalation clauses.
Future annual minimum lease payments at October 31, 1993 for
noncancelable operating leases with remaining terms in excess of one year
are as follows:
<TABLE>
<S> <C>
1994 $1,964,978
1995 1,149,546
1996 377,284
1997 76,868
Thereafter 8,467
----------
$3,577,143
==========
</TABLE>
Total rent expense for the year ended October 31, 1993 was approximately
$1,441,429 ($541,000 in 1992).
The Company is contingently liable for the timely payment of principal,
interest, taxes and insurances for certain loans sold through the
issuance of mortgage-backed securities.
The Company has been named as defendant in various lawsuits arising from
the normal course of its business. In the opinion of management, the
ultimate disposition of these matters will not materially affect the
financial position of the Company.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to reduce its exposure to
fluctuations to interest rates. These financial instruments include
mortgage purchase commitments and forward sales commitments. The
instruments involve elements of credit and interest rate risk in excess
of the amounts recognized in the balance sheet.
Mortgage loans held for resale are acquired from a network of
correspondents through mortgage purchase commitments. The Company enters
into forward sales commitments with respect to the loans it expects to
close to limit its resale price exposure. The percentages of potential
loan closures covered by forward sales commitments are reviewed
continuously and adjusted to reflect market conditions.
Forward sales commitments are contracts for delayed delivery of mortgage
loans in which the seller agrees to make delivery at a specified future
date to a national securities firm (counterparty) at prices specified by
the contracts. Risks arise from the possible inability of counterparties
to meet the terms of their contracts and from movements in mortgage loan
values and interest rates.
The Company also writes and acquires put and call option contracts on
mortgage-backed securities. The options are valued at market value. The
Company had an unrealized gain of $48,598 on open option positions at
October 31, 1993.
F-11
<PAGE> 74
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1993 and 1992
At October 31, 1993 the amounts and estimated fair value of financial
instruments with off-balance-sheet risk were as follows:
<TABLE>
<CAPTION>
Notional Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
Mortgage purchase commitments $645,730,000 $1,386,357
Forward sales commitments $522,315,000 $ (161,342)
Option contracts $ 32,000,000 $ 48,598
</TABLE>
The fair value of forward sales commitments has been based upon the
difference between quoted prices for such commitments and the prices
actually paid at acquisition.
The fair value of mortgage purchase commitments has been based upon the
difference between quoted forward sales commitment prices and the
committed prices.
The fair value of option contracts has been based upon quoted market
prices at October 31, 1993.
11. RELATED PARTIES
The Company has amounts due from related parties as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Receivable from owners, non-interest
bearing and due on demand $361,660 $303,178
Receivable from related company 98,107 -
Other - 3,468
-------- --------
$459,767 $306,646
======== ========
</TABLE>
The Company engages a related company for transportation services. Total
expenses incurred for the year ended October 31, 1993 were $228,318.
The Company purchases loans through a related party correspondent. For
the year ended October 31, 1993, the Company purchased $21,540,986 in
loans and recognized $87,425 in fees.
F-12
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
January 11, 1993
To the Board of Directors and
Stockholders of Carl I. Brown and Company
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Carl I. Brown and Company at October 31,
1992 and 1991, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
F-13
<PAGE> 76
CARL I. BROWN AND COMPANY
BALANCE SHEET
October 31, 1992 and 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
ASSETS
Mortgage loans held for resale, net
(Note 2) $ 107,196,665 $ 57,166,455
Cash and cash equivalents 8,591,703 323,686
Receivables from related parties (Note 10) 306,646 719,350
Accrued interest and other receivables 672,962 2,086,474
Prepaid expenses and other assets (Note 9) 341,016 399,213
Acquired servicing rights, net of
amortization (Note 4) 2,448,247 1,084,392
Property and equipment (Note 6) 1,722,582 547,177
Deferred income tax benefit 74,928
------------- -------------
Total assets $ 121,354,749 $ 62,326,747
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse lines of credit (Note 3) $ 112,319,554 $ 54,487,249
Other notes payable (Note 3) 1,701,153 1,246,079
Accrued interest and other accruals 897,516 309,248
Income taxes payable (Note 5) 678,399 1,082,946
Accounts payable and other liabilities 393,864 537,298
Deferred income taxes 83,247
------------- -------------
Total liabilities 115,990,486 57,746,067
------------- -------------
Common stock, $1 par value, 200,000 shares
authorized and issued 200,000 200,000
Preferred stock, $100 par value, 2,000,000 shares
authorized, 10,720 shares issued and outstanding
(Note 8) 1,072,000 1,072,000
Additional paid-in capital 598,078 598,078
Retained earnings 3,833,617 2,728,102
Treasury stock (27,200 and 8,000 shares
in 1992 and 1991) (Notes 8 and 9) (339,432) (17,500)
------------- -------------
Total stockholders' equity 5,364,263 4,580,680
------------- -------------
Commitments and contingencies (Note 9)
------------- -------------
Total liabilities and
stockholders' equity $ 121,354,749 $ 62,326,747
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-14
<PAGE> 77
CARL I. BROWN AND COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Years Ended October 1992 and 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
INCOME
Loan origination and other fees $ 3,434,250 $ 1,700,356
Loan servicing fees 5,053,181 4,156,861
Gain on sale of mortgage loans 7,007,728 2,273,211
Gain on sale of loan servicing rights 938,345 93,030
Gain on bulk sale of servicing rights (Note 4) 1,074,727 1,304,018
Net interest income on loans held for resale (Note 3) 2,300,143 361,433
------------ -----------
19,808,374 9,888,909
------------ -----------
EXPENSES
Salaries and commissions 11,286,686 5,340,519
Settlement of lawsuit (Note 9) 465,000
General and administrative expenses 6,691,516 3,905,803
------------ -----------
17,978,202 9,711,322
------------ -----------
Income before income tax expense 1,830,172 177,587
Income tax expense (Note 5) 724,657 58,694
------------ -----------
Net income 1,105,515 118,893
Retained earnings, beginning of year 2,728,102 2,609,209
------------ -----------
Retained earnings, end of year $ 3,833,617 $ 2,728,102
============ ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-15
<PAGE> 78
CARL I. BROWN AND COMPANY
STATEMENT OF CASH FLOWS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,105,515 $ 118,893
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 329,444 134,221
Amortization of acquired
servicing rights 558,614 113,731
Gain on bulk sales of acquired
servicing rights (1,074,727) (1,304,018)
Changes in assets and liabilities:
Mortgage loans held for resale (50,030,210) (19,025,261)
Net proceeds under line-of-credit
agreements 57,832,305 17,421,327
Other investments 350,308
Receivables from related parties 412,704 236,876
Accrued interest and other receivables 1,413,512 100,930
Prepaid expenses and other assets (56,162) (344,833)
Accrued interest and other accruals 588,268 (20,599)
Accounts payable and other liabilities (143,434) 372,130
Deferred income taxes (158,175) 76,238
Income taxes payable (404,547) (264,047)
------------ ------------
Total adjustments 9,267,592 (2,152,997)
------------ ------------
Net cash provided (used) by operations 10,373,107 (2,034,104)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from bulk sales of acquired
servicing rights 1,442,195 1,336,716
Payment for purchase of acquired
servicing rights (2,289,941) (493,548)
Capital expenditures (1,629,256) (100,314)
Proceeds from sale of equipment 238,770
------------ ------------
Net cash (used) provided by investing activities (2,238,232) 742,854
------------ ------------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Purchase of treasury stock (321,932)
Change in other notes payable 455,074 240,325
Issuance of preferred stock 427,000
------------ ------------
Net cash provided by financing activities 133,142 667,325
------------ ------------
Net increase (decrease) in cash and cash equivalents $ 8,268,017 $ (623,925)
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-16
<PAGE> 79
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY AND BUSINESS
Carl I. Brown and Company (the Company) is a mortgage bank, in which
capacity it originates, sells and services loans for others. The
Company is approved by the Government National Mortgage Association
(GNMA), Federal National Mortgage Association (FNMA), the Federal Home
Loan Mortgage Corp. (FHLMC), and the Department of Housing and Urban
Development (HUD).
MORTGAGE LOANS HELD FOR RESALE
Mortgage loans held for resale are valued at the lower of cost or
market in the aggregate. Market is determined by purchase commitments
from investors, quoted security prices, and other commitments and
guarantees. The Company uses forward sales commitments and option
contracts to lessen the degree of risk that interest rate fluctuations
have on the sale of mortgages and mortgage-backed securities. Gains
or losses associated with these transactions are generally deferred
and recognized upon the delivery of the underlying asset.
ACQUIRED SERVICING RIGHTS
Acquisition costs of servicing rights are capitalized and amortized in
proportion to, and over the period of, estimated net servicing income.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed over the assets' estimated useful lives or lease terms, if
shorter, using the straight-line method.
REVENUES
Loan origination fees and direct loan origination costs are
capitalized and the net fee or cost deferred until the related loan is
sold. Net deferred loan origination costs were approximately $286,000
and $288,000 as of October 31, 1992 and 1991, respectively.
Amounts received as loan discounts are also deferred and recognized as
income as the related loans are sold to investors.
Loan servicing income is recognized in the month earned.
Interest income on mortgage loans held for resale is shown net of the
related interest expense on borrowings to fund the loans (See Note 3).
Revenue derived from the sale of loan servicing is recognized at such
time as all documentation requirements are met.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and all highly liquid
investments with an original maturity of three months or less.
F-17
<PAGE> 80
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
INCOME TAXES
Deferred income taxes are provided for income and expense items which
are reported in different years for financial statement and tax
purposes.
The Financial Accounting Standards Board (FASB) has issued Statement
of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes." This statement requires income taxes to be accounted
for under the liability method, rather than in accordance with the
deferred method currently being followed. This standard has not been
adopted by the Company. Management, based on the Company's current
financial position, does not believe the effect of implementation will
be material. The Company will adopt FAS 109 in 1993.
Income taxes paid during the years ended October 31, 1992 and 1991
totalled $1,136,359 and $456,814, respectively.
2. MORTGAGE LOANS HELD FOR RESALE
The Company has mortgage loans held for resale as summarized below:
1992 1991
Principal balances and
deferred origination costs $ 106,364,363 $ 57,281,888
Premiums and (discounts) 832,302 (115,433)
------------- ------------
Net $ 107,196,665 $ 57,166,455
============= ============
These loans are secured principally by first deeds of trust on
single-family/multi-family residences and commercial properties, and
are pledged as collateral for obligations resulting from the funding
of the loans.
As of October 31, 1992, the Company had commitments to loan to
borrowers aggregating approximately $376.5 million. These commitments
and mortgage loans held for resale at October 31, 1992 were offset by
forward sales commitments in the approximate amount of $287.1 million.
3. CREDIT ARRANGEMENTS
WAREHOUSE LINES OF CREDIT
Financing for loan operations is provided through warehouse lines of
credit with commercial banks aggregating $140,000,000 at October 31,
1992. Amounts drawn on these lines aggregated $112,319,554 and
$54,487,249 at October 31, 1992 and 1991, respectively, with interest
at 6.25% as of October 31, 1992.
F-18
<PAGE> 81
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
Borrowing on the lines of credit are fully collaterized by mortgage
loans held for resale or cash and are required to be repaid upon the
sale of the loans. The lines of credit require the Company to
maintain compliance with various covenant requirements. The Company
was in compliance with these requirements as of October 31, 1992.
OTHER NOTES PAYABLE
The Company also has other notes payable to finance unsecured
short-term borrowings and the purchase of Company-owned real estate
and equipment owned and leased. The amount payable aggregated
$1,701,153 and $1,246,079 at October 31, 1992 and 1991, respectively,
with interest rates ranging from 2% to 10.5% at October 31, 1992.
Amounts due under these borrowings for fiscal years subsequent to
October 31, 1992 are as follows:
1993 $ 923,140
1994 179,149
1995 181,900
1996 163,554
Later years 253,410
----------
$1,701,153
==========
Total interest expense on the warehouse and other notes payables was
$4,188,545 and $2,886,742 for the years ended October 31, 1992 and
1991, respectively. Interest expense paid in fiscal 1992 and 1991
approximated $4,011,565 and $2,901,999, respectively.
4. LOAN SERVICING AND ACQUIRED SERVICING RIGHTS
As of October 31, 1992 and 1991, the Company was servicing
approximately $1.7 billion and $946 million, respectively, in
outstanding principal balance of real estate loans. In connection
with these servicing activities, the Company receives funds, the
majority of which are held in segregated trust accounts, for payment
of principal and interest, real estate taxes and insurance premiums
applicable to mortgage loans being serviced. As of October 31, 1992
and 1991, the Company was holding approximately $24,549,000 and
$13,731,000, respectively, in trust on behalf of its borrowers and
investors. These amounts are not included in the accompanying
consolidated financial statements.
In fiscal 1992, the Company sold $151 million of its servicing
portfolio in two separate bulk sales and recorded an aggregate gain,
net of transaction expenses, of $1.1 million on the sales. In fiscal
1991, the Company sold $155 million in three separate bulk sales and
recorded an aggregate gain, net of transaction expenses, of $1.3
million on the sales.
At October 31, 1992, the Company maintained aggregate fidelity bond
and errors and omissions insurance coverage of $2.5 million.
F-19
<PAGE> 82
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
Acquired servicing rights consisted of the following at October 31:
1992 1991
Purchased acquired servicing
rights $2,813,840 $1,322,622
Accumulated amortization (365,593) (238,230)
---------- ----------
$2,448,247 $1,084,392
========== ==========
Changes in acquired servicing rights for the year ended October 31
were as follows:
1992 1991
Beginning balance $1,084,392 $ 737,273
Additions 2,289,941 493,548
Sales (367,472) (32,698)
Amortization (558,614) (113,731)
---------- ----------
$2,448,247 $1,084,392
========== ==========
5. INCOME TAXES
The provision (benefit) for income taxes was as follows:
YEAR ENDED
OCTOBER 31
1992 1991
Current
Federal $ 743,063 $
State 139,499 (17,544)
--------- --------
Total current 882,562 (17,544)
--------- --------
Deferred
Federal (132,946) 63,159
State (24,959) 13,079
--------- --------
Total deferred (157,905) 76,238
--------- --------
$ 724,657 $ 58,694
========= ========
Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by
F-20
<PAGE> 83
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
tax laws and regulations. Principal items making up the deferred
income tax provision (benefit) are as follows:
1992 1991
Depreciation $ (19,998) $ (7,977)
Provision for foreclosure losses (121,553) 2,880
Loan acquisition costs 53,586 85,211
Deferred compensation (50,243)
Other (19,697) (3,876)
--------- --------
$(157,905) $ 76,238
========= ========
Reconciliation of the federal statutory rate to the Company's
effective rate is as follows:
YEAR ENDED
OCTOBER 31,
1992 1991
Statutory federal income tax provision $622,258 $60,380
Add (deduct) tax effect of:
State income taxes, net of federal benefit 75,597 (2,947)
Other, net 26,802 1,261
-------- -------
$724,657 $58,694
======== =======
6. PROPERTY AND EQUIPMENT
Property and equipment, including leased property and equipment of the
Company, are summarized as follows:
1992 1991
Real estate $ 313,565 $ 304,054
Furniture and Equipment 1,486,854 556,050
Vehicles 647,686 363,420
---------- ----------
2,448,105 1,223,524
Less accumulated
depreciation and amortization 725,523 676,347
---------- ----------
$1,722,582 $ 547,177
========== ==========
F-21
<PAGE> 84
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
7. PROFIT SHARING PLAN
The Company has a profit-sharing plan covering substantially all
salaried employees. The Company's contributions to the plan are
determined annually by the Board of Directors and funded in the
subsequent year. Participant interests vest after five years. The
Company did not contribute to the plan during 1992 or 1991.
8. STOCKHOLDERS' EQUITY
During 1992, the Company purchased 19,200 shares of its stock from a
former officer and director of the Company for $321,932. See Note 9
for additional discussion.
During 1991, the Company issued 4,270 shares (2,000,000 shares
authorized) of non-cumulative, non-voting Class B, preferred stock,
with par value of $100 per share to the principal owner of the Company.
9. COMMITMENTS AND CONTINGENCIES
The Company is obligated under noncancellable operating leases for
office space and certain equipment which expire in various amounts
through 1995.
Future minimum lease payments at October 31, 1992 were:
1993 $ 594,447
1994 583,144
1995 435,975
----------
$1,613,566
==========
Total rent expense for 1992 was approximately $541,000 ($343,000 in
1991).
See Note 2 for a discussion of commitments to loan funds.
The Company is contingently liable for the timely payment of principal
and interest of certain loans sold through the issuance of
mortgage-backed securities. Costs incurred under these guarantees for
1992 were approximately $1,082,000 ($423,000 in 1991).
The Company has been named as defendant in various lawsuits arising
from the normal course of its business. In the opinion of management,
the ultimate disposition of these matters will not materially affect
the financial position of the Company.
On April 13, 1990, the Company filed a complaint against a former
officer, director and stockholder of the Company. The Company's
complaint contained counts of breach of fiduciary duties, fraud and
rescission of contract. On May 29, 1990, the defendant filed
F-22
<PAGE> 85
CARL I. BROWN AND COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended October 31, 1992 and 1991
- --------------------------------------------------------------------------------
an answer and asserted various counterclaims against the Company. The
defendant's claims arise from certain stock redemption and consulting
agreements.
On April 26, 1991, the Company reached an agreement in principle with
the defendant. Under this agreement, the defendant agreed to release
the Company from all claims, abstain from competing with the Company
for a period of three years, and allow the Company to purchase the
defendant's common stock in April 1992. These agreements were made in
consideration of the Company paying the stockholder a total of
$1,130,000.
Accordingly, the accompanying financial statements reflect the
recording of a non-compete agreement in the amount of $181,060
($295,420 in 1991), net of amortization, and the recognition of
$465,000 in 1991 of other deferred compensation and the defendant's
legal fees. The Company purchased the stock of the defendant in 1992
for $321,932.
10. RELATED PARTIES
The Company has amounts due from related parties as follows:
1992 1991
Receivable from owners, non-
interest bearing and due on
demand $303,178 $470,144
Receivable from affiliated
company -- 201,312
Other 3,468 47,894
-------- --------
$306,646 $719,350
======== ========
F-23
<PAGE> 86
CARL I. BROWN AND COMPANY
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
July 31, 1994
-------------
<S> <C>
Mortgage loans for resale $117,846,867
Cash and temporary investments 7,829,584
Accrued interest and other receivables 7,582,434
Due from related parties 378,949
Prepaid expenses and other assets 334,161
Property & equipment 2,339,485
Servicing rights acquired 3,051,820
------------
Total Assets $139,363,300
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - warehouse loans $111,330,012
Drafts outstanding 10,473,499
Other notes payable 1,875,700
Accounts and commissions payable 2,573,945
Accrued interest and other accruals 1,306,707
Income Taxes Payable 691,931
Long term debt 1,750,000
------------
Total Liabilities 130,001,794
============
Preferred stock 1,072,000
Common stock 200,000
Treasury stock (339,432)
Additional paid in capital 598,078
Retained earnings 5,143,456
Current period income 2,687,404
------------
Total stockholders' equity 9,361,506
------------
Total liabilities and stockholders' equity $139,363,300
============
</TABLE>
F-24
<PAGE> 87
CARL I. BROWN AND COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
INCOME JULY 31, 1994
<S> <C>
Loan administration $ 8,273,617
Origination and other fees 11,613,963
Gain on sale of mortgages 15,798,467
Service release fees 5,733,467
Gain on bulk sale of servicing 18,244,639
Interest (net) 2,281,855
-----------
Total income 61,946,008
-----------
EXPENSES
Personnel expenses 39,679,272
General and administrative expenses 18,102,767
-----------
Total expenses 57,782,039
-----------
Income/(expense) before income tax expense/(benefit) 4,163,969
Income tax expense/(benefit) 1,476,565
-----------
NET INCOME/(LOSS) $ 2,687,404
===========
</TABLE>
F-25
<PAGE> 88
CARL I. BROWN AND COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JULY 31, 1994
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,687,404
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 394,526
Amortization of acquired servicing rights 450,000
Gain on bulk sales of acquired servicing rights (18,244,639)
Change in assets and liabilities:
Decrease (increase) in mortgage loans held for sale 45,685,026
Net payments under line-of-credit agreements (57,103,374)
Decrease (increase) in receivables from related parties 80,818
Decrease (increase) in accrued interest and other
receivables (2,477,003)
Decrease (increase) in deferred income tax benefit 430,473
Decrease (increase) in prepaid expenses and other assets (70,372)
(Decrease) increase in accrued interest and other accruals (1,216,085)
(Decrease) increase in accounts and commissions payable (1,350,807)
(Decrease) increase in other notes payable 670,806
(Decrease) increase in income taxes payable 346,793
Total adjustments (32,403,838)
-------------
Net cash provided (used) by operations (29,716,434)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from bulk sales of acquired servicing rights 21,505,887
Payment for purchase of acquired servicing rights (3,043,194)
Capital expenditures (987,427)
Net cash provided (used) by investing activities 17,475,266
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds - long term debt 1,750,000
-------------
Net cash (used) provided by financing activities 1,750,000
-------------
NET INCREASE/ (DECREASE) IN CASH $ (10,491,168)
=============
</TABLE>
F-26
<PAGE> 89
CARL I. BROWN AND COMPANY
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - Summary of the servicing portfolio:
The company acts as servicer for the following amount of loans originated or
purchased by the Company. (OOO's)
<TABLE>
<CAPTION>
Serviced Additions to Serviced
at servicing net at
10/31/93 of loans paid-off 07/31/94
---------- ----------------- ----------
<S> <C> <C> <C>
Custodial $ 164,000 $ (46,000) $ 118,000
GNMA 2,008,000 (133,000) 1,875,000
FNMA 117,000 33,000 150,000
FHLMC 552,000 (152,000) 400,000
Other 11,000 5,000 16,000
---------- --------- ----------
$2,852,000 $(293,000) $2,559,000
---------- --------- ----------
<CAPTION>
Amount
----------
<S> <C> <C>
Balance at October 31, 1993 $2,852,000
Production
Wholesale $ 857,000
Retail 1,020,000
Refinance 269,000
2,146,000
Pay - offs 693,000
Bulk sales 1,746,000
----------
BALANCE AT JULY 31, 1994 $2,559,000
----------
</TABLE>
F-27
<PAGE> 90
NOTE 2 - Detail of amounts due from related parties
The following amounts were due from related parties July 31, 1994:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Carl I. Brown $188,938
L. Gregory Brown 146,801
Eric Brown 35,254
Jeff Brown 7,956
--------
$378,949
--------
</TABLE>
NOTE 3 - Supplemental financial statement information:
The following information is provided for further financial statement
analysis.
Summary of net interest income
<TABLE>
<CAPTION>
For the month For the nine
ended months ended
July 31, 1994 July 31, 1994
------------- -------------
<S> <C> <C>
Interest income $1,208,821 $11,401,494
Interest expense 948,682 9,119,638
---------- -----------
NET $ 260,139 $ 2,281,856
---------- -----------
</TABLE>
Depreciation and amortization expense for the month ended July 31, 1994 was
$89,726.
Rent expense for the month ended July 31, 1994 was $319,858.
F-28
<PAGE> 91
CARL I. BROWN AND COMPANY
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JULY 31, 1993
-------------
<S> <C>
Mortgage loans for resale $ 177,724,064
Cash and temporary investments 1,893,073
Accrued interest and other receivables 2,131,628
Due from related parties 494,883
Prepaid expenses and current assets 399,176
Property & equipment 1,707,696
Servicing rights acquired 3,271,032
-------------
TOTAL ASSETS $ 187,621,552
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - warehouse loans $ 131,480,684
Drafts outstanding 40,809,029
Other notes payable 1,213,395
Accounts and commissions payable 4,802,453
Accrued interest and other accruals 1,388,582
Income taxes payable 600,747
-------------
Total liabilities 180,294,890
=============
Preferred stock 1,072,000
Common stock 200,000
Treasury stock (339,432)
Additional paid in capital 598,078
Retained earnings 3,833,617
Current period income 1,962,399
-------------
Total stockholders' equity 7,326,662
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 187,621,552
=============
</TABLE>
F-29
<PAGE> 92
CARL I. BROWN AND COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
INCOME JULY 31, 1993
<S> <C>
Loan administration $ 6,189,844
Origination and other fees 6,355,343
Gain on sale of mortgages 15,486,632
Service release fees 2,320,696
Gain on bulk sale of servicing 3,963,951
Interest (net) 1,704,854
-----------
Total income 36,021,320
-----------
EXPENSES
Personnel expenses 24,039,900
General and administrative expenses 9,008,088
-----------
Total expenses 33,047,988
-----------
Income/(loss) before income tax 2,973,332
tax (benefit)/expense
Income tax (benefit)/expense 1,010,933
-----------
NET (loss) INCOME $ 1,962,399
===========
</TABLE>
F-30
<PAGE> 93
CARL I. BROWN AND COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JULY 31, 1993
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,962,399
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 323,244
Amortization of acquired servicing rights 315,000
Gain on bulk sales of acquired servicing rights (3,963,951)
Change in assets and liabilities:
Decrease (increase) in mortgage loans held for sale (70,527,399)
Net proceeds under line-of-credit agreements 59,970,159
Decrease (increase) in receivables from related parties (188,237)
Decrease (increase) in accrued interest and other
receivables (1,458,666)
Decrease (increase) in prepaid expenses and other assets (58,160)
(Decrease) increase in accrued interest and other accruals 491,066
(Decrease) increase in accounts and commissions payable 4,408,589
(Decrease) increase in income taxes payable (77,652)
Decrease (increase) in deferred income taxes 74,928
Total adjustments (10,691,079)
------------
Net cash provided (used) by operations (8,728,680)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from bulk sales of acquired servicing rights 6,112,078
Payment for purchase of acquired servicing rights (3,285,912)
Capital expenditures (308,358)
Net cash provided (used) by investing activities 2,517,808
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in other notes payable (487,758)
------------
Net cash (used) provided by financing activities (487,758)
------------
NET DECREASE IN CASH $ (6,698,630)
============
</TABLE>
F-31
<PAGE> 94
CARL I. BROWN AND COMPANY
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - Summary of the servicing portfolio:
The company acts as servicer for the following amount of loans originated or
purchased by the Company. (000's)
<TABLE>
<CAPTION>
Serviced Additions to Serviced
at servicing net at
10/31/92 of loans paid-off 7/31/93
-------- ----------------- -------
<S> <C> <C> <C>
Custodial $ 116,000 $ 61,000 $ 177,000
GNMA 974,000 513,000 1,487,000
FNMA 50,000 23,000 73,000
FHLMC 534,000 289,000 823,000
Other 12,000 5,000 17,000
---------- -------- ----------
$1,686,000 $891,000 $2,577,000
---------- -------- ----------
<CAPTION>
Amount
----------
<S> <C> <C>
Balance at October 31, 1992 $1,686,000
Production
Wholesale $1,088,000
Retail 615,000
Refinance 289,000
1,992,000
Pay - offs 433,000
Bulk sales 668,000
----------
Balance at July 31, 1993 $2,577,000
----------
</TABLE>
F-32
<PAGE> 95
NOTE 2 - Detail of amounts due from related parties
The following amounts were due from related parties July 31, 1993:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Carl I. Brown 360,812
L. Gregory Brown 38,916
Eric Brown 28,294
Tradition advance 66,861
--------
$494,883
--------
</TABLE>
NOTE 3 - Supplemental financial statement information:
The following information is provided for further financial statement
analysis.
Summary of net interest income
<TABLE>
<CAPTION>
For the month For the nine
ended months ended
July 31, 1993 July 31, 1993
------------- -------------
<S> <C> <C>
Interest income 914,250 $6,567,703
Interest expense 699,662 4,862,849
-------- ----------
NET $214,588 $1,704,854
-------- ----------
</TABLE>
Depreciation and amortization expense for the month ended July 31, 1993 was
$78,229.
Rent expense for the month ended July 31, 1993 was $144,497.
F-33
<PAGE> 96
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 6, 1994
BY AND AMONG
CARL I. BROWN AND COMPANY,
("MORTGAGE BANK")
FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
("FTB")
AND
FIRST TENNESSEE NATIONAL CORPORATION
("FTNC")
================================================================================
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . - 1 -
ARTICLE II
THE MERGER
2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.2 Conversion of CIB Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
2.3 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
2.4 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
2.5 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
2.6 Closing; Payment of Closing Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
2.7 Closing Adjustment Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
2.8 Calculation of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
2.9 Supplemental Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
2.10 Additional Adjustments to Final Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MORTGAGE BANK
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
3.3 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
3.4 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
3.5 Statements Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
3.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
3.8 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
3.9 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
3.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
3.11 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
3.13 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
3.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
3.15 Ownership of Assets and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
3.16 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
3.18 Mortgage Banking Licenses and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
3.19 Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
3.20 Title to Certain Mortgage Loans; Mortgage Servicing Agreements . . . . . . . . . . . . . . . . . . . . - 23 -
3.21 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
3.22 Mortgage Servicing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
3.23 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
3.24 Investor Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
3.25 Custodial Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
3.26 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
3.27 Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
</TABLE>
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3.28 Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.29 Physical Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.30 Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.31 Pool Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.32 Loan Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.33 Payment of Taxes, Insurance Premiums, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.34 Tax Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
3.35 Payoff Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
3.36 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
3.37 Cooperation Re Blue Sky Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
ARTICLE IV
REPRESENTATION AND WARRANTIES OF FTNC AND FTB
4.1 Organization; FTNC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
4.2 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
4.6 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.8 Statements Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.9 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.10 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.12 Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.13 Blue Sky Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
4.14 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
ARTICLE V
PRE-CLOSING COVENANTS
5.1 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
5.2 Conduct Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
5.3 Access to Properties and Records; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
5.4 Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.5 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.6 Transfer Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.7 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.8 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.9 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
5.10 Consistency in Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
5.11 Filing of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
5.12 Mortgage Bank's Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
5.13 Pooling-of-Interests Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
5.14 Accrual of Termination Costs on Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . - 34 -
5.15 Accrual With Respect to Covenant-Not-to-Compete and Non-Solicitation Payments . . . . . . . . . . . . . - 34 -
5.16 Disposition of Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
5.17 Redemption of CIB Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
</TABLE>
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5.18 Bonus Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
5.19 Servicing Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
5.20 Funding of Custodial Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
ARTICLE VI
POST-CLOSING COVENANTS
6.1 Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
6.2 Mitigation of Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
6.3 Expenses and Reimbursement of Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
6.4 Tax Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
6.5 Sellers' Representative Continuing Access to Books/Records . . . . . . . . . . . . . . . . . . . . . . - 36 -
6.6 Advance of Funds at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
ARTICLE VII
CERTAIN TAX MATTERS
7.1 Returns; Indemnification; Liability for Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
7.2 Cooperation; Refunds and Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
7.3 Conduct of Audits and Other Procedural Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
7.4 Resolution of Disagreements Among Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
ARTICLE VIII
CONDITIONS
8.1 Conditions to Each Party's Obligations under this Agreement . . . . . . . . . . . . . . . . . . . . . . - 39 -
8.2 Additional Conditions to Mortgage Bank's Obligations under this Agreement . . . . . . . . . . . . . . . - 40 -
8.3 Additional Conditions to FTNC's and FTB's Obligations under this Agreement . . . . . . . . . . . . . . - 41 -
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE X
TERMINATION, WAIVER AND AMENDMENT
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
10.3 Amendment, Extension and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
ARTICLE XI
MISCELLANEOUS
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
11.4 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
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11.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
11.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
11.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
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List of Exhibits
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Exhibit "A" -- Base Purchase Price (not included herein)
Exhibit "B" -- Disclosure Schedule (not included herein)
Exhibit "C" -- Escrow Agreement
Exhibit "D" -- Schedule of CIB Common Stock (not included herein)
Exhibit "E" -- Paying Agent Agreement
Exhibit "F" -- Sellers' Agreement
Exhibit "G" -- Section 9.1(a)(viii) Indemnity Schedule (not included herein)
Exhibit "H" - Section 9.1(a)(vii) Indemnity Schedule (not included herein)
Exhibit "I" -- Covenant-Not-To-Compete and Non-Solicitation Payments (not included herein)
Exhibit "J" -- Registration Rights Agreement
Exhibit "K" -- Disposed Assets and Paid Receivables (not included herein)
Exhibit "L" -- Parties to Employment Agreements and Covenants Not to Compete (not included herein)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated the 6th day
of September, 1994, is made by and among CARL I. BROWN AND COMPANY ("Mortgage
Bank"), FIRST TENNESSEE NATIONAL CORPORATION ("FTNC") and FIRST TENNESSEE BANK
NATIONAL ASSOCIATION ("FTB").
W I T N E S S E T H:
WHEREAS, FTNC will cause First Tennessee Interim Corporation, a Kansas
corporation ("Interim") to be formed, to merge into Mortgage Bank in the manner
and subject to the terms and conditions hereinafter set forth (the
"Acquisition");
WHEREAS, FTNC, as sole shareholder of Interim, directs that all of the
then outstanding capital stock of the Surviving Corporation (hereinafter
defined) be issued at Closing in the name of and directly to its wholly-owned
subsidiary, FTB.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, except as otherwise expressly
provided, the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular.
ACQUISITION-- The acquisition of Mortgage Bank by FTB.
ADVANCES -- Amounts that, as of the Closing Date, have been advanced
by Mortgage Bank in connection with servicing the Mortgage Loans (including,
without limitation, principal, interest, taxes and insurance premiums) and
which are required or permitted to be paid by Mortgage Bank as the servicer of
the Mortgage Loans pursuant to applicable Investor requirements and the terms
of the applicable Mortgage Servicing Agreements.
AFFILIATE-- With respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" (including with correlative
meaning, the terms "controlled by" and "under common control with") as used
with respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through ownership of voting securities, by contract or
otherwise.
AFFILIATED GROUP -- Any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law, including any consolidated, unitary or combined group of
companies.
AGENCY -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
AGREEMENT-- This Agreement and Plan of Merger and all exhibits and
schedules hereto as the same may from time to time be amended or supplemented
by one or more instruments executed by the parties hereto.
<PAGE> 103
AUDITED FINANCIAL STATEMENTS -- As defined in Section 3.7.
BALANCE SHEET -- Collectively, the unaudited balance sheets of
Mortgage Bank as of March 31, 1994, April 30, 1994, May 31, 1994, June 30, 1994
and July 31, 1994.
BASE PURCHASE PRICE -- The amount defined in Section 2.5.
BASKET -- As defined in Section 9.1(h).
BUYDOWN -- With respect to a VA Loan, the waiver by FTB or Mortgage
Bank of a portion of the indebtedness of a Mortgage Loan, including, without
limitation, a reduction of the principal, a credit to escrow or unapplied funds
accounts or the forgiveness of accrued interest, which causes the VA to pay off
the remaining amount of indebtedness owed and acquire the Collateral.
CIB COMMON STOCK -- Shares of issued and outstanding common stock of
Mortgage Bank as set forth in Section 3.2.
CIB PREFERRED STOCK -- Shares of issued and outstanding preferred stock
of Mortgage Bank as set forth in Section 3.2.
CIB STOCK -- The CIB Common Stock and the CIB Preferred Stock.
CLOSING -- The closing with respect to the Acquisition.
CLOSING ADJUSTMENT DOCUMENTS -- As defined in Section 2.7(a).
CLOSING DATE BALANCE SHEET -- The unaudited balance sheet of Mortgage
Bank as of the Closing Date Balance Sheet Date.
CLOSING DATE BALANCE SHEET DATE -- The date as of which the Closing
Date Balance Sheet is prepared which shall be the last day of the calendar
month immediately preceding the Closing Date.
CLOSING DATE -- The date and time of Closing as defined in Section
2.6(b).
CLOSING MEASUREMENT PRICE - The average of the closing prices of the
shares of FTNC Common Stock as quoted on the National Association of Securities
Dealers Automatic Quotation System ("NASDAQ") National Market System during the
twenty (20) trading days ending on the tenth (10th) trading day prior to the
Closing Date.
CLOSING PORTFOLIO -- The unpaid principal balance of the Mortgage
Servicing Portfolio, provided, that the Closing Portfolio shall not include
Excluded Loans; provided further, that for purposes of Sections 2.8(a)(i) and
2.8(b)(i), as to Mortgage Loans originated or acquired by Mortgage Bank after
March 31, 1994, and before the Closing Date, the Mortgage Loans included in the
Closing Portfolio shall consist of Mortgage Loans and/or Servicing Rights with
characteristics materially the same as Mortgage Loans or Servicing Rights
originated or acquired prior to March 31, 1994, and shall not include bulk
purchases after March 31, 1994.
CLOSING PURCHASE PRICE -- As defined in Section 2.6(a).
CODE -- The Internal Revenue Code of 1986, as amended.
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<PAGE> 104
COLLATERAL -- The property securing a Mortgage Loan.
CONFORMING LOAN -- A Mortgage Loan which is or is eligible to be an
FHA Loan or a VA Loan or which is a loan eligible to be sold to FNMA, FHLMC or
GNMA.
CONSTITUENT CORPORATIONS -- Interim and Mortgage Bank.
CONTRACTS -- As defined in Section 3.11.
CUSTODIAL ACCOUNTS -- As defined in Section 3.25.
DEBT -- Shall mean, for purposes of Section 5.2(k), with respect to
Mortgage Bank, (a) all indebtedness for borrowed money or for the deferred
purchase price of property, (b) the face amount of all letters of credit and,
without duplication, all outstanding drafts drawn thereunder and any unpaid
reimbursement obligation or indemnity with respect thereto, (c) all liabilities
secured by any Encumbrance on any property owned by Mortgage Bank, to the
extent attributable to Mortgage Bank's interest in such property, even though
Mortgage Bank has not assumed or become liable for the payment thereof, and (d)
any other monetary obligation (including, without limitation, guarantees,
accommodations and endorsements or obligations of like nature); but excluding
trade and other accounts and accrued expenses payable in the ordinary course of
business and accrued reserves with respect to expenses arising in the ordinary
course of business.
DISAGREEMENT -- As defined in Section 2.7(b).
DISCLOSURE SCHEDULE -- The disclosure schedule marked as EXHIBIT "B"
hereto which is divided into sections to correspond to the subsections of
Articles III and IV.
EFFECTIVE TIME -- The effective time of the Merger as stated in the
certificate of merger.
EMPLOYMENT AGREEMENTS -- Those certain employment, noncompetition
and/or nonsolicitation agreements entered into by Mortgage Bank and the Persons
listed on EXHIBIT "L."
ENCUMBRANCE -- Any lien, pledge, security interest, claim, charge,
easement, restriction or encumbrance of any kind or nature whatsoever.
ENVIRONMENTAL LAWS -- As defined in Section 3.26.
ERISA -- The Employee Retirement Income Security Act of 1974, as
amended.
ESCROW AGREEMENT -- That certain escrow agreement which shall be
substantially in the form of EXHIBIT "C" attached hereto and incorporated
herein by this reference.
ESCROW BANK -- The corporate trust division of FTB.
ESCROW SHARES -- Shares of FTNC Common Stock subject to the Escrow
Agreement.
ESTIMATION DATE -- The last day of the second (2nd) calendar month
preceding the Closing Date.
EXCLUDED LOANS -- Mortgage Loans which are (i) ninety (90) days or
more delinquent, (ii) in bankruptcy, in Foreclosure, in forbearance or in
litigation relating to delinquency, (iii) real estate owned loans
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<PAGE> 105
("REO"), (iv) Pipeline Loans, or (v) subject to subservicing agreements with a
third party owner of the Servicing Rights with respect to such Loans.
FED FUNDS RATE -- The federal funds rate, as reported in The Wall
Street Journal, Midwest Edition at the relevant time or, if not reported
therein, then as reported in another definitive source.
FHA -- Federal Housing Administration or any successor thereto.
FHA LOANS -- Mortgage Loans which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation or any successor
thereto.
FINAL PURCHASE PRICE -- As defined in Section 2.8(b).
FINANCIAL STATEMENTS -- As defined in Section 3.7.
FNMA -- Federal National Mortgage Association or any successor thereto.
FORECLOSURE -- The process by which title to Collateral is acquired in
a foreclosure sale or pursuant to any other comparable procedure allowed under
applicable law.
FTB -- First Tennessee Bank National Association, a national banking
association.
FTNC -- First Tennessee National Corporation, a Tennessee corporation.
FTNC COMMON STOCK -- Shares of voting common stock of FTNC, par value
$2.50 per share.
GAAP -- Generally accepted accounting principles as used in the United
States of America as in effect at the time any applicable financial statements
were prepared.
GNMA -- Government National Mortgage Association or any successor
thereto.
HUD -- United States Department of Housing and Urban Development or
any successor thereto.
INDEPENDENT ACCOUNTING FIRM -- Any "Big Six" accounting firm or its
successor which does not serve as the independent auditor of a Seller, FTB,
FTNC or Mortgage Bank or any Affiliate of any of these entities.
INJUNCTION -- As defined in Section 8.1(b).
INSURANCE PROCEEDS -- Insurance or guarantee proceeds paid or payable
with respect to a Mortgage Loan from an Insurer to Mortgage Bank, FTB or any of
their beneficiaries, successors or assigns, or to any Investor.
INSURER -- A Person who insures or guarantees all or any portion of the
risk of loss upon borrower default on any of the Mortgage Loans, including,
without limitation, the FHA, the VA and any private mortgage insurer, and
providers of life, hazard, flood, disability, title or other insurance with
respect to any of the Mortgage Loans or the Collateral.
INTERIM FINANCIAL STATEMENTS -- As defined in Section 3.7.
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<PAGE> 106
INTERIM -- First Tennessee Interim Corporation, a to be formed Kansas
corporation.
INVESTOR -- Any Person (including any Agency) who (i) owns Mortgage
Loans or Previously Disposed Loans or Servicing Rights to Mortgage Loans or
Previously Disposed Loans, serviced or master serviced by Mortgage Bank
pursuant to a Mortgage Servicing Agreement or (ii) is a party (other than
Mortgage Bank) to an Investor Commitment.
INVESTOR COMMITMENT -- The commitment of a Person to purchase a
Mortgage Loan owned by Mortgage Bank.
IRS -- Internal Revenue Service.
LICENSES -- As defined in Section 3.18.
LOAN DOCUMENTS -- All files, records and documents used to originate
and/or service the Mortgage Loans in accordance with Investor requirements or
Regulations.
LOSS -- Any liability, loss, cost, damage, penalty, fine, interest,
obligation or expense of any kind whatsoever (including, without limitation,
reasonable attorneys', accountants', consultants' or experts' fees and
disbursements) actually incurred.
MERGER -- The merger of Interim with and into Mortgage Bank.
MORTGAGE BANK -- Carl I. Brown and Company, a Kansas corporation.
MORTGAGE LOAN -- Any closed mortgage loan, whether or not such
mortgage is included in a securitized portfolio (and whether or not such loan
is an Excluded Loan), in the Mortgage Servicing Portfolio, as evidenced by
notes or other evidences of indebtedness secured by mortgages or deeds of
trust.
MORTGAGE SERVICING AGREEMENTS -- All contracts or arrangements between
Mortgage Bank and an Investor pursuant to which Mortgage Bank services or
master services Mortgage Loans for such Investor.
MORTGAGE SERVICING PORTFOLIO -- The portfolio of Mortgage Loans
serviced or master serviced by Mortgage Bank pursuant to Mortgage Servicing
Agreements, together with all Warehouse Loans.
MULTIFAMILY LOAN -- A Mortgage Loan with Collateral in excess of four
dwelling units.
NOTICE OF DISAGREEMENT -- As defined in Section 2.7(b).
PAYING AGENT AGREEMENT -- means the Sellers' Representative and Paying
Agent Agreement attached hereto as EXHIBIT "E."
PERMITTED ENCUMBRANCES -- For purposes of Section 5.2(m), shall mean:
(i) Encumbrances for taxes, assessments, charges or other
governmental levies not yet due or as to which the period of grace not
to exceed sixty (60) days, if any, related thereto has not expired or
which are being diligently contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are maintained
on the books of the Mortgage Bank, in accordance with GAAP;
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<PAGE> 107
(ii) carriers', warehousemen's, landlords', materialmen's,
repairmen's or other like encumbrances arising in the ordinary course
of business (i) which are not overdue for a period of more than sixty
(60) days or (ii) which are being diligently contested in good faith
and by appropriate proceedings;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation, or to secure the performance of statutory obligations,
appeal or similar bonds, leases and trade contracts (exclusive of
obligations for the payment of borrowed money);
(iv) Encumbrances in favor of existing warehouse lenders
pursuant to the terms of such warehouse loans;
(v) any Encumbrance constituting a renewal or continuation of
any Encumbrance permitted by this definition of Permitted
Encumbrances, but only, in the case of each such renewal or
continuation, to the extent that the principal amount of indebtedness
secured by such Encumbrance does not exceed the principal amount of
such indebtedness so secured at the time of the renewal or
continuation, and that such Encumbrance is limited to all or part of
the property that secured the Encumbrance renewed or continued; and
(vi) other Encumbrances incidental to the conduct of Mortgage
Bank's business or the ownership of its property which are not
incurred in connection with borrowed money and which do not in the
aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of their businesses
and which, in any event, do not secure obligations in excess of
$50,000 in the aggregate.
PERSON -- Any individual, corporation, company, limited liability
company, partnership (limited or general), joint venture, association, trust or
other entity.
PIPELINE LOANS -- Those pending loans to be secured by a first
priority mortgage lien on a one-to-four family residence with respect to which
Mortgage Bank has taken an application or has agreed in writing with an
originator to purchase, including those loans which are pending with a
correspondent or wholesale originator as of the related date of determination
and which meet Mortgage Bank's acquisition criteria for such loans, but which
have not yet closed or been purchased from the correspondent or wholesale
originator on such date of determination.
POOL -- An aggregate of one or more Mortgage Loans that have been
pledged or granted to secure mortgage-backed securities or participation
certificates.
PORTFOLIO TARGET -- An unpaid principal balance of the Mortgage
Servicing Portfolio equal to $2,859,450,502.
PREFORECLOSURE -- The waiver by FTB or Mortgage Bank of a portion of
the indebtedness of a Mortgage Loan (other than a VA Loan), including, without
limitation, a reduction in the principal amount outstanding under such Mortgage
Loan, a credit to escrow or unapplied funds accounts or a forgiveness of any
accrued interest, which enables the borrower to sell the applicable Collateral
and pay off the remaining amount of indebtedness owed.
PREVIOUSLY DISPOSED LOAN -- Any mortgage loan and/or the Servicing
Rights related thereto which is not a Warehouse Loan, a Pipeline Loan or in the
Mortgage Servicing Portfolio.
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PROCEEDINGS -- As defined in Section 7.3.
RECOURSE LOAN -- As defined in Section 3.21 hereof.
RECOVERY -- Any recovery or reimbursement received or receivable by
FTNC, FTB or Mortgage Bank from any source, including, without limitation,
Insurance Proceeds.
REGISTRATION STATEMENT -- As defined in Section 3.36.
REGULATIONS -- (i) Federal, state and local laws, rules and regulations
with respect to the origination, insuring, purchase, sale, servicing or filing
of claims in connection with a Mortgage Loan, Pipeline Loan or Previously
Disposed Loan, (ii) the responsibilities and obligations set forth in any
agreement between Mortgage Bank and an Investor or private mortgage insurer
(including, without limitation, Mortgage Servicing Agreements, Investor
Commitments and selling and servicing guides), and (iii) the laws, rules,
regulations, guidelines, handbooks and other published requirements of an
Investor, Agency, private mortgage insurer, public housing program or Investor
program, with respect to the origination, insuring, purchase, sale, servicing
or filing of claims in connection with a Mortgage Loan, Pipeline Loan or
Previously Disposed Loan.
REPURCHASE -- The purchase of a Mortgage Loan out of a Pool or an
Investor's portfolio by Mortgage Bank at the direction of the Investor based
upon a breach by Mortgage Bank of a representation, warranty or undertaking
contained in the related agreement with such Investor.
SELLER OR SELLERS -- The Persons listed as selling shareholders in the
Sellers' Agreement who are shareholders of Mortgage Bank.
SELLERS' AGREEMENT -- The Sellers' Agreement among the Sellers, Carl
I. Brown, Molly S. Brown, FTNC and FTB, a copy of which is attached as EXHIBIT
"F."
SELLERS' REPRESENTATIVE -- For purposes of claims for indemnification
under Sections 9.1(a)(i), (ii), (iii), (v), (vi), (vii) and (viii) of this
Agreement, Jeffrey D. Zimmerman, and for all other purposes L. Gregory Brown,
as the respective representatives of the shareholders of Mortgage Bank pursuant
to the Paying Agent Agreement.
SERVICING RELEASED LOANS -- As defined in Section 3.21.
SERVICING RIGHTS -- The right to receive the servicing fees and any
other income the servicer is entitled to receive arising from or connected to
any Mortgage Loans and the related obligations to (i) administer and collect
payments for the reduction of principal and interest, (ii) pay taxes and
insurance premiums, (iii) remit all amounts in accordance with any Mortgage
Servicing Agreements, (iv) provide foreclosure services and full escrow
administration and (v) perform such other obligations as may, from time to
time, be imposed under any Mortgage Servicing Agreement.
SINGLE FAMILY LOAN -- A Mortgage Loan secured by Collateral of one to
four dwelling units.
STATE AGENCY -- Any state agency or regulatory authority with authority
to regulate the business of Mortgage Bank, determine the investment or
servicing requirements with regard to loans originated, purchased or serviced
by Mortgage Bank, or otherwise participate in or promote mortgage lending.
SUBSIDIARY -- A company is a Subsidiary of another company if 50% or
more of its outstanding voting securities is owned by such other company.
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SUPPLEMENTAL CLOSING -- As defined in Section 2.9.
SUPPLEMENTAL CLOSING DATE -- As defined in Section 2.9.
SURVIVING CORPORATION -- Mortgage Bank, in its capacity as the
corporation surviving the Merger.
TANGIBLE NET ASSETS -- The difference, which may be a negative number,
between (i) the total assets of Mortgage Bank (less capitalized Servicing
Rights, capitalized costs, covenant-not-to-compete and non-solicitation
payments and other intangible assets included in such total assets) and (ii)
total liabilities of Mortgage Bank. For purposes of calculating Tangible Net
Assets, any adjustment to the reserves for foreclosure losses or other losses,
or to the valuation of capitalized Servicing Rights or to the contract rights
receivable made pursuant to Section 5.10 will not be included in Mortgage
Bank's total assets or total liabilities, will not affect the determination of
Base Purchase Price, Closing Purchase Price or Final Purchase Price, or
otherwise modify Mortgage Bank's obligations under this Agreement.
TANGIBLE NET ASSET TARGET -- $9,295,469 in Tangible Net Assets.
TAX AFFILIATE -- A Person is a Tax Affiliate of another Person if they
are both members of the same Affiliated Group.
TAXES -- As defined in Section 3.12(c).
TAX RETURN -- Any return, report or information return required to be
filed with any taxing authority with respect to Taxes.
TRANSFERRED LOANS -- As defined in Section 6.1.
TREASURY REGULATIONS -- The regulations promulgated under the Code.
UNRESOLVED CLAIMS -- Any claim arising from a breach of any one or
more of Mortgage Bank's representations, warranties or covenants under this
Agreement or for any other matter subject to indemnification under Article IX
that has not been finally resolved.
VA -- Department of Veteran's Affairs or any successors thereto.
VA LOANS -- Mortgage Loans guaranteed by VA.
VA NO-BID -- A delinquent VA Loan originated or otherwise acquired by
Mortgage Bank, with respect to which the VA has notified Mortgage Bank that it
intends to exercise its option to pay the amount guaranteed by the VA and
relinquish all rights in the Collateral securing such VA Loan to Mortgage Bank.
WAREHOUSE LOANS -- Mortgage Loans owned by Mortgage Bank and held for
sale.
ARTICLE II
THE MERGER
2.1 THE MERGER. (a) On the Closing Date, Interim will merge with
and into Mortgage Bank, with Mortgage Bank being the Surviving Corporation,
pursuant to the provisions of, and with the effects provided in, the Kansas
General Corporation Code, as amended. At the Effective Time, the charter and
bylaws of Mortgage
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Bank (as the Surviving Corporation) shall be the charter and bylaws of Mortgage
Bank in effect immediately prior to the Effective Time.
(b) FTNC, in the exercise of its rights as sole shareholder of
Interim, directs that at the Effective Time, all of the capital stock of the
Surviving Corporation Common Stock be issued at Closing directly to and in the
name of its wholly-owned subsidiary, FTB and FTB agrees to receive and own the
Surviving Corporation Common Stock.
2.2 CONVERSION OF CIB COMMON STOCK. (a) By virtue of the Merger,
automatically and without any action on the part of the holder thereof, subject
to the Escrow Agreement, at the Effective Time, all of the shares of CIB Common
Stock issued and outstanding immediately prior to the Closing (collectively,
the "Total CIB Shares") shall be converted into the total number of shares of
FTNC Common Stock which is equal to the Base Purchase Price subject to
adjustment on the Closing Date as provided in Section 2.8(a) and subject to
post-closing adjustments as provided in Sections 2.8(b) and 2.10 in each case
divided by the Closing Measurement Price.
(b) Each share of CIB Common Stock issued and outstanding immediately
prior to the Closing shall become and be converted into the number of shares of
FTNC Common Stock equal to the total number of shares of FTNC Common Stock
determined under Section 2.2(a) above divided by the Total CIB Shares.
(c) If the Closing Measurement Price is less than or equal to $35 per
share, FTNC shall have the right to terminate this Agreement; provided,
however, that FTNC shall have the right to require Mortgage Bank and the
Sellers to consummate the Merger using the actual Closing Measurement Price
(equal to or less than $35 per share) to calculate the aggregate number of
shares of FTNC Common Stock to be issued pursuant to Section 2.2(a) above. To
exercise its right to require consummation of the Merger under this Section
2.2(c), FTNC must give written notice of its election to exercise to Mortgage
Bank not later than the close of business on the seventh (7th) day following
the last day of the twenty (20) day determination period for calculating the
Closing Measurement Price. If, subsequent to the date of this Agreement but
prior to determination of the Closing Measurement Price, 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, the $35 per share standard of this section
shall be adjusted accordingly.
(d) Subsequent to the date of the determination of the Closing
Measurement Price but prior to (i) the Effective Time, (ii) payment of any
post-Closing Date payments due under Section 2.9 hereof, or (iii) payment of
any refunds to FTNC of the Closing Purchase Price due under Section 2.11, 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 number of shares to be transferred pursuant to subsections (a)
and (b) of this Section 2.2, Section 2.9 and Section 2.11 shall be adjusted for
such reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or stock dividend or otherwise.
(e) The aggregate number of shares of Interim common stock, par value
$.01 per share, ("Interim Common Stock"), issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and exchanged for
one hundred seventy-two thousand eight hundred (172,800) fully paid and
non-assessable shares of common stock, $.01 par value, of the Surviving
Corporation ("Surviving Corporation Common Stock"). From and after the
Effective Time, each outstanding certificate theretofore representing shares of
Interim Common Stock shall be deemed for all purposes to evidence ownership of
and to represent the number of shares of Surviving Corporation Common
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Stock into which such shares of Interim Common Stock shall have been converted.
Promptly after the Effective Time, the Surviving Corporation shall issue to
FTB, as hereby directed of FTNC, a stock certificate or certificates
representing such shares of Surviving Corporation Common Stock in exchange for
the certificate or certificates which formerly represented shares of Interim
Common Stock, which shall be cancelled.
2.3 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 CIB 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 Closing Measurement Price. No Seller shall receive cash for an amount in
excess of the value of one (1) share of FTNC Common Stock. No cash payment for
any fractional share shall be made to any Seller until the Supplemental Closing
Date under Section 2.9 or the termination of the Escrow Fund, whichever event
shall last occur, but each Seller shall receive credit on such date(s) for any
fractional share due to such Seller and not previously issued.
2.4 PROCEDURES. Subject to the Escrow Agreement, certificates which
represent shares of CIB Common Stock that are outstanding at the Effective Time
(each, a "Certificate") and are converted into shares of FTNC Common Stock
pursuant to the Merger shall, at the Effective Time, be exchangeable by the
holders thereof in the manner and at the time described below for new
certificates representing the shares of FTNC Common Stock into which such
shares have been converted.
As promptly as practicable after the Closing Date, FTNC shall send to
each holder of record of shares of CIB Common Stock outstanding at the Closing
Date 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 CIB Common Stock have been converted pursuant to the Merger. Except
for the Escrow Shares, upon surrender of a Certificate, together with a duly
executed and completed letter of transmittal and a duly executed stock power,
the Paying Agent as agent for the holder of such Certificate as provided and
defined in the Paying Agent Agreement shall be entitled to receive in exchange
therefor a certificate for the number of shares of 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 CIB Common Stock shall be entitled to exercise any rights
as a shareholder of FTNC until such holder shall have properly surrendered its
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 Mortgage Bank of any shares of CIB
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 of CIB Common
Stock are presented for transfer to Mortgage Bank, 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 Section 2.2 and in accordance
with the procedures set forth in this Section 2.4.
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After the Effective Time, holders of CIB Common Stock shall cease to
be, and shall have no rights as stockholders of, Mortgage Bank.
Notwithstanding the foregoing, neither FTNC nor Mortgage Bank nor any
other person shall be liable to any former holder of CIB Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
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 including, where appropriate, the
posting of a bond, FTNC will issue in exchange for such lost, stolen or
destroyed certificate shares of FTNC Common Stock or the fractional share
payment, if any, deliverable in respect thereof as determined in accordance
with this Article II.
2.5 PURCHASE PRICE. The purchase price for the CIB Common Stock
shall be $53,250,000 ("Base Purchase Price"); provided, however, that such Base
Purchase Price shall be adjusted in accordance with Sections 2.8 and 2.10
hereof.
2.6 CLOSING; PAYMENT OF CLOSING PURCHASE PRICE. (a) At least
fifteen (15) days prior to the Closing Date, Sellers' Representative shall
deliver to FTNC an estimate of all adjustments to the Base Purchase Price,
which estimate shall (i), subject to the provisions of the last sentence of
this Section 2.6(a), be computed in accordance with the provisions of Section
2.8(a) hereof and (ii) be accompanied by a schedule setting forth in reasonable
detail the calculations contemplated by Section 2.8(a). The Base Purchase
Price, as adjusted by the estimated adjustments determined pursuant to this
Section 2.6, is referred to herein as the "Closing Purchase Price." In
computing the Closing Purchase Price pursuant to EXHIBIT "A" and this Section
2.6(a), the Closing Portfolio and Tangible Net Assets shall be determined as of
the Estimation Date.
(b) The Closing shall occur at the offices of Heiskell, Donelson,
Bearman, Adams, Williams & Caldwell, Twentieth Floor, First Tennessee Building,
Memphis, Tennessee, or at such other place as shall be mutually agreeable to
the parties, on the "Closing Date" which shall be January 3, 1995, if all
conditions to closing stated in Article VIII have been satisfied or if all such
conditions have not been satisfied on or prior to January 3, 1995, but
thereafter are satisfied, then as soon as practicable for the parties following
satisfaction of all such items or such other later date as shall be mutually
agreeable to the parties.
(c) On the Closing Date (or on such other date as indicated below),
the following actions shall be taken:
(i) Sellers' Representative shall deliver evidence reasonably
satisfactory to FTNC that there are no warrants, options, calls,
commitments, agreements or other rights of any character calling for
the purchase or issuance of CIB Common Stock or any securities
representing the right to purchase or otherwise receive any shares of
CIB Common Stock or any other capital stock of Mortgage Bank;
(ii) The Escrow Agreement, duly executed by Sellers'
Representative, shall be delivered to FTNC;
(iii) As soon as is reasonably practicable following the
Closing Date, FTNC shall deliver certificates for the FTNC Common
Stock to Sellers' Representative representing the Closing Purchase
Price (except for the Escrow Shares delivered to the Escrow Agent);
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(iv) As soon as is reasonably practicable following the
Closing Date, FTNC shall deliver the Escrow Shares to the Escrow Bank;
and
(v) Each party shall take such other actions, and shall
execute and deliver such other instruments or documents, as shall be
required under the terms of this Agreement.
2.7 CLOSING ADJUSTMENT DOCUMENTS. In order to prepare for the
adjustments of the Closing Purchase Price as contemplated in Section 2.8(b)
hereof, the parties shall proceed as follows:
(a) As soon as reasonably practicable following the Closing Date, and
in no event more than ninety (90) days thereafter, FTNC shall prepare and
deliver to Sellers' Representative (i) the Closing Date Balance Sheet, which
Closing Date Balance Sheet, except as otherwise required by Section 2.7(e) of
this Agreement, shall be prepared in accordance with GAAP consistent with the
accounting principles used in the preparation of the Audited Financial
Statements (as defined in Section 3.7) and the Balance Sheet, (ii) a schedule
calculating the amount of the Tangible Net Assets as of the Closing Date
Balance Sheet Date, (iii) a schedule of the Closing Portfolio as of the Closing
Date Balance Sheet Date, and (iv) a schedule setting forth in reasonable detail
the calculations contemplated by Section 2.8(b) below (collectively, the
"Closing Adjustment Documents"). The parties shall cooperate in the
preparation of the Closing Adjustment Documents in accordance with this Section
2.7 and Section 2.8(b) hereof.
(b) Within twenty (20) days after delivery of each of the Closing
Adjustment Documents to Sellers' Representative, Sellers' Representative may
dispute all or any portion of any of the Closing Adjustment Documents by giving
written notice (a "Notice of Disagreement") to FTNC setting forth in reasonable
detail the basis for any such dispute (any such dispute being hereinafter
called a "Disagreement"). Sellers' Representative may, at any time during such
twenty (20) day period, deliver written notice to FTNC of Sellers'
Representative's acceptance of the Closing Adjustment Documents delivered by
FTNC. FTNC shall provide Sellers' Representative and its designees with full
access to the books, records, personnel and representatives of Mortgage Bank
and such other information as Sellers' Representative may reasonably request in
connection with its review of the Closing Adjustment Documents and with respect
to the resolution of any Disagreement. The parties shall promptly commence
good faith negotiations with a view to resolving all such Disagreements. If
Sellers' Representative does not give a Notice of a Disagreement in accordance
with the provisions of the first sentence of this paragraph (b) within the
twenty (20) day period set forth therein, Sellers' Representative shall be
deemed to have irrevocably accepted such Closing Adjustment Documents in the
form delivered to Sellers' Representative by FTNC.
(c) If Sellers' Representative shall deliver a Notice of Disagreement
and FTNC shall not dispute all or any portion of such Notice of Disagreement by
giving written notice to Sellers' Representative setting forth in reasonable
detail the basis for such dispute within twenty (20) days following the
delivery of such Notice of Disagreement, FTNC shall be deemed to have
irrevocably accepted the Closing Adjustment Documents as modified in the manner
described in the Notice of Disagreement. If FTNC disputes all or any portion
of the Notice of Disagreement within the twenty (20) day period described in
the previous sentence, and within twenty (20) days following the delivery to
Sellers' Representative by FTNC of the notice of such dispute (the "Conference
Period"), Sellers' Representative and FTNC do not resolve the Disagreement (as
evidenced by a written agreement among the parties hereto) not later than the
end of the Conference Period, such Disagreement shall be referred to an
Independent Accounting Firm mutually selected by Sellers' Representative and
FTNC for a resolution of such Disagreement in accordance with the terms of this
Agreement. If FTNC and Sellers' Representative do not agree on the selection
of an Independent Accounting Firm, their respective independent public
accountants shall select such firm not later than five (5) business days
following the end of the Conference Period. The determinations of such firm
with respect to any Disagreement shall be final and binding upon the parties
and the amount so determined shall be used to complete the final Closing
Adjustment
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Documents. FTNC and Sellers' Representative shall use their best efforts to
cause the Independent Accounting Firm to render its determination not later
than twenty (20) business days after referral of the Disagreement to such firm,
and each shall cooperate with such firm and provide such firm with access to
the books, records, personnel and representatives of it and such other
information as such firm may require in order to render its determination.
FTNC and Sellers' Representative shall each pay one-half ( 1/2) of all of the
fees and expenses of any Independent Accounting Firm retained pursuant to this
paragraph (c).
(d) At any time prior to the final determination of the Closing
Adjustment Documents in accordance with this Section 2.7, FTNC or Sellers'
Representative may amend all or any portion of any of the Closing Adjustment
Documents to reflect information discovered after the Closing Adjustment
Documents were initially delivered by FTNC to Sellers' Representative.
(e) For purposes of the preparation of the Closing Date Balance
Sheet, the adjustments set forth in Sections 5.10, 5.14 and 5.15 shall be
reflected on Mortgage Bank's books as of the Closing Date Balance Sheet Date,
whether or not required to be shown on a balance sheet prepared in accordance
with GAAP.
2.8 CALCULATION OF ADJUSTMENTS. (a) CLOSING PURCHASE PRICE. In
connection with the calculation of the Closing Purchase Price, the following
adjustments shall be made to the Base Purchase Price:
(i) Portfolio Target. The Base Purchase Price shall be (i) increased
by an amount equal to the product of (y) the excess of the Closing Portfolio as
of the Estimation Date over the Portfolio Target and (z) 1.05% or (ii)
decreased by an amount equal to the product of (y) the excess of the Portfolio
Target over the Closing Portfolio as of the Estimation Date and (z) 1.05%.
(ii) Tangible Net Asset Target. The Base Purchase Price shall be (i)
increased by the amount by which Tangible Net Assets as of the Estimation Date
exceed the Tangible Net Asset Target or (ii) decreased by the amount by which
the Tangible Net Asset Target exceeds Tangible Net Assets as of the Estimation
Date. For purposes of determining the Closing Purchase Price, the Tangible Net
Assets as of the Estimation Date shall take into account the expected
adjustments under Section 5.15.
(b) FINAL PURCHASE PRICE. In connection with the calculation of the
Final Purchase Price (as defined herein) and the preparation of the Closing
Adjustment Documents, the following adjustments shall be made to the Closing
Purchase Price:
(i) Final Portfolio Adjustment. The Closing Purchase Price shall be
(i) increased by an amount equal to the product of (y) the excess of the
Closing Portfolio as of the Closing Date Balance Sheet Date over the Closing
Portfolio as of the Estimation Date and (z) 1.05% or (ii) decreased by an
amount equal to the product of (y) the excess of the Closing Portfolio as of
the Estimation Date over the Closing Portfolio as of the Closing Date Balance
Sheet Date and (z) 1.05%.
(ii) Final Tangible Net Asset Adjustment. The Closing Purchase Price
shall be (i) increased by the amount by which Tangible Net Assets as of the
Closing Date Balance Sheet Date exceed the Tangible Net Assets as of the
Estimation Date or (ii) decreased by the amount by which the Tangible Net
Assets as of the Estimation Date exceed Tangible Net Assets as of the Closing
Date Balance Sheet Date.
(iii) The adjustments to the Closing Purchase Price described in this
Section 2.8(b) shall be netted, such that there shall be determined an
aggregate increase or decrease in the Closing Purchase Price. The Closing
Purchase Price, as adjusted in the manner provided in Section 2.7, this Section
2.8(b) and EXHIBIT "A" is referred to herein as the "Final Purchase Price."
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(c) TOTAL ADJUSTMENTS AND ESCROW SHARES DISTRIBUTION LIMITATIONS.
Notwithstanding anything else to the contrary contained in this Section 2.8,
Sections 2.9, 2.10, 2.11 or Section 9.1 of this Agreement, the sum of (i) the
number of Escrow Shares and (ii) the number of shares of additional FTNC Common
Stock issued to Sellers in connection with the Supplemental Closing, pursuant
to Section 2.9, if any, shall not exceed the number of shares of FTNC Common
Stock delivered to Sellers in connection with Closing pursuant to Section
2.6(c)(iii).
2.9 SUPPLEMENTAL CLOSING. Promptly after the Closing Adjustment
Documents have been finally determined in accordance with Section 2.7
(including by means of a deemed acceptance of such documents by FTNC or
Sellers' Representative as provided in Sections 2.7(b) and 2.7(c) hereof,
respectively), but in no event later than five (5) business days following such
final determination (the "Supplemental Closing Date"), the parties hereto shall
hold a supplemental closing (the "Supplemental Closing"), either by telephone
or in person at a mutually convenient location. If the Final Purchase Price is
greater than the Closing Purchase Price, FTNC shall deliver that number of
shares of FTNC Common Stock valued at the Closing Measurement Price having a
value equal to the difference (rounded up to the nearest cent) between the
Closing Purchase Price and the Final Purchase Price.
2.10 ADDITIONAL ADJUSTMENTS TO FINAL PURCHASE PRICE. (a) Loss of
Certain Servicing. The Final Purchase Price shall be decreased by an amount
equal to the amount, if any, by which (i) 1.05% of the aggregate unpaid
principal balance of any Mortgage Loans included in the Closing Portfolio as of
the Closing Date Balance Sheet Date, the servicing or master servicing of which
by Mortgage Bank shall have been terminated and not reinstated by an Investor
within the one hundred eighty (180) day period immediately following the
Closing (unless such termination shall have been due to the repayment in full
of the principal amount of the underlying Mortgage Loan or the breach by
Mortgage Bank of the terms of the servicing agreement relating to such Mortgage
Loan following the Closing Date) exceeds (ii) the aggregate amount of all
termination or similar fees or charges paid or payable to Mortgage Bank in
connection with the termination of the servicing or master servicing of such
Mortgage Loans by Mortgage Bank. In connection with the foregoing, FTNC or
Mortgage Bank shall provide Sellers' Representative with written notice of the
termination of the servicing of any Mortgage Loan included in the Closing
Portfolio as of the Closing Date Balance Sheet Date within five (5) business
days after any such termination, and such notice shall give Sellers'
Representative the right to contact the relevant Investor concerning such
termination and to attempt to have such Mortgage Loan reinstated.
(b) PAYMENT AT SUPPLEMENTAL CLOSING. Any amounts payable under this
Section 2.10 which are capable of being determined on or before the
Supplemental Closing Date shall be made in connection with the Supplemental
Closing. Any payments subsequent to the Supplemental Closing Date shall be
made on the last day of each subsequent month following the month in which the
Supplemental Closing occurs but in no event later than one hundred and
ninety-five (195) days after the Closing Date. All payments under this Section
2.10 shall be accompanied by interest thereon calculated at the Fed Funds Rate.
2.11 SELLERS' REFUND AT SUPPLEMENTAL CLOSING. If the Final Purchase
Price is less than the Closing Purchase Price or if Sellers are required to
make payments to FTNC under Section 2.10, each Seller shall be severally liable
to refund or pay to FTNC, at such Seller's option (and as to any holder of CIB
Common Stock who is not a Seller but who receives FTNC Common Stock in
connection with the Merger, the Browns (as defined in Section 9.1(f)(iii) of
this Agreement) shall cause such Person to refund or pay to FTNC (at such
Person's option), either (i) cash or (ii) FTNC Common Stock, as to each Seller,
valued at the Closing Measurement Price proportionate to the amount of FTNC
Common Stock received by such Seller at Closing and having an aggregate value
equal to the difference between the Final Purchase Price and the Closing
Purchase Price and/or the amounts due under Section 2.10, as applicable.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MORTGAGE BANK
Mortgage Bank hereby represents and warrants to FTNC and FTB as of the
date of this Agreement as follows:
3.1 ORGANIZATION. Mortgage Bank is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation with full corporate power and authority to carry on its business
as now conducted and to own or lease all of its properties and assets and is
duly licensed or qualified to do business and is in good standing in each state
or jurisdiction where the ownership or leasing of its properties or assets or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed or qualified would not have a material
adverse effect on the business, financial condition or results of operations of
Mortgage Bank taken as a whole. Mortgage Bank has hereto delivered or made
available to FTB for inspection accurate and complete copies of the respective
articles of incorporation, by-laws, minutes, written consents, stock transfer
ledgers and other corporate documents of Mortgage Bank, as in effect on the
date of this Agreement.
3.2 CAPITALIZATION. The authorized capital stock of Mortgage Bank
consists only of one hundred seventy-two thousand eight hundred (172,800)
shares of CIB Common Stock and ten thousand seven hundred twenty (10,720)
shares of CIB Preferred Stock as set forth on EXHIBIT "D," all of which are
validly issued and outstanding, fully paid and nonassessable and owned by the
persons reflected on Mortgage Bank's stock transfer books. No shares of CIB
Common Stock or CIB Preferred Stock are reserved for issuance. Mortgage Bank
does not have nor is it bound by any outstanding subscriptions, options,
warrants, calls, commitments, agreements or other rights of any character
calling for the purchase or issuance of any shares of CIB Common Stock or any
other capital stock of Mortgage Bank or any securities representing the right
to purchase or otherwise receive any shares of CIB Common Stock or any other
capital stock of Mortgage Bank. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the CIB Common
Stock. The CIB Preferred Stock is subject to redemption at the option of the
Mortgage Bank at par plus accrued but unpaid dividends.
3.3 NO SUBSIDIARIES. Mortgage Bank does not own any equity interest,
directly or indirectly, in any Subsidiary.
3.4 AUTHORITY; NO VIOLATION. (a) Mortgage Bank has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of Mortgage Bank and
no other corporate proceedings on the part of Mortgage Bank are necessary to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Mortgage Bank and, assuming this
Agreement constitutes a valid and binding obligation of FTB and FTNC,
constitutes a valid and binding obligation of Mortgage Bank enforceable against
Mortgage Bank in accordance with its terms (subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (whether applied in a
proceeding in equity or at law)).
(b) Except as set forth in Section 3.4 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by Mortgage Bank nor the
consummation by Mortgage Bank of the transactions contemplated hereby, nor
compliance by Mortgage Bank with any of the terms or provisions hereof, will
(i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of Mortgage Bank, or (ii) assuming the consents,
permits, authorizations, approvals, filings and registrations referred to in
Section 3.6
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hereof and Section 3.6 of the Disclosure Schedule are obtained or made, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction, or any interpretation of any of the foregoing applicable
to Mortgage Bank or any of its properties or assets or (y) violate, conflict
with, result in a breach of any provisions of, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by, or
result in a right of termination or acceleration or the creation of any
Encumbrance upon any of the properties or assets of Mortgage Bank under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument, or obligation to
which Mortgage Bank is a party, or by which Mortgage Bank or any of its
properties or assets may be bound, except, in the case of this clause (ii), for
such violations, conflicts, breaches or defaults which, either individually or
in the aggregate, would not have a material adverse effect on the business,
financial condition or results of operations of Mortgage Bank taken as a whole.
3.5 STATEMENTS MADE. No representation, warranty, statement made or
information or data provided by Mortgage Bank in this Agreement or in any
exhibit, written material, document, magnetic media, books and records or
certificate furnished by or on behalf of Mortgage Bank to FTNC or FTB in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
3.6 CONSENTS AND APPROVALS. Except as set forth in Section 3.6 of
the Disclosure Schedule, no consents, permits, authorizations or approvals of,
or filings or registrations with, any governmental or regulatory authorities,
government sponsored agencies or corporations, Investors or other third parties
are necessary to be obtained or made by Mortgage Bank in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
3.7 FINANCIAL STATEMENTS. Mortgage Bank has previously delivered to
FTNC copies of (i) (a) audited balance sheets of Mortgage Bank as of October
31, 1991, October 31, 1992, and October 31, 1993, and (b) audited statements of
income, changes in stockholders' equity and statements of cash flow of Mortgage
Bank for the periods ended October 31, 1991, October 31, 1992 and October 31,
1993 (collectively, the "Audited Financial Statements"), together with reports
on the Audited Financial Statements by Mortgage Bank's independent accountants,
and (ii) unaudited statements of income, changes in stockholders' equity and
statements of cash flow of Mortgage Bank for the five (5) month period ending
March 31, 1994, and the one (1) month periods ending April 30, 1994, May 31,
1994, June 30, 1994 and July 31, 1994 and unaudited balance sheets as of March
31, 1994, April 30, 1994, May 31, 1994, June 30, 1994 and July 31, 1994 of
Mortgage Bank (collectively, the "Interim Financial Statements", and together
with the Audited Financial Statements and the Closing Date Balance Sheet, the
"Financial Statements"). The Financial Statements (except for the failure to
include all of the notes thereto required by GAAP in the Interim Financial
Statements and the Closing Date Balance Sheet) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered by such
statements (except as may be indicated in the notes thereto) and are accurate
and fairly present in all material respects the financial position of Mortgage
Bank as of the respective dates thereof and the results of its operations and
the changes in its financial position for the respective periods covered
thereby.
3.8 UNDISCLOSED LIABILITIES. Mortgage Bank has no liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown, and whether or not required to be
shown on a balance sheet prepared in accordance with GAAP, except for
liabilities and obligations stated on the Balance Sheet, the Closing Date
Balance Sheet or otherwise disclosed in the Disclosure Schedule.
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3.9 NO MATERIAL ADVERSE CHANGE. Except as set forth in Section 3.9
of the Disclosure Schedule, since October 31, 1993, there has not been any
material adverse change in the business, condition, financial or otherwise, or
results of operations of Mortgage Bank taken as a whole.
3.10 LEGAL PROCEEDINGS. Except as set forth in Section 3.10 of the
Disclosure Schedule, (i) there are no legal, administrative, arbitral,
governmental or other proceedings, actions or governmental investigations of
any nature pending or threatened against Mortgage Bank which could result in a
Loss to the Mortgage Bank, and (ii) Mortgage Bank is not subject to any order,
judgment, injunction, rule or decree which has or could result in a Loss to
Mortgage Bank. (All such matters of the types described in (i) or (ii) above
and as set forth in Section 3.10 of the Disclosure Schedule are herein referred
to as "Legal Proceedings.") There are no facts or circumstances that could
form the basis for any Legal Proceedings against Mortgage Bank.
3.11 MATERIAL CONTRACTS. Section 3.11 of the Disclosure Schedule is a
complete and accurate list of the following contracts, agreements and other
written or oral arrangements (hereinafter collectively referred to as
"Contracts"), to which Mortgage Bank is a party on the date hereof:
(a) any Contract (including the lease of real or personal property
from or to third parties) providing for payments in excess of $20,000 per annum
or in excess of $50,000 for the remaining term of the contract;
(b) any Contract in which Mortgage Bank is participating as a general
partner or joint venturer;
(c) any Contract which shall survive the Closing (other than recourse
servicing) under which Mortgage Bank has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness for
borrowed money (including capitalized lease obligations) involving more than
$20,000;
(d) any Contract concerning noncompetition;
(e) any Contract between Mortgage Bank or any of its Affiliates
(other than Mortgage Bank), on the one hand, and Mortgage Bank, on the other
hand;
(f) any Mortgage Servicing Agreements or subservicing agreements;
(g) any Contract between Mortgage Bank and any Investor other than
Mortgage Servicing Agreements;
(h) any Contract, other than Mortgage Servicing Agreements, that is
terminable upon a change in ownership of Mortgage Bank; and
(i) any Contract pursuant to which Mortgage Bank or any of its
Affiliates has promised to pay, or loan any amount to, or sold, transferred or
leased any property or assets to or from, any Person who is an officer,
director or other employee of Mortgage Bank.
Mortgage Bank has made available to FTNC a correct and complete copy
of each written Contract listed in Section 3.11 of the Disclosure Schedule.
With respect to each Contract so listed and except as noted in the Disclosure
Schedule: (A) the Contract is in full force and effect; (B) Mortgage Bank is
not in breach or default thereof, and no event has occurred which with notice
or lapse of time or both would constitute a breach or default by Mortgage Bank,
or permit termination, modification, or acceleration against Mortgage Bank
under the Contract applicable to it; (C) Mortgage Bank has not repudiated or
waived any material provision of any such Contract; and (D) no other party to
any such Contract is, to the knowledge of Mortgage Bank, in default in any
respect or has repudiated or waived any material provision thereunder. With
respect to any lease disclosed pursuant to this Section 3.11, all rents and
other amounts currently due thereunder have been paid; no waiver or
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indulgence or postponement of any obligation thereunder has been granted by any
lessor or sublessor or been requested by any lessee or sublessee; and Mortgage
Bank has not received any notice that Mortgage Bank has breached any term,
condition or covenant under any such lease.
3.12 TAXES. (a) Except as disclosed on Section 3.12 of the
Disclosure Schedule, Mortgage Bank has (i) duly filed (or there has been duly
filed on its behalf) with the appropriate federal, state, local and foreign
taxing authorities all Tax Returns required to be filed (taking into account
any extensions) by or with respect to Mortgage Bank on or before the date
hereof, and (ii) paid in full on a timely basis (or there has been paid on its
behalf) all Taxes shown to be due on such Tax Returns. Except as disclosed on
Section 3.12 of the Disclosure Schedule, (x) the liability for current Taxes on
each of the Financial Statements and the Closing Date Balance Sheet has been
determined in accordance with GAAP and reflects all Taxes that could be
assessed against Mortgage Bank for taxable years or periods ending on or before
the Closing Date; (y) the liability for deferred Taxes on each of the Financial
Statements and the Closing Date Balance Sheet has been determined in accordance
with GAAP; and (z) except for the deferred tax asset recorded pursuant to
Section 5.15, each deferred or current tax asset or receivable reflected on
each of the Financial Statements and the Closing Date Balance Sheet is properly
recorded in accordance with GAAP at a value not exceeding the net realizable
value of such asset or receivable, and there are no facts or circumstances that
could result in any such asset or receivable being recorded on any Financial
Statement or the Closing Date Balance Sheet at a value that is less than the
net realizable value of such asset or receivable.
(b) Except as set forth in Section 3.12(b) of the Disclosure
Schedule: (i) Mortgage Bank has not received any notice of a deficiency or
assessment with respect to Taxes of Mortgage Bank from any federal, state,
local or foreign taxing authority which has not been fully paid or finally
settled, and any such deficiency or assessment shown on such Section of the
Disclosure Schedule is being contested in good faith through appropriate
proceedings described in Section 3.12(b) of the Disclosure Schedule; (ii) there
are no ongoing audits or examination of any Tax Return of Mortgage Bank, and no
notice of audit or examination of any such Tax Return has been received by
Mortgage Bank; (iii) Mortgage Bank has not given and there has not been given
on behalf of Mortgage Bank a waiver or extension of any statute of limitations
relating to the payment of Taxes of Mortgage Bank, the federal income Tax
Returns of Mortgage Bank have been audited by the IRS or are closed by the
applicable statute of limitations for all periods through October 31, 1990; and
(iv) no issue has been raised in writing on audit or in any other proceeding
with respect to taxes of Mortgage Bank by any federal, state, local or foreign
taxing authority.
(c) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority including, but not
limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(d) Mortgage Bank has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Mortgage Bank has not made any
payments, is not obligated to make any payments, and is not a party to any
contract, agreement or other arrangement that could obligate it to make any
payments that would not be deductible under Section 280G of the Code.
3.13 EMPLOYEES. (a) Section 3.13(a) of the Disclosure Schedule sets
forth with respect to each employee (an "Employee") of Mortgage Bank as of
August 31, 1994, the Employee's name, job title, annual salary, hourly rate,
hire date, years of service and other related data.
(b) Section 3.13(b) of the Disclosure Schedule sets forth (i) all
employment, consulting, severance, retention, termination and similar
agreements and arrangements under which Mortgage Bank has any obligation to any
Employee or to any former employee or independent contractor of Mortgage Bank
and (ii) all incentive,
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bonus, performance and similar compensatory plans and arrangements in which
Employees of Mortgage Bank are eligible to participate. Mortgage Bank has
provided or made available to FTB copies of all plans, agreements and
arrangements (to the extent that such plans, agreements and arrangements are
evidenced by a writing) listed on Section 3.13(b) of the Disclosure Schedule.
(c) Except as set forth on Disclosure Schedule 3.13(c), there are no
investigations, claims or proceedings pending or threatened relating to or
arising out of the employment of any Employee or former employee. None of the
Employees is represented by a union or other collective bargaining unit.
3.14 ERISA. (a) GENERAL. Except as listed on Section 3.14 or Section
3.13(b) of the Disclosure Schedule, Mortgage Bank is not a party to and does
not participate nor has it participated in (i) any profit sharing, deferred
compensation, bonus, stock retirement, welfare or incentive plan or agreement,
whether legally binding or not, (ii) any plan providing for "fringe benefits"
to its employees, including, but not limited to, vacation, sick leave, medical,
hospitalization, life insurance and other insurance plans, and related
benefits, (iii) any other "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or (iv) any "multi-employer plan" (within the meaning of Section
3(37) of ERISA) not designated as such on Section 3.14 of the Disclosure
Schedule. True, correct and complete copies of the plan documents and
agreements referred to in Section 3.14 of the Disclosure Schedule and all
related summary plan descriptions have been delivered or made available to
FTNC. Mortgage Bank is in compliance with the applicable provisions of ERISA
and the regulations and rulings issued thereunder with respect to each employee
benefit plan subject thereto, except as noted on Section 3.14 of the Disclosure
Schedule and, except as noted on Section 3.14 of the Disclosure Schedule, each
has performed all of its obligations under such plans. There are no actions,
suits or claims (other than routine claims for benefits) pending or threatened
against such plans or the assets of such plans, and no facts exist which could
give rise to any actions, suits or claims (other than routine claims for
benefits) against such plans or the assets of such plans which could result in
a material adverse effect to Mortgage Bank.
(b) PENSION AND PROFIT SHARING PLAN. The "employee pension benefit
plans" (within the meaning of Section 3(2) of ERISA) described on Section 3.14
of the Disclosure Schedule have been duly authorized by the Board of Directors
of Mortgage Bank. Each such plan in all material respects is qualified in form
and operation under Sections 401(a) and 501(a) of the Code to the extent the
Code requires such qualification, except as noted on Section 3.14 of the
Disclosure Schedule. No event has occurred which will or could subject
Mortgage Bank or any such plans to tax under Sections 511, 4972 or 4975 of the
Code. No prohibited transaction (within the meaning of Section 4975 of the
Code or Section 406 of ERISA), or breach of fiduciary responsibility under
Title I of ERISA, which transaction is not exempt or for which exemption is not
available under Section 4975 of the Code or Section 408 of ERISA, has occurred
with respect to any of such plans. No accumulated funding deficiency, whether
or not waived, exists with respect to any such plan, no condition has occurred
or exists which with the passage of time would be expected to result in an
accumulated funding deficiency as of the last day of the current plan year of
any such plan, and no employer maintaining the plan has failed to make full
payment when due of all amounts which under the provisions of any such plan are
required to be made as contributions thereto and no excise taxes are payable
under the Code (except as otherwise set forth on Disclosure Schedule 3.14).
Mortgage Bank has delivered or made available to FTNC for each of the
employee pension benefit plans (i) a copy of the Form 5500 which was filed in
each of the most recent three plan years, including, without limitation, all
schedules thereto and all financial statements with attached opinions of
independent accountants, (ii) a copy of the Form PBGC-1 which was filed in each
of the most recent three (3) plan years, and (iii) the most recent
determination letter from the Internal Revenue Service. Copies have been
furnished to FTNC of (i) the consolidated statement of assets and liabilities
of each of the employee pension benefit plans as of its most recent valuation
date; (ii) the statement of changes in fund balance and in financial position
or the
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statement of changes in net assets available for benefits under each of said
plans for the most recently ended plan year, and (iii) with respect to any such
plan which is subject to Title IV of ERISA, the actuarial report as of the last
valuation date. Such documents fairly present the financial condition of each
said plan as at such dates and the results of operations of each of said plans,
all on a consistent basis, unless otherwise noted on or apparent from the
documents of Section 3.14 of the Disclosure Schedule.
(c) TITLE IV PLANS. With respect to each employee pension benefit
plan (excluding plans not subject to the provisions of Title IV of ERISA)
listed on Section 3.14 of the Disclosure Schedule, (i) no employer maintaining
the plan has completely or partially withdrawn from such a pension plan, (ii)
there has been no notice of intent to terminate any such plan filed and no such
plan has been terminated, (iii) the Pension Benefit Guaranty Corporation
("PBGC") has not instituted proceedings to terminate any such plan, (iv) no
other event or condition has occurred which constitutes grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any such plan, and (v) all required premium payments to the PBGC
have been paid when due, and (vi) except as set forth in Section 3.14(c) of the
Disclosure Schedule, no other reportable event, as described in Section 4043 of
ERISA and the regulations thereunder, has occurred with respect to said plans.
(d) CONTINUATION COVERAGE REQUIREMENTS OF HEALTH PLAN. All group
health plans of Mortgage Bank (including any Affiliates which must be taken
into account under Section 4980B of the Code) have been operated in good faith,
substantially in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code to the extent such requirements are
applicable.
(e) FINES AND PENALTIES. There are no fines, penalties, taxes, or
related charges under Sections 502(c) or (k) or (l) or 4071 of ERISA or Chapter
43 or Section 511 of the Code which are assessable against Mortgage Bank.
3.15 OWNERSHIP OF ASSETS AND PROPERTY. Mortgage Bank has good and
marketable title to all assets (including without limitation individual items
or transactions having debit balances in liability accounts) and properties,
whether real or personal, tangible or intangible, reflected in the Balance
Sheet, or acquired subsequent thereto and reflected in the Closing Date Balance
Sheet (except to the extent that such assets and properties have been disposed
of in the ordinary course of business since the date of the Balance Sheet),
each of which is reflected on the Balance Sheet or the Closing Date Balance
Sheet at a value that does not exceed the net realizable value, as determined
in accordance with GAAP, of such assets, subject to no Encumbrances, except (i)
those assets and properties that secure liabilities that are reflected in the
Balance Sheet or the notes thereto or were incurred in the ordinary course of
business after the date of the Balance Sheet that secure additional liabilities
to fund or purchase Mortgage Loans, (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith, (iii) ordinary liens and
encumbrances on, and rights of redemptions with respect to, foreclosed real
estate, (iv) with respect to assets and properties acquired subsequent to the
date of the Balance Sheet, Encumbrances created in connection with the
acquisition thereof and (v) such Encumbrances that do not in the aggregate
detract from the value or interfere with the use or operations of the asset and
property subject thereto. Mortgage Bank as lessee has the right under valid
and subsisting leases to occupy, use, possess and control all property leased
by Mortgage Bank, as presently occupied, used, possessed and controlled by
Mortgage Bank. The properties and assets owned or leased by Mortgage Bank are
adequate for the conduct of the current business of Mortgage Bank in the manner
in which it is currently being conducted. All such assets and properties are
in good operating condition, ordinary wear and tear excepted. All such assets
and properties are being operated and maintained in material compliance with
all leases, contracts and commitments to which Mortgage Bank is a party or by
which Mortgage Bank or such assets and properties are bound.
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3.16 BROKERS AND FINDERS. None of Sellers, Mortgage Bank or any of
their respective officers, directors, employees, agents or Affiliates has
employed any broker, finder or financial advisor or incurred any liability for
any broker's or finder's fees or commissions in connection with the
transactions contemplated hereby.
3.17 INSURANCE. Section 3.17 of the Disclosure Schedule lists all of
the insurance policies, binders and bonds maintained by Mortgage Bank, all of
which are in full force and effect; Mortgage Bank is not in default thereunder;
all claims thereunder have been filed in due and timely fashion; and, except
for the policies, binders and bonds maintained by Mortgage Bank or as otherwise
set forth in Section 3.17 of the Disclosure Schedule, all such policies,
binders and bonds will remain in full force and effect after the Closing Date,
unaffected by the transactions contemplated hereby.
3.18 MORTGAGE BANKING LICENSES AND QUALIFICATIONS. Mortgage Bank (i)
is qualified (A) by FHA as a mortgagee and servicer for FHA Loans, (B) by the
VA as a lender and servicer for VA Loans, (C) by FNMA and FHLMC as a
seller/servicer of first mortgages to FNMA and FHLMC and (D) by GNMA as an
authorized issuer and servicer of GNMA-guaranteed mortgage-backed securities;
and (ii) has all other material certifications, authorizations, licenses,
permits and other approvals necessary to conduct its current mortgage banking
business ("Licenses"), and is in good standing under all applicable federal,
state and local laws and regulations thereunder as a mortgage lender and
servicer. Except as set forth in Section 3.18 of the Disclosure Schedule and
except on the basis of the transaction with FTNC and FTB (as opposed to any
other Person), neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will affect the validity
of any License currently possessed by Mortgage Bank, and all such Licenses will
remain in full force and effect after the Closing Date. Section 3.18 of the
Disclosure Schedule lists each state in which Mortgage Bank has (i) obtained or
applied for a License, or (ii) is exempt from licensing.
3.19 LOAN PORTFOLIO. (a) Mortgage Bank has previously delivered to
FTNC a tape (magnetic media) on which certain information regarding the
Mortgage Servicing Portfolio as of June 30, 1994 is recorded. The information
contained in such tape is true and correct in all material respects. Each
Mortgage Loan (i) is, except as set forth in Section 3.19 of the Disclosure
Schedule, evidenced by a note or other evidence of indebtedness with such terms
as are customary in the business and (ii) is duly secured by a mortgage or deed
of trust with such terms as are customary in the business and which grants the
holder thereof, as set forth on the tape (magnetic media) previously provided
to FTNC, either a first lien on the subject property (including any
improvements thereon) with respect to loans originated as first mortgages, and
with respect to loans originated as second mortgages, a second lien on the
subject property (including any improvements thereon) with the exception of (a)
liens for real estate taxes and special assessments not yet due and payable,
(b) covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of the recording of such security
interest which are acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection with the origination
of the related Mortgage Loan, and (c) other matters to which like properties
are commonly subject which do not, individually or in the aggregate, materially
interfere with the benefits of the security intended to be provided by such
mortgage. Except as set forth in Section 3.19 of the Disclosure Schedule, each
Warehouse Loan is a Conforming Loan or is subject to an Investor Commitment.
(b) Except as set forth on Section 3.19 of the Disclosure Schedule,
with respect to each Mortgage Loan:
(i) Such Mortgage Loan was originated and currently exists in
material compliance with all requirements of federal, state and other
applicable laws and Regulations;
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(ii) Each note, agreement or other instrument evidencing a
Mortgage Loan and any related security instrument (including, without
limitation, any guaranty or similar instrument) is complete in all
material respects and constitutes a valid, legal and binding
obligation of the obligor thereunder enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency and
other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity; and all actions
necessary to perfect any related security interest have been duly
taken, including, without limitation, filings (and payment of all
required filing taxes and fees) or taking of possession of Collateral;
(iii) There has been no material modification to or waiver of
such terms except as evidenced in documents executed by the parties
and included in the Mortgage Loan documents;
(iv) No claims or defenses to the enforcement of such
Mortgage Loan have been asserted and Mortgage Bank is not aware of any
acts or omissions that would give rise to any claim or right of
rescission, set off, counterclaim or defense by the borrower, obligor
or any other person obligated to perform under any related Mortgage
Loan documents;
(v) Except for Mortgage Loans with respect to which the
borrower is in default of the borrower's payment obligations, there is
no default, by any borrower, obligor or any other person obligated to
perform under any related Mortgage Loan document with respect to such
Mortgage Loan, nor are there any conditions that with notice or lapse
of time or both, would constitute a default, breach, violation or
event permitting acceleration under the terms of such Mortgage Loan;
(vi) All due diligence requirements have been met on such
Mortgage Loan (whether owned by Mortgage Bank or serviced by Mortgage
Bank for others) guaranteed or insured by the FHA or the VA, and any
other such guarantor or insurer of such Mortgage Loan, in a manner
that all such guarantees and insurance arrangements are in full force
and effect;
(vii) The Collateral has sufficient value to cover the
principal balance of the Mortgage Loan;
(viii) Such Mortgage Loan was made substantially in
accordance with Mortgage Bank's standard indemnity and documentation
guidelines as in effect at the time of its origination and has been
administered substantially in accordance with Mortgage Bank's standard
loan servicing and operation procedures as in effect from time to
time;
(ix) With respect to the Mortgage Loans:
(1) A title insurance policy in an amount at least
equal to the original principal amount of the Mortgage Loan is
in effect and Mortgage Bank is the sole owner of each such
Mortgage Loan, except for participations as are documented in
the related Mortgage Loan documents or other records;
(2) There are casualty insurance policies in force
to insure the Collateral, with Mortgage Bank as loss payee;
and a real estate appraisal was made by a duly licensed
appraiser to determine the Collateral's value if required
pursuant to applicable Regulations;
(3) Flood insurance has been obtained and is in
force as to such real estate located in a flood zone
notwithstanding any designation of such flood zone or zones
after the date of origination of the Mortgage Loan; and
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(4) All buildings on mortgaged property are insured
for not less than the total debt secured by such buildings and
improvements thereto against any loss by fire, hazards of
extended coverage, flood (at least to the extent required by
the Flood Disaster Protection Act of 1973) and such other
hazards (the "hazard insurance policy"), as are customary in
the area where the premises are situated; and the mortgagor is
required by the terms of the Mortgage Loan documentation to
maintain all such insurance with a standard mortgagee's
endorsement or similar protection for the mortgagee at
mortgagor's cost and expense and, on the mortgagor's failure
to do so, authorizing the holder to maintain such insurance at
the mortgagor's cost and expense and to seek reimbursement
therefor from the mortgagor; such mortgaged property
constitutes a single tax lot; any improvements located on the
mortgaged property are within its lot lines and do not violate
any set back or zoning ordinances or if such improvements are
not within its lot lines or violate any set back ordinance,
such violation will not result in any Loss; and there is
nothing affecting the condition of the mortgaged property
which would impair the value of the mortgaged property or its
use for the purposes presently used.
3.20 TITLE TO CERTAIN MORTGAGE LOANS; MORTGAGE SERVICING AGREEMENTS.
(a) All Mortgage Loans held for Mortgage Bank's account (whether or not for
future sale or delivery to an Investor) are owned by Mortgage Bank free and
clear of any Encumbrance other than Encumbrances in favor of Mortgage Bank's
lender banks pursuant to warehouse lines. Such Mortgage Loans have been duly
recorded or submitted for recordation in the appropriate filing office in the
name of Mortgage Bank as mortgagee. Mortgage Bank has not, with respect to any
such Mortgage Loan, released any security therefor, except upon receipt of
reasonable consideration for such release or of Investor approval, or accepted
prepayment of any such Mortgage Loan which has not been promptly applied to
such Mortgage Loan.
(b) Except as set forth in Section 3.20 of the Disclosure Schedule,
all of the Mortgage Servicing Agreements and the rights created thereunder are
owned by Mortgage Bank free and clear of any Encumbrances and upon the
transfer, assignment and delivery of the CIB Common Stock, will continue to be
so owned by Mortgage Bank except upon termination by an Investor pursuant to
contract right.
3.21 NO RECOURSE. Except as set forth in Section 3.21 of the
Disclosure Schedule and except on customary terms with respect to VA No-Bids,
Mortgage Bank is not a party to (i) any agreement or arrangement with (or
otherwise obligated to) any Person, including an Investor or Insurer, to
repurchase from any such Person any Mortgage Loan, mortgaged property serviced
for others or mortgage loan sold by Mortgage Bank with servicing released
("Servicing Released Loans") or Previously Disposed Loans or (ii) any
agreement, arrangement or understanding to reimburse, indemnify or hold
harmless any Person or otherwise assume any liability with respect to any Loss
suffered or incurred as a result of any default under or the foreclosure or
sale of any such Mortgage Loan, mortgaged property, Servicing Released Loans,
or Previously Disposed Loans except insofar as (A) such recourse is based upon
a breach by Mortgage Bank of a customary representation, warranty or
undertaking, or (B) Mortgage Bank incurs expenses such as legal fees in excess
of the customary reimbursement limits, if any, set forth in the applicable
Mortgage Servicing Agreement. For purposes of this Agreement, the term
"Recourse Loan" means any Mortgage Loan, mortgaged property, Servicing Released
Loan or Previously Disposed Loan with respect to which Mortgage Bank bears the
risk of loss as described in the preceding sentence.
3.22 MORTGAGE SERVICING AGREEMENTS. Mortgage Bank has previously made
available to FTNC true and complete copies of all Mortgage Servicing Agreements
to which Mortgage Bank is a party as of the date hereof. Except as set forth
in Section 3.22 of the Disclosure Schedule, the Mortgage Servicing Agreements
and the Regulations set forth all the terms and conditions of Mortgage Bank's
rights against and obligations to the Agencies and Investors and they have not
been modified in any material respect. All of the Mortgage Servicing
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Agreements are valid and binding obligations of Mortgage Bank and, to the best
knowledge of Mortgage Bank, all of the other parties thereto and, are in full
force and effect and are enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
Except as set forth in Section 3.22 of the Disclosure Schedule, there is no
default or claim of default by any party under any such Mortgage Servicing
Agreement, and except for the consummation of the transactions contemplated by
this Agreement, no event has occurred which with the passage of time or the
giving of notice or both would constitute a default by any party under any such
Mortgage Servicing Agreement or would result in any such Mortgage Servicing
Agreement being terminable by any party thereto. As of the date of this
Agreement, there is no pending or threatened cancellation of any Mortgage
Servicing Agreement. Except as set forth in Section 3.22 of the Disclosure
Schedule, no material sanctions or penalties have been imposed upon Mortgage
Bank under any Mortgage Servicing Agreement or under any applicable Regulation.
3.23 COMPLIANCE. (a) Mortgage Bank and all prior servicers and
originators have been and are in compliance in all material respects with all
federal, state and other applicable laws, rules and regulations including
Regulations, orders, writs, decrees, injunctions and other requirements of any
court or governmental authorities applicable to it, its properties and assets
and its conduct of business, the breach of which would require the Repurchase
of a Mortgage Loan or result in the Mortgage Bank incurring a Loss. Mortgage
Bank has timely filed, or will have timely filed by the Closing Date, all
material reports required by any Investor or Insurer or by any federal, state
or municipal law, regulation or ordinance, to be filed except where the failure
to do so would not have a material adverse effect on the business, financial
condition or results of operations of Mortgage Bank taken as a whole. Mortgage
Bank has not done or failed to do, and has not caused to be done or omitted to
be done, any act, the effect of which would operate to invalidate or materially
impair (i) any approvals of the FHA, VA, FNMA, FHLMC, GNMA or HUD, (ii) any FHA
insurance or commitment of the FHA to insure, (iii) any VA guarantee or
commitment of the VA to guarantee, (iv) any private mortgage insurance or
commitment of any private mortgage insurer to insure, (v) any title insurance
policy, (vi) any hazard insurance policy, (vii) any flood insurance policy,
(viii) any fidelity bond, direct surety bond, or errors and omissions insurance
policy required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage
insurers, (ix) any surety or guaranty agreement or (x) any guaranty issued by
GNMA, FNMA or FHLMC to Mortgage Bank respecting mortgage backed securities
issued by Mortgage Bank and other like guaranties. Except as set forth in
Section 3.23 of the Disclosure Schedule, no Agency, Investor or private
mortgage insurer has (i) claimed that Mortgage Bank has violated or has not
complied with the applicable underwriting standards with respect to Mortgage
Loans sold by Mortgage Bank to an Investor or (ii) imposed restrictions on the
activities (including commitment authority) of Mortgage Bank.
(b) Except as set forth in Section 3.23 of the Disclosure Schedule,
no Mortgage Loan, Pipeline Loan, Warehouse Loan or Previously Disposed Loan has
been originated and/or serviced by Mortgage Bank in violation of the
Regulations, the violation of which would require the Repurchase of a Mortgage
Loan or Previously Disposed Loan or result in Mortgage Bank incurring a Loss.
3.24 INVESTOR COMMITMENTS. Set forth in Section 3.24 of the
Disclosure Schedule is a complete and correct list of each Investor Commitment
to which Mortgage Bank was a party on June 30, 1994. Mortgage Bank has made
available to FTNC complete and correct copies of all Investor Commitments in
effect on such date. Each Investor Commitment constitutes a valid and binding
obligation of Mortgage Bank, and, to the best knowledge of Mortgage Bank, all
of the other parties thereto, enforceable in accordance with its terms, subject
to bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding in equity or at law). Each Mortgage Loan, or Warehouse
Loan which is subject to an Investor Commitment, is a Conforming Loan or is
otherwise readily saleable in the secondary market.
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3.25 CUSTODIAL ACCOUNTS. Mortgage Bank has full power and authority
to maintain escrow accounts ("Custodial Accounts") for certain serviced loans.
Such Custodial Accounts comply in all material respects with (i) all applicable
Regulations and the payment of interest on escrows and (ii) any terms of the
Mortgage Loans (and Mortgage Servicing Agreements) relating thereto. The
Custodial Accounts contain the amounts shown in the records of Mortgage Bank,
which amounts represent all monies received or advanced by Mortgage Bank as
required by the applicable Mortgage Servicing Agreements, less amounts remitted
by or on behalf of Mortgage Bank pursuant to applicable Mortgage Servicing
Agreements, except for checks in process.
3.26 ENVIRONMENTAL MATTERS. (a) Mortgage Bank has complied in all
material respects with all Environmental Laws (as defined below) with respect
to any real property currently or previously owned or leased by it and, to the
best knowledge of Mortgage Bank, with respect to any mortgaged property
securing a Mortgage Loan or Previously Disposed Loan and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, notice or
inquiry has been received by Mortgage Bank nor to its best knowledge threatened
alleging any failure to comply with any such Environmental Laws;
(b) "Environmental Law" means (i) any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, directive, executive or
administrative order, judgment, decree, injunction, requirement or agreement
with any governmental entity, (A) relating to the protection, preservation or
restoration of the environment (which includes, without limitation, air, water
vapor, surface water, ground water, drinking water supply, structures, soil,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (B) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of, Hazardous Materials, in
each case as amended and as now or hereafter in effect, including all current
Environmental Laws, all future interpretations of current Environmental Laws
and all future Environmental Laws and subsequent interpretations thereof. The
term Environmental Law includes, without limitation, the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the federal Solid Waste Disposal and the
federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, the
Federal Hazardous Materials Transportation Act, or any so-called "Super fund"
or "Super lien" law, each as amended and as now or hereafter in effect, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to
any Hazardous Material;
(c) "Hazardous Material" means any substance which is or could be
detrimental to human health or safety or to the environment, currently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
3.27 INQUIRIES. Section 3.27 of the Disclosure Schedule contains a
true and correct list of all of the audits, investigations, complaints and
inquiries of Mortgage Bank by any Agency, Investor, or private mortgage insurer
commenced since March 31, 1991 or ongoing as of the date of this Agreement.
Except for customary ongoing quality control reviews and except as disclosed in
Section 3.27 of the Disclosure Schedule, no audit or investigation is pending
or threatened that could result in:
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(a) a claim of a material failure to comply with applicable
Regulations,
(b) a repurchase of Mortgage Loans by Mortgage Bank,
(c) indemnification by Mortgage Bank in connection with Mortgage
Loans,
(d) rescission of any insurance or guaranty contract or agreement or
(e) payment of a material penalty by Mortgage Bank to any Agency,
HUD, an Investor or a private mortgage insurer.
Mortgage Bank has made available to FTNC copies of all written reports and
materials received in connection with such audits, investigations, complaints
and inquiries.
3.28 ADVANCES. Except as set forth in Section 3.28 of the Disclosure
Schedule, there are no pooling, participation, servicing or other agreements to
which Mortgage Bank is a party which obligate it to make servicing advances
with respect to defaulted or delinquent Mortgage Loans other than as provided
in GNMA, FNMA or FHLMC pooling and servicing agreements. The Advances are
valid and subsisting amounts owing to Mortgage Bank, subject to the terms of
the applicable Mortgage Servicing Agreement.
3.29 PHYSICAL DAMAGE. There exists no physical damage to any
Collateral, which physical damage is not insured against in compliance with the
Regulations and would cause any Mortgage Loan to become delinquent or adversely
affect the value or marketability of any Mortgage Loan, Servicing Rights or
Collateral.
3.30 APPLICATION OF FUNDS. All monies received with respect to each
Mortgage Loan have been properly accounted for and applied.
3.31 POOL CERTIFICATION. Except as set forth in Section 3.31 of the
Disclosure Schedule, all Pools relating to the Mortgage Loans required to be
certified, finally certified and recertified (if required) in accordance with
applicable Regulations have been so certified, finally certified and
recertified (if required), as applicable, and the securities backed by such
Pools have been issued on uniform documents, in accordance with the applicable
Investor guide without any deviations therefrom. The principal balance
outstanding and owing on the Mortgage Loans in each Pool equals or exceeds the
amount owing to the corresponding security holders of such Pool. No event has
occurred or failed to occur which would require Mortgage Bank to repurchase any
Mortgage Loan from any Pool.
3.32 LOAN DISBURSEMENT. Upon origination, all of the Mortgage Loans
were fully disbursed in accordance with applicable law and regulations.
3.33 PAYMENT OF TAXES, INSURANCE PREMIUMS, ETC. The responsibilities
of Mortgage Bank with respect to all applicable taxes (including tax reporting
for the period prior to the Closing), assessments, ground rents, flood
insurance premiums, hazard insurance premiums and mortgage insurance premiums
that are related to the Mortgage Loans have been duly met in all material
respects.
3.34 TAX IDENTIFICATION. All tax identifications are correct and
complete and comply with all applicable federal, state and other applicable
laws, rules and regulations in all material respects, and property descriptions
contained in any Loan Document are legally sufficient.
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3.35 PAYOFF STATEMENTS. All payoff and assumption statements with
respect to each Mortgage Loan provided by Mortgage Bank to borrowers or their
agents were, at the time they provided, complete and accurate in all material
respects.
3.36 REGISTRATION STATEMENT. The information to be supplied by
Mortgage Bank for inclusion in the registration statement on Form S-4 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 Sellers under Article II and Section 6.3(b)
hereof (the "Registration Statement"), and together with the prospectuses
included in the Registration Statement, as amended or supplemented from time to
time (the "Prospectus"), will not at the time such Registration Statement
becomes effective and in the case of each Prospectus, at the time it is mailed
and at the time of the meeting of the stockholders, 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.
3.37 COOPERATION RE BLUE SKY FILINGS. Mortgage Bank will cooperate
with FTNC to enable it to obtain all necessary state securities laws or "Blue
Sky" permits and approvals as provided in Section 4.17.
ARTICLE IV
REPRESENTATION AND WARRANTIES OF FTNC AND FTB
FTNC and FTB each hereby severally represent and warrant to Mortgage
Bank, to the extent applicable to each, as of the date of this Agreement as
follows:
4.1 ORGANIZATION; FTNC COMMON STOCK. (a) FTB is a duly organized
national banking association. FTB has full corporate power and authority to
carry on its business as now conducted and to own and lease its properties and
assets and is duly licensed or qualified to do business and is in good standing
in each state or jurisdiction where its ownership or leasing of property or
assets or the conduct of its business requires such licensing or qualification,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, financial condition or results of
operations of FTB taken as a whole.
(b) FTNC is a duly organized Tennessee corporation. FTNC has full
corporate power and authority to carry on its business as now conducted and to
own and lease its properties and assets and is duly licensed or qualified to do
business and is in good standing in each state or jurisdiction where its
ownership or leasing of property or assets or the conduct of its business
requires such licensing or qualification, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
financial condition or results of operations of FTNC taken as whole. The
shares of FTNC Common Stock to be issued pursuant to the terms of this
Agreement, when issued will be duly authorized, validly issued, fully paid and
non-assessable, and subject to no preemptive rights and, upon the effective
date of the Registration Statement, shall be registered securities, subject to
no restrictions regarding sale, resale or other transfer other than (i) those
arising pursuant to Rule 145 under the Securities Act of 1933, (ii) to the
provisions described in Section 8.3(c) hereof to ensure pooling-of-interests
accounting treatment for the Acquisition and (iii) the terms and conditions set
forth in the Registration Rights Agreement attached hereto as Exhibit "J".
4.2 AUTHORITY; NO VIOLATION. (a) Each of FTB and FTNC has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite corporate action in respect thereof
on the part of FTB and FTNC and no other corporate proceedings on the part of
FTB or FTNC are necessary to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by FTB and FTNC
and, assuming
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this Agreement constitutes a valid and binding agreement of Mortgage Bank,
constitutes a valid and binding obligation of FTB and FTNC, respectively,
enforceable against FTB and FTNC in accordance with its terms (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity
(whether applied in a proceeding in equity or at law)).
(b) Neither the execution and delivery of this Agreement nor the
consummation by FTB or FTNC of the transactions contemplated hereby, nor
compliance by FTB or FTNC with any of the terms or provisions hereof, will (i)
conflict with or result in a breach of any provision of the articles of
incorporation (or similar governing document) or by-laws of FTB or FTNC or (ii)
assuming the consents, permits, authorizations, approvals, filings and
registrations set forth in Section 4.5 of the Disclosure Schedule, which has
previously been delivered by FTNC to Sellers, are obtained or made, (A) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree
or injunction applicable to FTB or FTNC or any of their respective properties
or assets or (B) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any Encumbrance upon any of the properties or
assets of FTB or FTNC under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which FTB or FTNC is a party, or by which its
properties or assets may be bound or affected, except, in the case of this
clause (ii), for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, would not have a material adverse effect on
the business, financial condition or results of operation of FTB or FTNC or the
ability of FTB or FTNC to consummate the transactions contemplated hereby.
4.3 CAPITALIZATION. The authorized capital stock of FTNC consists
only of those shares of Common Stock and preferred stock as set forth on
Section 4.3 of the Disclosure Schedule. To FTNC's best knowledge, there are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of FTNC Common Stock.
4.4 FINANCIAL STATEMENTS. FTNC has previously delivered to Sellers'
Representative copies of (i)(a) audited consolidated balance sheets of FTNC as
of December 31, 1993 and December 31, 1992 and (b) audited consolidated
statements of income, changes in stockholder's equity and statements of cash
flow of FTNC for the years ending December 31, 1991, December 31, 1992 and
December 31, 1993 (collectively, the "FTNC Audited Financial Statements"),
together with reports on the FTNC Audited Financial Statements by FTNC's
independent accountants and (ii) unaudited consolidated statement of income,
changes in stockholder's equity and statement of cash flow of FTNC for the
period ending March 31, 1994 and unaudited consolidated balance sheet as of
March 31, 1994, of FTNC (collectively, the "FTNC Interim Financial Statements,"
and together with the FTNC Audited Financial Statements, the "FTNC Financial
Statements"). The FTNC Financial Statements (except for the failure to include
all of the notes thereto required by GAAP in the FTNC Interim Financial
Statements) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered by such statements (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of FTNC as of the respective dates thereof and
the results of their operations and the changes in their financial position for
the respective periods covered thereby.
4.5 CONSENTS AND APPROVALS. Except as set forth in Section 4.5 of
the Disclosure Schedule, no consents, permits, authorizations or approvals of,
or filings or registrations with, any governmental or regulatory authorities,
government-sponsored agencies or corporations or other third parties are
necessary to be obtained or made by FTB or FTNC in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
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4.6 BROKERS AND FINDERS. Except for Charbonneau-Klein, Inc. and
Goldman, Sachs & Co. whose fees shall not be paid by Mortgage Bank, neither FTB
nor FTNC nor any of their officers, directors, employees or agents has employed
any broker, finder or financial or due diligence advisor or incurred any
liability for any broker's or finder's fees or commissions in connection with
the transactions contemplated hereby.
4.7 FINANCING. FTB has, or has the capacity to borrow, sufficient
funds to satisfy any warehouse and operating lines of credit of Mortgage Bank
outstanding at the Closing Date.
4.8 STATEMENTS MADE. No representation, warranty or statement made
by FTNC or FTB in this Agreement or in any exhibit, written statement, or
certificate furnished by or on behalf of FTB or FTNC or to Sellers in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
4.9 LEGAL PROCEEDINGS. There are no Legal Proceedings pending or, to
the best knowledge of FTB or FTNC, any Legal Proceedings threatened, nor is
there any order, injunction or decree outstanding against or relating to FTB or
FTNC or their respective properties, assets, or business, any of which would
reasonably be expected to have a material adverse effect on FTB's or FTNC's
ability to meet its obligations hereunder, nor does FTB or FTNC know of any
material basis for any such Legal Proceedings. To the best knowledge of FTB
and FTNC, no action or proceeding has been instituted or threatened before any
court or other governmental body by any person or public authority seeking to
restrain or prohibit or to obtain damages with respect to the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.10 UNDISCLOSED LIABILITIES. Neither FTNC nor FTB has any material
liabilities or material obligations of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown, which would
be shown on a balance sheet prepared in accordance with GAAP, except for
liabilities and obligations stated on the FTNC Financial Statements, or
otherwise disclosed in the Disclosure Schedule.
4.11 NO MATERIAL ADVERSE CHANGE. Except as set forth in Section 4.11
of the Disclosure Schedule, since December 31, 1993, there has not been any
material adverse change in the business, condition, financial or otherwise, or
results of operations of FTNC and its subsidiaries taken as a whole or FTB and
its subsidiaries, respectively, taken as a whole.
4.12 INQUIRIES. Section 4.12 of the Disclosure Schedule contains a
true and correct list of all non-routine or special examinations and written
inquiries of FTNC and FTB by any bank or bank holding company regulator or the
SEC since December 31, 1993, and all non-routine examinations now being
conducted, pending, or to the best knowledge of FTNC and FTB, threatened.
4.13 BLUE SKY COMPLIANCE. FTNC shall 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.
4.14 REGISTRATION STATEMENT. The information to be supplied by FTB
and FTNC for inclusion in (1) the Registration Statement or (2) the Prospectus
will not at the time such Registration Statement becomes effective and, in the
case of the Prospectus, at the time it is delivered, 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.
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ARTICLE V
PRE-CLOSING COVENANTS
5.1 REASONABLE BEST EFFORTS. Subject to the terms and conditions
thereof, each of the parties shall use its respective reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
Acquisition.
5.2 CONDUCT PRIOR TO CLOSING. During the period from the date of
this Agreement to the Closing Date, and except as otherwise contemplated by
this Agreement or the Disclosure Schedule or consented to by FTNC, Mortgage
Bank shall use its best efforts to preserve intact its organization,
properties, business and relationships with customers, employees and others
with whom business relationships exist. Without limiting the generality of
the foregoing, except as otherwise contemplated in this Agreement or the
Disclosure Schedule or consented to in writing by FTNC, Mortgage Bank shall
conduct its business only in the ordinary course consistent with past
practices, and Mortgage Bank shall not:
(a) issue, sell, redeem, repurchase or deliver any shares of its
capital stock or declare or pay a dividend or issue or sell any securities
convertible into, or options with respect to, or warrants to purchase or rights
to subscribe to, any shares of its capital stock;
(b) effect any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization;
(c) amend its articles of incorporation, by-laws or similar governing
documents;
(d) merge or consolidate with, or, except as a result of foreclosure
or repossession in the ordinary course of its mortgage banking business,
acquire substantially all of the assets of or make any investment in the equity
securities of, any other entity;
(e) sell, transfer, lease or encumber any Servicing Rights or other
assets except for Mortgage Loans and related Servicing Rights in the ordinary
course of business or as otherwise specifically provided herein or purchase any
assets except for Mortgage Loans and Servicing Rights related thereto in the
ordinary course of business from third party mortgage loan originators with
respect to which Mortgage Bank is a party to a Contract;
(f) alter or vary Mortgage Bank's methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, mortgage loans, (ii) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtaining
financing and credit;
(g) grant to any director, officer, employee or consultant any
material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof, true and
correct copies of which have been delivered to FTNC, and other than normal
increases in compensation or benefits made in the ordinary course of business
to officers or employees in accordance with existing personnel policies);
(h) grant any severance or termination pay (other than as may be
required under the terms of agreements in effect on the date hereof, true and
correct copies of which have been delivered to FTNC) to, or enter into or amend
any employment or severance agreement with, any Person, other than termination
pay paid in accordance with existing personnel policies to officers or
employees;
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(i) adopt any new or amend any existing director, officer or employee
benefit plans (including, without limitation, profit sharing, bonus, director
and officer incentive compensation, retirement, medical, hospitalization, life
or other insurance plans, arrangements and commitments);
(j) enter into any employment or collective bargaining agreement or
modify any existing employment agreement;
(k) incur any Debt, other than (i) Debt incurred to fund or purchase
mortgage loans or (ii) otherwise in the ordinary course of business or (iii) to
pay obligations on existing debt agreements;
(l) make any change in accounting principles or methods from those
employed as of the date of preparation of the Balance Sheet and the Audited
Financial Statements, except as required by GAAP or by applicable regulatory
requirements;
(m) grant any mortgage or security interest in, or make any pledge
of, or permit any lien or encumbrance to be placed on, any of its assets or
properties other than a Permitted Encumbrance;
(n) make any capital expenditures other than in the ordinary course
of business or as necessary to maintain existing assets in good repair which
expenditures will in no event exceed $30,000 on a per occurrence basis and
$200,000 in the aggregate;
(o) take any action, or fail to take any action, that is intended or
may reasonably be expected to result in a breach or violation of any of the
respective representations and warranties of Mortgage Bank contained in this
Agreement or would cause any condition to the transactions contemplated hereby
not to be satisfied, except, in every case, as may be required by law;
(p) accelerate, terminate, or cancel any material contract, lease or
license to which it is a party other than in the ordinary course of business,
grant any waiver of any fee or obligation of any other party to any material
contract, lease or license or enter into any material contract, lease or
license that is not terminable without penalty by Mortgage Bank upon sixty (60)
days or less notice; provided that Mortgage Bank may enter into contracts or
arrangements with respect to branch operations of less than twelve (12) months
duration having total expenses of not more than $100,000 per location;
(q) enter into mortgage loan subservicing agreements; or
(r) agree to do any of the foregoing.
5.3 ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY. (a) During
the period from the date of this Agreement to the Closing Date, upon reasonable
notice and subject to applicable laws relating to the exchange of information,
Mortgage Bank shall permit FTNC and its authorized representatives reasonable
access to the properties of Mortgage Bank, and shall disclose and make
available to FTNC all books, papers and records relating to the assets, stock,
ownership, properties, operations, obligations and liabilities of Mortgage
Bank, including, but not limited to, all books of account (including the
general ledger), tax records (including Tax Returns of Mortgage Bank and
schedules thereto), minute books of directors' and stockholders' meetings,
organizational documents, bylaws, contracts and agreements, filings and
correspondence with, and notices or other documents from, any federal or state
regulatory authority, government sponsored enterprise, Investor or private
mortgage insurer, plans affecting employees and any other business activities
or prospects. Mortgage Bank shall not be required to provide access to or to
disclose information where such access or disclosure would jeopardize the
attorney-client privilege of Mortgage Bank or would contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement. The
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parties hereto will make appropriate substitute disclosure arrangements
satisfactory to FTNC under circumstances in which the restrictions of the
preceding sentence apply. FTNC will, and will each cause its agents to,
conduct such investigations in such a manner as not to unreasonably interfere
with the normal operations of Mortgage Bank.
(b) All information furnished by Mortgage Bank or any of its
representatives to FTNC or its representatives pursuant hereto shall be treated
as the sole property of Mortgage Bank and, if the Acquisition shall not occur,
FTNC and its representatives shall return to Mortgage Bank all of such written
information and all documents, notes, summaries or other materials containing,
reflecting or referring to, or derived from, such information. FTNC shall and
shall cause its representatives to keep confidential all such information, and
shall use such information solely for purposes of this Agreement and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential
shall continue indefinitely and shall not apply to (i) any information which
(x) was already in FTNC's possession prior to the disclosure thereof by
Mortgage Bank or any of its representatives; (y) was then generally known to
the public; or (z) was disclosed to FTNC by a third party not bound by any
obligation of confidentiality or (ii) disclosures made as required by law. It
is further agreed that, if in the absence of a protective order or the receipt
of a waiver hereunder, FTNC is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning Mortgage Bank to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, FTNC may disclose such information to such tribunal or
governmental body or agency without liability hereunder. FTNC shall provide
written notice of a pending disclosure to Mortgage Bank as soon as practicable
and shall use its best efforts to give such written notice prior to its
compulsory disclosure.
(c) During the period from the date of this Agreement to the Closing
Date, upon reasonable notice and subject to applicable laws relating to the
exchange of information, FTNC shall permit Sellers' Representative reasonable
access to the respective properties of FTNC, and shall disclose and make
available to Sellers' Representative all books, papers and records relating to
the assets, stock, ownership, properties, operations, obligations and
liabilities of FTNC, including, but not limited to, all books of account
(including the general ledger), tax records (including Tax Returns of FTNC and
schedules thereto), minute books of directors' and stockholders' meetings,
organizational documents, bylaws, contracts and agreements, filings and
correspondence with, and notices or other documents from, any federal or state
regulatory authority, government sponsored enterprise, and plans affecting
employees and any other business activities or prospects. FTNC shall not be
required to provide access to or to disclose information where such access or
disclosure would jeopardize the attorney-client privilege of FTNC or would
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty
or binding agreement entered into prior to the date of this Agreement. The
parties hereto will make appropriate substitute disclosure arrangements
satisfactory to Sellers' Representative under circumstances in which the
restrictions of the preceding sentence apply. Sellers' Representative will,
and will cause its agents to, conduct such investigations in such a manner as
not to unreasonably interfere with the normal operations of FTNC.
(d) All information furnished by FTB or FTNC or any of their
representatives to Sellers' Representative or Mortgage Bank or any of its
representatives pursuant hereto shall be treated as the sole property of FTNC
and, if the Acquisition shall not occur, Sellers' Representative or Mortgage
Bank shall return to FTNC and shall cause any Seller and any representative of
Mortgage Bank receiving such materials to return to FTNC all of such written
information and all documents, notes, summaries or other materials containing,
reflecting or referring to, or derived from, such information. Sellers,
Sellers' Representative and Mortgage Bank shall and shall cause their
representatives to keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential
shall continue indefinitely and shall not apply to (i) any information which
(x) was already in any Seller's or Sellers' Representative's, Mortgage Bank's
or any representative of Mortgage Bank's
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possession prior to the disclosure thereof by FTNC or any of its
representatives; (y) was then generally known to the public; or (z) was
disclosed to a Seller or Sellers' Representative or Mortgage Bank or any of its
representatives by a third party not bound by any obligation of confidentiality
or (ii) disclosures made as required by law. It is further agreed that, if in
the absence of a protective order or the receipt of a waiver hereunder,
Sellers, Sellers' Representative, Mortgage Bank or any representative of
Mortgage Bank are nonetheless, in the opinion of their respective counsel,
compelled to disclose information concerning FTB or FTNC to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, Sellers, Sellers' Representative, Mortgage Bank or any
representative of Mortgage Bank may disclose such information to such tribunal
or governmental body or agency without liability hereunder. Sellers'
Representative or Mortgage Bank shall provide written notice of a pending
disclosure to FTNC as soon as practicable and shall use its best efforts to
give such written notice prior to its compulsory disclosure.
5.4 FILINGS AND CONSENTS. (a) Promptly following the execution and
delivery hereof Mortgage Bank, FTNC and FTB, as applicable, shall file and use
their best efforts to obtain all consents (including as to Mortgage Bank,
Agency and Investor consents), approvals, permits, authorizations, notices, and
registrations (collectively, "filings and consent solicitations") necessary to
consummate the Acquisition. Each party shall cooperate with the other in
obtaining or making the necessary filings and consent solicitations. Each
party will use its respective best efforts to cause the filings and consent
solicitations to be made as soon as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all the
filings and consent solicitations, and each party will keep the others apprised
of the status of matters relating thereto.
(b) Mortgage Bank and FTNC and FTB, as applicable, shall promptly
furnish each other with copies of written communications received by Mortgage
Bank, FTNC or FTB from or delivered by any of them to any governmental body,
Agency, Investor or private mortgage insurer in respect of the transactions
contemplated hereby.
5.5 PRESS RELEASES. Sellers' Representative, Mortgage Bank, FTNC and
FTB shall provide each other with copies of all news releases and other public
information disclosures with respect to this Agreement or the transactions
contemplated hereby prior to their distribution; provided, however, no party
hereto shall make any public announcement or disclosure without the prior
approval of the other party, except where disclosure is required by law, in
which case the party making such public announcement or disclosure shall give
prior written notice to the other party.
5.6 TRANSFER FEES AND EXPENSES. Prior to the Closing Date Balance
Sheet Date, Mortgage Bank shall pay or accrue on Mortgage Bank's books all
transfer and recording taxes in connection with the Acquisition.
5.7 RESIGNATIONS. On the Closing Date, Mortgage Bank shall deliver
to FTNC duly signed resignations, effective immediately at the Effective Time,
of all directors of Mortgage Bank.
5.8 FINANCING. At FTNC's request, Mortgage Bank shall use its best
efforts to obtain all necessary consents required under Mortgage Bank's
existing warehouse and operating lines as a result of the consummation of the
Acquisition in order to cause such warehouse and operating lines to remain in
place following the Closing.
5.9 NO SOLICITATION. From and after the date hereof, until the
earlier of the Closing Date or termination of this Agreement, neither Mortgage
Bank nor any of its Affiliates will, nor will any of them authorize or permit
any of their respective shareholders, officers, directors, employees,
representatives, agents or other persons controlled by any of them to, (a)
encourage or solicit (including by way of furnishing nonpublic information), or
take any action to facilitate, any inquiry or proposal from any Person (other
than
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FTNC and its Affiliates) concerning any merger, consolidation, sale of
substantially all assets, sale of shares of capital stock or similar
transaction involving Mortgage Bank or (b) entertain, agree to, endorse, or
participate in any discussions or negotiations or provide third parties with
nonpublic information relating to any such inquiry or proposal. Mortgage Bank
shall notify FTNC promptly of any such inquiry or proposal received by it, by
any Seller, by Carl I. Brown or by Molly S. Brown.
5.10 CONSISTENCY IN METHODOLOGIES. Prior to the Closing Date Balance
Sheet Date, Mortgage Bank shall (a) increase its reserves for (i) foreclosure
losses, and/or (ii) other losses, and/or (b) decrease its valuation of
capitalized Servicing Rights and/or (c) increase its contract rights receivable
by additional adjustments to income or expense, if necessary, in order to be
consistent with the specific methodologies for these items used by FTB or to be
consistent with FTB practices. An adjustment under this Section 5.10 for
foreclosure losses will be in addition to and not inclusive of the reserve for
foreclosure losses at the Closing Date Balance Sheet Date determined to be
adequate pursuant to Section 2.7. If an adjustment to the reserves for
foreclosure losses or other losses, to the valuation of capitalized Servicing
Rights or to the contract rights receivable is made pursuant to this Section
5.10, Mortgage Bank shall not record on the Closing Date Balance Sheet Date the
applicable income tax expense or benefit.
5.11 FILING OF REGISTRATION STATEMENT. FTNC shall file the Proxy
Statement/Prospectus and the Registration Statement together with all other
filings required by the SEC or under its rules and regulations. Sellers'
Representative, Mortgage Bank, FTNC, and FTB shall cooperate in the preparation
and filing of the Proxy Statement/Prospectus and the Registration Statement in
order to file the Registration Statement.
5.12 MORTGAGE BANK'S SHAREHOLDER APPROVAL. Mortgage Bank 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; and
(3) cooperate and consult with FTNC with respect to each of the foregoing
matters. FTNC shall reasonably cooperate with Mortgage Bank at Mortgage Bank's
request in connection with the foregoing matters.
5.13 POOLING-OF-INTERESTS ACCOUNTING TREATMENT. Mortgage Bank has
delivered to FTNC a Statement of Facts and Planned Transactions dated September
1, 1994, (the "Statement") based upon which Arthur Andersen & Co. has advised
FTNC that it will be able to deliver its opinion allowing pooling-of-interests
accounting treatment of the Acquisition. None of Mortgage Bank or any Seller
will take any action which is not described in the Statement or will fail to
take any action described in the Statement unless the Statement is amended to
describe such proposed action or proposed failure to act and Arthur Andersen &
Co. shall have delivered a written confirmation that such proposed action or
proposed failure to act will not result in Arthur Andersen & Co.'s inability to
deliver its opinion allowing pooling-of-interests accounting treatment of the
Acquisition.
5.14 ACCRUAL OF TERMINATION COSTS ON CLOSING DATE BALANCE SHEET.
Mortgage Bank shall accrue as of the Closing Date Balance Sheet Date any
termination benefits or expenses with respect to any person who is an employee
of Mortgage Bank on or before the Closing Date identified by FTB whose
employment will terminate on or before nine (9) months following the Closing
Date.
5.15 ACCRUAL WITH RESPECT TO COVENANT-NOT-TO-COMPETE AND
NON-SOLICITATION PAYMENTS. Mortgage Bank shall record on its books as of the
Closing Date Balance Sheet Date (a) the covenant not to compete and
non-solicitation payments listed on EXHIBIT "I" as an expense and a liability,
and (b) the associated deferred tax asset.
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5.16 DISPOSITION OF CERTAIN ASSETS. Unless otherwise agreed to in
writing by FTNC and Mortgage Bank, Mortgage Bank shall, effective prior to the
Closing Date Balance Sheet Date, (i) sell the assets described on EXHIBIT "K"
at their fair market value and (ii) cause the receivables described on EXHIBIT
"K" to be paid in full.
5.17 REDEMPTION OF CIB PREFERRED STOCK. Prior the record date for the
meeting of Mortgage Bank's shareholders to vote with respect to the Merger,
Mortgage Bank shall redeem all outstanding CIB Preferred Stock.
5.18 BONUS ACCRUALS. No bonus shall be recorded on the Closing Date
Balance Sheet that was not recorded on Mortgage Bank's books at October 31,
1994.
5.19 SERVICING FILES. On or before the Closing Date, Mortgage Bank
shall (a) relocate to one centralized location designated by Mortgage Bank all
files containing Mortgage Loan documents pertaining to the Mortgage Servicing
Portfolio, establish prudent and customary policies and procedures with respect
to the retrieval, monitoring and maintenance of such files, and produce a
detailed, written inventory of all such files which shall be in form and
substance satisfactory to FTB and which shall itemize Mortgage Loan files and
Mortgage Loan documents missing as of the Closing Date (the "Mortgage Loan File
Inventory"), and (b) file with all appropriate government offices all documents
or instruments necessary to release the liens of the mortgagees of record with
respect to the mortgage loans identified on Schedule "H-1" to Exhibit "H"
attached hereto.
5.20 FUNDING OF CUSTODIAL ACCOUNTS. Mortgage Bank shall, on or before
the Closing Date Balance Sheet Date, (i) deposit all amounts required by
applicable Regulations to be deposited in the Custodial Accounts maintained by
Mortgage Bank for certain serviced loans, and (ii) record such deposits on its
books in accordance with GAAP.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 STANDARD OF CARE. In addition to any other requirements imposed
by this Agreement, from and after the Closing Date and for so long as Mortgage
Bank owns the Transferred Loans (defined below), FTB shall cause Mortgage Bank
to service the Mortgage Loans in the Closing Portfolio, the Pipeline Loans, and
the Excluded Loans (collectively, the "Transferred Loans"), make advances with
respect thereto, conduct foreclosures, manage Collateral and pay, perform and
discharge all obligations as the servicer of the Transferred Loans in
accordance with applicable law and Regulations and applicable Investor and
Insurer requirements. FTB shall cause Mortgage Bank to exercise with respect
to the servicing of the Transferred Loans (including the conduct of
foreclosures and the management of Collateral) and the collection of Advances,
not less than the degree of care which is standard in the industry with respect
to the servicing of loans (including the conduct of foreclosures and the
management of property) and the collection of Advances for one's own account.
In the event there is a conflict between any provision of this Agreement and
any applicable Investor or Insurer requirements, the latter shall govern
Mortgage Bank's conduct with respect to the Transferred Loans.
6.2 MITIGATION OF LOSSES. FTB shall cause Mortgage Bank to at all
times use its reasonable efforts to minimize the Losses for which Mortgage Bank
may be liable pursuant to this Agreement (including, without limitation,
Article IX) (or would be liable but for the operation of the Basket); provided,
however, that with respect to the items identified on EXHIBIT "H" to this
Agreement, if Sellers' Representative does not exercise his option provided in
Section 9.1(d)(iv), the parties agree that, at any time after the Closing Date
and prior to the date set forth in Section 9(d)(i) of this Agreement, FTB may,
at its sole option, cause Mortgage Bank to effect
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repurchases of Mortgage Loans and Previously Disposed Loans out of a Pool or an
Investor's portfolio, pay in full indemnification agreements and otherwise
incur Losses in connection with Mortgage Loans which are the subject of items
identified on EXHIBIT "H", which losses are, in FTB's judgment, reasonably
foreseeable, and such actions shall not limit Mortgage Bank's indemnification
obligations under Article IX of this Agreement. Without limiting the
foregoing, in carrying out its duty to mitigate Losses for which Mortgage Bank
may or would be so liable, FTB shall cause Mortgage Bank to take the actions
described in this Section 6.2.
(a) BUYDOWNS AND PREFORECLOSURES. If there is a reasonable good
faith basis for doing so, FTB shall cause Mortgage Bank to appeal, through such
processes as are reasonably available, any VA No-Bid if Mortgage Bank's
liability for the related Buydown is reasonably likely to be reduced. FTB
shall cause Mortgage Bank to attempt to initiate a Preforeclosure with respect
to any Transferred Loan (other than a VA Loan) if Mortgage Bank's liability
with respect thereto is reasonably likely to be reduced and to do so would be
in compliance with the terms of Section 6.1.
(b) RELATED CLAIMS, PURSUIT OF CONTRACTUAL RIGHTS. With respect to
any matter for which Mortgage Bank may be liable pursuant to the provisions of
this Agreement (including, without limitation, Articles VII and IX hereof), FTB
shall cause Mortgage Bank to diligently pursue (including, without limitation,
the commencement and pursuit of litigation) any and all rights and remedies
under agreements and contracts with third parties reasonably likely to be
successful pursuant to which Mortgage Bank has rights of recourse or is
indemnified or the beneficiary of a guaranty.
(c) DEFENSES AND CURES. Before Mortgage Bank shall initiate, agree
or consent to any Repurchase, FTB shall cause Mortgage Bank to use reasonable
efforts to attempt to cure the defect that is the basis for such potential
Repurchase (except if the defect that is the basis for such potential
Repurchase cannot be cured as a result of Mortgage Loan files or Mortgage Loan
documents shown as missing on the Mortgage Loan File Inventory delivered to FTB
at Closing) and, if there is a reasonable basis for doing so, FTB shall cause
Mortgage Bank to, through such processes as are reasonably available, defend
and appeal the request or demand by an Investor that a Transferred Loan be
repurchased. The parties acknowledge and agree that a reasonable basis to
defend and appeal such Repurchase request or demand shall not exist if the
defect that is the basis for such Repurchase request or demand cannot be cured
as a result of Mortgage Loan files or Mortgage Loan documents shown as missing
on the Mortgage Loan File Inventory delivered to FTB at Closing.
6.3 EXPENSES AND REIMBURSEMENT OF RECOVERIES.
Within ten (10) business days of written notice by FTB to Sellers'
Representative, all reasonable expenses, but not including expenses
attributable to or arising from overhead allocations or general and
administrative costs, incurred by FTNC, FTB or Mortgage Bank in minimizing
Losses for which Mortgage Bank may be liable under this Agreement ("Mitigation
Expenses") shall be deemed to have been incurred on Mortgage Bank's behalf and
shall be subject to reimbursement pursuant to a draw on the Escrow Agreement
and pursuant to the joint and several guaranties of the Sellers and the Browns
provided for in the Sellers' Agreement as described in Section 9.1(f)(i), (ii),
(iii) and (iv) of this Agreement, subject to proper documentation and detail.
6.4 TAX REPORTING. FTB, at its cost and expense, shall cause
Mortgage Bank to prepare, report to the IRS and provide to borrowers under a
Transferred Loan, all in accordance with applicable law, rules and regulations,
any and all tax information required to be provided after the Closing Date with
respect to the Transferred Loans for the entire calendar year in which the
Closing Date occurs.
6.5 SELLERS' REPRESENTATIVE CONTINUING ACCESS TO BOOKS/RECORDS. For
a period of six (6) months after the Closing Date, Sellers' Representative
shall have the right, at its cost and expense and upon reasonable
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notice to FTNC and under those conditions and circumstances that FTNC may
reasonably impose, to examine the books and records of Mortgage Bank with
regard to Servicing Rights and related assets transferred to FTB under this
Agreement.
6.6 ADVANCE OF FUNDS AT CLOSING. On the Closing Date, FTB will lend
Mortgage Bank such funds as are requested by Mortgage Bank from FTB to pay
outstanding valid liabilities of Mortgage Bank, including amounts required to
pay in full Mortgage Bank's warehouse and operating lines of credit.
ARTICLE VII
CERTAIN TAX MATTERS
Mortgage Bank, FTNC and FTB hereby covenant and agree with respect to
certain tax matters as follows:
7.1 RETURNS; INDEMNIFICATION; LIABILITY FOR TAXES. (a) Mortgage
Bank shall indemnify and hold FTNC and FTB and each Affiliate of FTNC and FTB
harmless against and from, on an after-tax basis, (i) all Taxes of Mortgage
Bank for all taxable years or periods which end on or before the Closing Date
which are not paid prior to the Closing Date and for which adequate reserve
(other than reserves created or increased under Section 5.10 which did not
result in any adjustment to the Final Purchase Price) was not made on the
Closing Date Balance Sheet; (ii) all Taxes of Mortgage Bank (other than federal
income taxes) due or accrued or subsequently determined to be due through the
Closing Date in respect of any taxable year or period commencing before the
Closing Date and ending after the Closing Date (a "Straddle Period") to the
extent that the Closing Date Balance Sheet did not contain adequate reserves
(other than reserves created or increased under Section 5.10 which did not
result in any adjustment to the Final Purchase Price) for such Taxes; and (iii)
all Losses attributable to such Taxes.
(b) Mortgage Bank shall indemnify and hold FTNC, FTB and each
Affiliate harmless for any and all Taxes (including anticipated future Taxes)
of Mortgage Bank, FTNC, FTB or any Affiliate for taxable years or periods
ending after the Closing Date Balance Sheet Date and any Losses related thereto
resulting from the disallowance (in whole or in part in a closing agreement or
final settlement with any taxing authority or pursuant to any final court
decision) of any tax deduction claimed on a then filed return of Mortgage Bank
or any successor to Mortgage Bank or from the inability to claim any future
deduction (on a return to be filed) for any item or transaction included in the
computation of any deferred tax asset or receivable included on the Closing
Date Balance Sheet and in Tangible Net Assets as of the Closing Date Balance
Sheet Date. The indemnity obligation with respect to future Taxes for periods
after the taxable year or years under examination shall take effect as soon as
such closing agreement or final settlement is entered into and shall take into
account the full amount of such future Taxes without discount or reduction for
the time value of money. A final adjudication or settlement with respect to
any taxable year or period ending after the Closing Date shall be considered
final for purposes of this Agreement as to any matter addressed therein with
respect to all subsequent taxable years or periods regardless of whether or not
such finality does in fact attach as a matter of law. Indemnification
obligations with respect to Taxes under this Section 7.1(b) shall not apply to
that portion of any income based Taxes which are imposed at a combined federal
and state tax rate in excess of forty percent (40%).
(c) FTNC shall prepare and file or cause to be prepared and filed on
a timely basis all Tax Returns of Mortgage Bank due after the Closing Date. At
least twenty (20) business days prior to filing, FTNC shall provide Sellers'
Representative with copies of any federal income Tax Returns prepared by FTNC
for periods ending before the Closing Date for review and comment by Sellers'
Representative. Any disagreement on the proper reporting of items on such Tax
Returns shall be resolved in accordance with Section 7.4.
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(d) The amount of the indemnification obligation of Mortgage Bank
hereunder with respect to any taxable year or period shall be reduced by any
income tax benefit in another taxable year or period due to the shifting of
items of income or deduction between taxable years or periods.
7.2 COOPERATION; REFUNDS AND CREDITS. (a) Mortgage Bank, FTNC and
Sellers' Representative shall reasonably cooperate, and shall cause their
respective Affiliates, officers, employees, agents, auditors and
representatives reasonably to cooperate, in preparing and filing all Tax
Returns (including amended returns and claims for refund), including
maintaining and making available to each other all records necessary in
connection with Taxes and in resolving all disputes and audits with respect to
all taxable periods relating to Taxes. FTNC recognizes that Sellers'
Representative may need access, from time to time, after the Closing Date, to
certain accounting and tax records and information held by Mortgage Bank to the
extent such records and information pertain to events occurring prior to the
Closing Date; therefore, FTNC agrees that (i) from and after the Closing Date,
FTNC shall, and shall cause Mortgage Bank to (A) retain and maintain such
records until such time as Sellers' Representative reasonably agrees that such
retention and maintenance is no longer necessary, and (B) allow Sellers'
Representative and its agents and representatives, at Sellers' Representative's
expense, to inspect, review and make copies of such records as Sellers'
Representative may reasonably deem necessary or appropriate from time to time,
such activities to be conducted during normal business hours and (ii) FTNC
shall not, and shall cause Mortgage Bank not to, dispose of any of such records
without first providing Sellers' Representative with an opportunity to take
possession of such records or to make copies thereof prior to any such
disposal.
(b) If any subsequent refunds of Taxes for or attributable to taxable
years or periods of Mortgage Bank ending on or before the Closing Date or
attributable to items for a Straddle Period with respect to which Mortgage Bank
has provided an indemnity pursuant to Section 7.1(a)(ii) would have resulted in
an increase in Tangible Net Assets as of the Closing Date Balance Sheet Date
had such refund had been received and properly recorded under GAAP immediately
before the Closing Date Balance Sheet Date, then notwithstanding the fact that
the Supplemental Closing shall have already occurred and the Final Purchase
Price shall have been determined, an additional number of shares of FTNC Common
Stock shall be delivered within thirty (30) days of the receipt of any such
refund in a manner similar to that provided in Section 2.9 but increasing the
Final Purchase Price by the amount of any such deemed increase in Tangible Net
Assets. This Section 7.2(b) will entitle Sellers to an adjustment in the Final
Purchase Price only if a refund claim has been filed within one (1) year of the
Closing Date with the appropriate tax authority specifying the amount of the
claim and the grounds for the claim.
7.3 CONDUCT OF AUDITS AND OTHER PROCEDURAL MATTERS. Each party shall
have the right, at its own expense, to control any audit or examination by any
taxing authority, initiate any claim for refund or amended return, and contest,
resolve and defend against any assessment, notice of deficiency or other
adjustment or proposed adjustment of Taxes ("Proceedings") for which that party
or any of its Affiliates is charged with payment or indemnification
responsibility under this Agreement. Each party shall promptly forward to the
other all written notifications and other written communications from any
taxing authority received by such party or its Affiliates relating to any
liability for Taxes for any taxable period for which such other party or any of
its Affiliates is charged with payment or indemnification responsibility under
this Agreement and each party with such responsibility shall promptly notify,
and consult with, each other party as to any action it proposes to take with
respect to any liability for Taxes for which it is required to indemnify
another party. Neither party shall enter into any closing agreement or final
settlement with any taxing authority which could affect the tax obligations or
indemnification obligations of the other party without the written consent of
the other party, which consent shall not be unreasonably withheld. Where a
party has withheld its consent to any closing agreement or final settlement,
such party shall continue or initiate further proceedings, at its own expense,
and the liability of the party giving up control of such Proceeding, after
giving effect to this Section 7.3, shall not exceed the liability that would
have resulted from the proposed closing agreement or final settlement
(including
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interest, additions to tax and penalties which have accrued at that time). In
the case of any Proceedings relating to any Straddle Period or any other
proceedings with respect to which each party has liability, the parties shall
jointly control such Proceedings and the principles of this Section 7.3, and
the right and obligation of the parties pursuant hereto shall apply to such
jointly-controlled Proceedings. Each party shall, at the expense of the
requesting party, execute or cause to be executed any powers of attorney or
other documents reasonably requested by such requesting party to enable it or
its Affiliates to take any and all actions such party reasonably requests with
respect to any Proceedings which such party controls singly or jointly. The
failure by a party to provide timely notice under this Section 7.3 shall
relieve the other party from its obligations under this Article VII with
respect to the subject matter of any notification not timely forwarded, to the
extent the other party has suffered a loss or other economic detriment because
of such failure to provide notification in a timely fashion.
7.4 RESOLUTION OF DISAGREEMENTS AMONG PARTIES. If Sellers'
Representative and FTNC disagree as to the matters governed by this Article VII
and the representations contained in Section 3.12, Sellers' Representative and
FTNC shall promptly consult with each other in an effort to resolve such
dispute. If any such disagreement cannot be resolved within fifteen (15) days
of the date of initial consultation, Sellers' Representative and FTNC shall
jointly select an Independent Accounting Firm to act as an arbitrator to
resolve such disagreement, whose decision shall be final and binding upon the
parties. If FTNC and Sellers' Representative cannot agree on the selection of
an Independent Accounting Firm to act as an arbitrator, then FTNC and Sellers'
Representative each shall submit the name of one such accounting firm to FTNC's
counsel who shall conduct a lottery to choose one of the submitted names. Any
expenses relating to the engagement of such Independent Accounting Firm shall
be shared equally by Sellers and FTNC.
ARTICLE VIII
CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of each party to consummate the Acquisition shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) All regulatory approvals required to be obtained in connection
with the transactions contemplated by this Agreement or the operation of
Mortgage Bank by FTB shall have been obtained, all notices required to be filed
with any governmental agency in connection with the transactions contemplated
by this Agreement or the operation of Mortgage Bank by FTB shall have been
filed, all such regulatory approvals shall be in full force and effect, and all
notice periods and waiting periods required by law or regulation applicable to
the transactions contemplated by this Agreement shall have expired or been
terminated and no adverse action shall have been taken or threatened. For
purposes of this Section 8.1(a), any required approvals received by FTNC from
the Board of Governors of the Federal Reserve Bank shall contain terms
acceptable to FTNC in its sole discretion regarding limitations pursuant to
Section 23A of the Federal Reserve Act, and any such required approval shall
affirmatively approve the direction herein by FTNC of the issuance of the
Surviving Corporation Common Stock to FTB at the Effective Time of the Merger.
(b) None of any Seller, Mortgage Bank, FTNC or FTB shall be subject
to any order, decree or injunction ("Injunction") of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated hereby, and no proceeding initiated by a governmental
agency or similar authority seeking an Injunction shall be threatened;
provided, that if such an Injunction is in effect or any proceeding is
commenced or threatened pursuant to which an Injunction is sought, the parties
shall cooperate and use reasonable best efforts expeditiously to remove the
impediment prohibiting the Closing of the Acquisition.
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(c) The Closing Measurement Price for the FTNC Common Stock shall not
be less than $35 per share; provided, that if the Closing Measurement Price for
the FTNC Common Stock is less than $35 per share, FTNC shall have the rights
set forth in Section 2.2(c) of this Agreement.
(d) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, makes illegal or materially restricts consummation
of the Acquisition.
(e) FTNC shall have received all state securities laws and "Blue Sky"
permits and other authorizations necessary to consummate the transactions
contemplated hereby.
(f) The S-4 Registration Statement shall have become effective and no
stop order suspending the effectiveness of the S-4 Registration Statement shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
8.2 ADDITIONAL CONDITIONS TO MORTGAGE BANK'S OBLIGATIONS UNDER THIS
AGREEMENT. The obligations of Sellers and Mortgage Bank hereunder shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions unless waived by Sellers' Representative
pursuant to Section 10.3 hereof:
(a) The obligations of FTNC or FTB required to be performed by any of
them at or prior to the Closing Date pursuant to the terms of this Agreement
shall have been duly performed and complied with in all material respects and
the representations and warranties of FTNC and FTB set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except as to any representation or warranty which speaks to an earlier
date), and Sellers' Representative shall receive certificates duly executed by
authorized officers of FTNC and FTB certifying the foregoing, provided,
however, that nothing contained in this Section 8.2(a) shall be deemed to
preclude, or otherwise limit, the right of Sellers to be indemnified for any
breach of a representation or warranty by FTNC or FTB in accordance with the
provisions of Article IX hereof.
(b) Sellers shall have received a legal opinion of Heiskell,
Donelson, Bearman, Adams, Williams & Caldwell dated as of the Closing Date,
addressing matters customary in merger transactions similar to the Acquisition
and in form and substance mutually satisfactory to Sellers' Representative and
FTNC. In addition, Heiskell, Donelson, Bearman, Adams, Williams & Caldwell
shall have delivered its opinion dated as of the Closing 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 or Mortgage Bank as
a result of the Merger, (ii) no gain or loss will be recognized by the
shareholders of Mortgage Bank who exchange their shares of CIB 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 CIB Common Stock solely for
shares of FTNC Common Stock in the Merger will be the same as the tax basis of
the shares of CIB 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 CIB Common Stock
surrendered in exchange therefor were held, provided such shares of CIB 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 and shareholders of CIB, FTNC and others.
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(c) Since the date of this Agreement, there shall not have been any
material adverse change in the business, condition, financial or otherwise, or
results of operations of FTNC and FTB, taken as a whole.
(d) Any necessary approval of Mortgage Bank's shareholders.
(e) The FTNC Common Stock shall be approved for quotation on the
NASDAQ National Market System and be registered securities, subject to no
restrictions regarding sale, resale or other transfer other than (i) those
arising pursuant to Rule 145 under the Securities Act of 1933 ("Securities
Act"), and the S-4 Registration Statement relating to the shares of FTNC Common
Stock to be delivered to Sellers shall have been filed with the SEC and become
effective, (ii) the provisions described in Section 8.3(c) hereof to ensure
pooling-of-interests accounting treatment for the Merger and (iii) the terms
and conditions set forth in the Registration Rights Agreement attached hereto
as EXHIBIT "J." At the time the S-4 Registration Statement becomes effective,
it shall comply in all material respects with the provisions of the Securities
Act and the published rules and regulations thereunder.
8.3 ADDITIONAL CONDITIONS TO FTNC'S AND FTB'S OBLIGATIONS UNDER THIS
AGREEMENT. The obligations of FTNC and FTB hereunder shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions unless waived by FTNC pursuant to Section 10.3 hereof:
(a) The obligations of Mortgage Bank required to be performed at or
prior to the Closing Date pursuant to the terms of this Agreement shall have
been duly performed and complied with in all material respects and the
representations and warranties of Mortgage Bank set forth in this Agreement as
of the date of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (except as to any representation or warranty
which speaks to an earlier date), and FTNC shall have received a certificate
duly executed by a duly authorized officer of Mortgage Bank certifying the
foregoing, provided, however, that nothing contained in this Section 8.3(a)
shall be deemed to preclude, or otherwise limit, the right of FTNC and FTB to
be indemnified in accordance with the provisions of Articles VII and IX hereof.
For purposes of this Agreement, Mortgage Bank shall be deemed not to have
materially performed Mortgage Bank's obligations hereunder and Mortgage Bank's
representations and warranties made on and as of the date of this Agreement
shall be deemed not to be true and correct in all material respects if the
losses (singly or aggregate) which have resulted or are reasonably likely to
result from one or more breaches of Mortgage Bank's obligations, covenants,
representations or warranties, as applicable, as set forth in this Agreement as
of the date of this Agreement and the Closing Date exceed $750,000.
(b) Mortgage Bank shall have received from all parties to any
material Contract to which Mortgage Bank is a party including without
limitation all Investors and Agencies all consents required as a result of the
Acquisition, and shall have properly filed all notices with such Investors and
Agencies which are required as a result of such Acquisition.
(c) Each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act) of Mortgage
Bank 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 or take any action which would reduce such
person's risk with respect to, any shares of CIB Common Stock held by such
"affiliate" or the shares of FTNC Common Stock to be received by such
"affiliate" in the Merger (i) 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 (ii) during the periods during which
any such sale, pledge, transfer, disposition or other action would, under GAAP
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
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time of the publication of financial results covering at least thirty (30) days
of combined operations of FTNC and Mortgage Bank within the meaning of Section
201-01 of the SEC's Codification of Financial Reporting Policies.
(d) The duly executed Escrow Agreement shall have been delivered to
FTB.
(e) FTNC shall have received a legal opinion of Mortgage Bank's
Counsel dated as of the Closing Date, addressing matters customary in merger
transactions similar to the Acquisition and in form and substance satisfactory
to FTNC.
(f) On the Closing Date, commissioned loan officers who, in the
aggregate, originated not less than seventy-five percent (75%) of the Mortgage
Bank's retail loan production measured by dollar volume for the period from
January 1, 1994 to the Closing Date (collectively, "Significant Loan Officers")
shall be full-time employees of Mortgage Bank and neither Mortgage Bank nor any
Seller shall have knowledge of any fact or circumstance that could resulting in
the resignation of such Significant Loan Officers within ninety (90) days
following the Closing Date.
(g) Since the date of this Agreement, there shall not have been any
material adverse change in the business, condition, financial or otherwise, or
results of operations of Mortgage Bank taken as a whole. For purposes of this
Section 8.3(g), so long as Mortgage Bank's monthly loan production volume for
any month is not less than One Hundred Million Dollars ($100,000,000.00) a
material adverse change shall not be deemed to have occurred (i) if Mortgage
Bank's loan production volume decreases as a result of increases in the rate on
thirty (30) year U.S. Treasury Bonds and related increases in Mortgage loan
interest rates or (ii) as a result of other events, circumstances or market
conditions, which adversely affect the mortgage lending activities of other
mortgage lenders in the geographic areas in which Mortgage Bank has offices.
(h) FTNC and its directors and officers who sign the S-4 Registration
Statement shall have received from Mortgage Bank's independent certified public
accountants "cold comfort" letters, dated (i) the date of the mailing of the
Proxy Statement/Prospectus to the Sellers and (ii) shortly prior to the Closing
Date, with respect to certain financial information regarding Mortgage Bank in
the form customarily issued by such accountants at such time in transactions of
this type.
(i) FTNC shall have received a duly executed copy of the Sellers'
Agreement executed by all of the Sellers and by Carl I. Brown and Molly S.
Brown.
(j) FTNC and FTB shall receive an opinion from Arthur Andersen & Co.
in form and substance satisfactory to FTNC and FTB allowing the
pooling-of-interests accounting treatment of the Acquisition.
(k) FTNC shall have received written confirmation that the Employment
Agreements between Mortgage Bank and Lawrence Gregory Brown, Eric Scott Brown,
Jeffery Carl Brown and James H. Lyddon of even date herewith and the Covenant
Not to Compete, and Non-Solicitation Agreements among Mortgage Bank, FTNC, FTB
and Carl I. Brown and Molly S. Brown of even date herewith remain in full force
and effect as to the parties to be bound and have not been modified or changed.
(l) FTNC and FTB shall have received a copy of the Mortgage Loan File
Inventory described in Section 5.19, the truth and accuracy of which, as of the
Closing Date, shall be certified by an authorized officer of Mortgage Bank.
(m) FTNC and FTB shall have received satisfactory evidence of the
filing of record in all appropriate offices of all releases required to release
the liens on certain assets of Mortgage Bank evidenced by the UCC-1
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financing statements disclosed on Section 3.20 of the Disclosure Schedule other
than the UCC-1 financing statements filed in favor of Paine Webber Real Estate
Securities, Inc., The Bank of New York, and Bank One, Texas, National
Association.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION. (a) From and after the Closing Date, subject
to the terms and conditions of this Agreement, Mortgage Bank shall indemnify
and hold harmless FTNC and FTB and each of their Affiliates, including Mortgage
Bank, from and against any and all Losses and Taxes which any of them actually
suffer, incur or sustain arising out of or attributable to (whether or not
arising out of third-party claims) (i) any breach of any representation or
warranty made by Mortgage Bank in Sections 3.1 through 3.11 and Sections 3.13
through 3.37 of this Agreement, (ii) any breach of any covenant to be performed
by Mortgage Bank pursuant to this Agreement, (iii) Buydowns effected as a
result of VA No-Bids, to the extent that any Losses relating thereto are not
indemnifiable by Mortgage Bank pursuant to Section 9.1(a)(i) of this Agreement,
(iv) any breach of any representation or warranty made by Mortgage Bank in
Section 3.12 of this Agreement or the matters described in Sections 7.1(a) and
7.1(b) of this Agreement, (v) any Loss incurred by FTNC or FTB in respect of
any Legal Proceedings pending or threatened on the Closing Date to the extent
such Loss exceeds any reserves therefor on the Closing Date Balance Sheet
(other than reserves created or increased under Section 5.10 which did not
result in any adjustment to the Final Purchase Price), (vi) the inability as a
consequence of a breach of Environmental Laws with respect to such property as
a practical matter to foreclose on, accept a deed in lieu of foreclosure or
otherwise realize the value of any residential property which is collateral for
any Recourse Loan, (vii) in addition to and not in limitation of the preceding
provisions of this Section 9.1(a), any of the matters or items listed on
EXHIBIT "H" attached hereto, irrespective of the inclusion or listing of any
such matter or item on the Disclosure Schedule, and (viii) in addition to and
not in limitation of the preceding provisions of this Section 9.1(a), the
Mortgage Servicing Agreements ("Extended Warranty Mortgage Servicing
Agreements") listed on EXHIBIT "G."
(b) From and after the Closing Date, subject to the terms and
conditions of this Agreement, FTNC and FTB shall indemnify and hold harmless,
Sellers from and against any and all Losses which any of them actually suffer,
incur or sustain arising out of or attributable to (whether or not arising out
of third party claims) (i) any breach of any representation or warranty made by
FTB or FTNC in this Agreement, (ii) any breach of any covenant to be performed
by FTB or FTNC pursuant to this Agreement and (iii) any act or omission of FTB
or FTNC or any of their Affiliates following the Closing Date with respect to
the processing, handling or servicing of any Mortgage Loan, Loan Documents,
Advances or any other asset of Mortgage Bank (including, without limitation,
any payment or remittance and any correspondence or interaction with any
borrower or Investor) unless such act or omission is in accordance with
practices, procedures and policies of Mortgage Bank in effect on or before the
Closing Date.
(c) The indemnified party shall promptly notify the indemnifying
party of the discovery by it of, or the assertion against it of, any claim or
potential liability for which indemnification is (or would be but for the
operation of the Basket) provided herein or the commencement of any action or
proceeding in respect of which indemnity may be (or would be but for the
operation of the Basket) sought hereunder; provided, however, that the failure
promptly to give such notice shall affect any indemnified party's rights
hereunder only to the extent that such failure shall (i) actually materially
and adversely affect any indemnifying party or its rights hereunder or (ii)
result in the indemnified party failing to give notice of a claim for
indemnification prior to the expiration of the survival period set forth in
Section 11.1 hereof to which the claim relates.
(d) The right of an indemnified party under this Section 9.1 shall be
subject to the following conditions and limitations: (i) except as provided in
clauses (ii), (iii) and (iv) of this Section 9.1(d), notice of any claim
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for indemnification under Section 9.1(a) or Section 9.1(b) shall have been
given prior to the first (1st) anniversary of the Closing Date; provided that
if such day is not a business day, then notice shall be given no later than the
next business day following such date; (ii) assertion of a claim or claims in
accordance with applicable law by an appropriate taxing authority for Taxes or
future taxes subject to indemnification under clause (iv) of Section 9.1(a),
shall have been made or given prior to the expiration of the applicable statute
of limitations (giving effect to any extensions thereof) for the assertion of
any such claims and notice of such claim or claims shall have been given to
Sellers within thirty (30) days of the receipt thereof; (iii) notice of any
claim for indemnification under clause (viii) of Section 9.1(a) shall have been
given prior to the fifth (5th) anniversary of the Closing Date; provided that
if such day is not a business day, then notice shall be given no later than the
next business day following such date; and (iv) at Sellers' Representative's
option, which may be exercised by giving written notice thereof to FTNC prior
to the date set forth in clause (i) of this Section 9.1(d), notice of any claim
for indemnification under Section 9.1(a)(vii) shall have been given prior to
the second (2nd) anniversary of the Closing Date; provided that if such day is
not a business day, then notice shall be given no later than the next business
day following such date. With respect to a claim for indemnification (or any
claim that would be indemnifiable but for the operation of the Basket) arising
out of or involving an assertion by a third party of liability on the part of
an indemnified party, the indemnified party shall advise the indemnifying party
of all facts relating to such assertion within the knowledge of the indemnified
party, and shall afford the indemnifying party the opportunity, at the
indemnifying party's cost and expense (except, as to Mortgage Bank and Sellers,
for Basket amounts), to defend against such claims for liability; in any such
action or proceeding, the indemnified party shall have the right to retain its
own counsel and to participate in the defense, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
indemnifying party and indemnified party mutually agree in writing to the
retention of such counsel or (ii) the named parties to any such suit, action or
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and, in the reasonable judgment of the
indemnified party, representation of the indemnifying party and the indemnified
party by the same counsel would be inadvisable due to actual or potential
differing or conflicts of interest between them.
(e) At Closing, Sellers shall deliver to FTNC at FTNC's expense the
Escrow Agreement the purpose of which shall be to fund, in part, Mortgage
Bank's indemnity obligations under paragraph (a) of this Section 9.1 up to the
aggregate amounts of Escrow Fund A and Escrow Fund B (as defined in the Escrow
Agreement). Neither FTNC nor FTB shall be required to take any action to
collect from Mortgage Bank for any indemnity obligations and, as to any Escrow
Claims (as defined in the Escrow Agreement), FTNC or FTB shall proceed under
the Escrow Agreement in accordance with the terms of the Escrow Agreement, and
if there remain any unsatisfied Escrow Claims, FTNC and FTB may then proceed
against Sellers or Carl I. Brown and Molly S. Brown or both as provided in the
Sellers' Agreement. The terms and provisions set forth in the Escrow Agreement
shall be substantially in the form set forth as EXHIBIT "C" attached hereto,
with such changes as shall be reasonably mutually satisfactory.
(f) At Closing, Sellers, Carl I. Brown and Molly S. Brown shall also
deliver to FTNC at Sellers' expense the Sellers' Agreement which shall provide
for, among other things, the following:
(i) Sellers' joint and several guaranty of Mortgage Bank's
indemnity obligations under Sections 9.1(a)(i), (ii), (iii), (v), (vi)
and (vii) in an amount not to exceed $3,000,000 which guaranty is in
addition to amounts in Escrow Fund A;
(ii) Sellers' joint and several guaranty of Mortgage Bank's
indemnity obligations under Section 9.1(a)(iv) and (viii) in an amount
not to exceed the Final Purchase Price which guaranty is in addition
to amounts in Escrow Fund A and Escrow Fund B;
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(iii) Carl I. Brown's and Molly S. Brown's (the "Browns")
joint and several (together with the Sellers) guaranty of Mortgage
Bank's indemnity obligations under Section 9.1(a)(iv) which guaranty
is in addition to amounts in Escrow Fund B;
(iv) The Browns' joint and several (together with the
Sellers) guaranty of Mortgage Bank's indemnity obligations arising
under Sections 9.1(a)(i), (ii), (iii), (v), (vi), (vii) and (viii);
provided, however, that no claim may be made by FTNC or FTB against
either of the Browns under Section 3(D)(ii) of the Sellers' Agreement
except on the conditions that (x) the funds or assets then available
in Escrow Fund A are not sufficient to satisfy such claim in full, (y)
if any one or more of the Sellers is then in existence, FTNC or FTB
shall have first made a claim against the then existing Sellers under
Sections 3(B) or 3(C) of the Sellers' Agreement or both, as
applicable, and such Sellers are unable to satisfy in full such claims
because they do not have sufficient assets and (z) if any one or more
of the Sellers shall have made one or more distributions to any one or
more partners (other than either or both of the Browns) and, as a
result, the Person or Persons to whom the distributions have been made
have assumed the joint and several guaranty obligations of the
distributing Seller as provided in Section 3(M)(vii) of the Sellers'
Agreement, FTNC or FTB shall have made written demand on such Persons
and such Persons shall not have honored FTNC's or FTB's demand within
thirty (30) days of the date such demand is made or, if they have
honored such demand, the aggregate amounts paid by any such Persons do
not satisfy in full the indemnity obligations for which FTNC or FTB
has made demand;
(v) Each of the Brown's joint and several guaranty
obligations under Section 3(D) of the Sellers' Agreement shall not
exceed the aggregate fair market value (determined as to each
distribution at the time such distribution is made) of the
distributions and the unpaid balance of any loans received by him or
her, respectively, from (x) the grantor retained annuity trusts
executed by each of them under Grantor Retained Annuity Trust
Agreements dated _______________, 1994 (the "GRATS"), or (y) from any
one or more Sellers or (z) both; and
(vi) The respective guarantee obligations of the Sellers and
the Browns for a specific claim made by FTNC or FTB shall be reduced
by amounts actually received by FTNC or FTB from the applicable Escrow
Fund for that specific claim.
(g) Notwithstanding anything else to the contrary contained in this
Section 9.1 and in addition to any of the other conditions, limitations and
exclusions set forth herein, Mortgage Bank shall not be required to indemnify
FTNC or FTB (or to credit FTNC, FTB or any of FTNC's other Affiliates with
amounts towards the satisfaction of the Basket), and neither FTNC nor FTB nor
any of its Affiliates shall seek indemnity from Mortgage Bank for any of the
following:
(i) Losses attributable to or arising from overhead
allocations or general and administrative costs or the costs of
administering or complying with the requirements imposed by or under
this Agreement other than those requirements which require FTNC or FTB
to mitigate Mortgage Bank's indemnity obligations.
(ii) After the Closing Date, losses with respect to which
FTNC, FTB or Mortgage Bank fails in any material respect to comply
with its obligations under this Agreement (including, without
limitation, Article VI),provided, however, that, neither FTNC's, FTB's
nor Mortgage Bank's noncompliance with such obligations after the
Closing Date shall limit FTNC's or FTB's ability to recover Losses
otherwise indemnifiable by Mortgage Bank under the terms of this
Agreement (including recoveries made by draws on the Escrow Agreement)
unless such noncompliance (A) materially and adversely affects
Mortgage Bank's ability to
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administer a claim made by FTNC or FTB or any of FTNC's other
Affiliates against Mortgage Bank, in which case Sellers'
Representative may refuse to consent to a draw on the Escrow Agreement
on claims for which FTNC or FTB or any of FTNC's other Affiliates
seeks reimbursement until FTNC or FTB comply with their obligations
hereunder, or (B) materially and adversely affects the ability to cure
a breach, mitigate Losses or defend a claim or otherwise results in or
increases the amount of a Loss, in which case, Sellers' Representative
may withhold consent to a draw on the Escrow Agreement for claims for
which FTNC or FTB or any of FTNC's other Affiliates seeks
reimbursement only in that amount by which FTNC's, FTB's or Mortgage
Bank's noncompliance increases the amount of such Loss unless the act
or omission constituting such noncompliance is in accordance with the
practices, procedures and policies of Mortgage Bank in effect on or
before the Closing Date, in which case Mortgage Bank's indemnification
obligations shall not be affected by such noncompliance.
(iii) with respect to any Transferred Loan, Losses recovered
by or paid to FTNC, FTB or Mortgage Bank by any Person other than
Sellers.
(h) FTNC's or FTB's right to indemnification against any Loss which
it or any of its Affiliates may suffer, incur or sustain arising out of or
attributable to the matters described in Section 9.1(a) is subject to the
limitation that FTNC and FTB shall not be indemnified unless the aggregate
amount of Losses incurred, sustained or suffered by FTNC, FTB and FTNC's other
Affiliates with respect to such matters described in Section 9.1(a) exceeds
$250,000 (the "Basket"), in which case only the amount of Losses in excess of
the Basket shall be indemnifiable.
(i) The indemnifying party shall have the right to settle or
compromise any claim or liability subject to indemnification under this Section
9.1 which is susceptible to being settled or compromised, provided, however,
that any such settlement shall require the consent of the indemnified party,
which consent shall not be unreasonably withheld, provided further however,
that the consent of the indemnified party shall not be required if (i) the
terms of the settlement require only the payment of damages and payment of the
full amount of the relevant indemnification obligation to the indemnified party
is assured and (ii) the indemnified party is not otherwise materially and
adversely affected by the terms of the settlement.
(j) For purposes of determining Mortgage Bank's obligations to FTNC
or FTB under this Article IX arising from breaches of Mortgage Bank's
representations, warranties and covenants (and without otherwise limiting
Mortgage Bank's indemnity obligations, including but not limited to those
provided in Section 9.1(a)(vii) hereof), the representations, warranties and
covenants and the Disclosure Schedule delivered on the date of this Agreement
shall be the operative terms and shall not be modified by any revision of any
existing item or inclusion of a new item in the Disclosure Schedule after such
date.
(k) For the limited purposes of determining Mortgage Bank's
indemnification obligations under this Article IX and FTNC, FTB or Mortgage
Bank's right to collect under the Escrow Agreement, the "materiality" test set
up by the use of the terms material, materially, material adverse effect or
similar words to that effect in this Agreement shall be deemed to have been met
where a party has incurred, suffered or sustained an actual Loss including but
not limited to a Loss arising or resulting from any item that is incorrectly
stated on or omitted from the Financial Statements, even if such incorrectly
stated or omitted item would not result in the Financial Statements failing to
be prepared in accordance with GAAP because such incorrectly stated or omitted
item is not, under GAAP, material.
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ARTICLE X
TERMINATION, WAIVER AND AMENDMENT
10.1 TERMINATION. This Agreement may be terminated on or at any time
prior to the Closing Date:
(i) by the mutual written consent of FTB, FTNC, Sellers'
Representative and Mortgage Bank;
(ii) by Mortgage Bank, if there shall have been any material
breach of any obligation of FTNC or FTB contained herein and such
breach shall not have been remedied within twenty (20) days after
receipt by FTNC or FTB of notice in writing specifying the nature of
such breach and requesting that it be remedied;
(iii) by FTNC and FTB, if there shall have been any material
breach as defined in Section 8.3(a) of any obligation of Mortgage Bank
contained herein and such breach shall not have been remedied within
twenty (20) days after receipt by Sellers' Representative or Mortgage
Bank of notice in writing specifying the nature of such breach and
requesting that it be remedied;
(iv) by FTNC and FTB or Mortgage Bank, if the Closing Date
shall not have occurred on or prior to March 31, 1995, unless the
failure of such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe its
agreements as set forth in this Agreement required to be performed or
observed by such party on or before the Closing Date;
(v) by FTNC and FTB or Mortgage Bank if the conditions set
forth in Section 8.1(a) are unable to be fulfilled as a result of
FTNC's or FTB's inability to obtain necessary approvals and consents;
(vi) by Sellers and Mortgage Bank or FTNC and FTB, as
applicable, if the conditions in Section 8.2 or 8.3 are not satisfied;
and
(vii) by FTNC and FTB in accordance with the provisions of
Section 2.2(c) hereto.
10.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to Section 10.1 hereof, this Agreement shall become void and
have no effect, except that the provisions relating to confidentiality and
expenses set forth in Sections 5.3(b) and 11.2 hereof, respectively, and this
Section 10.2, shall survive any such termination; provided, however, that no
such termination shall relieve any party from liability for any willful breach
of this Agreement.
10.3 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law,
Mortgage Bank and FTNC and FTB, as applicable, may (i) amend this Agreement,
(ii) extend the time for the performance of any of the obligating or other acts
of any other party hereto, (iii) waive any inaccuracies in the representations
and warranties of any other party contained herein or in any document delivered
pursuant hereto, or (iv) waive compliance by any other party with any of the
agreements or conditions contained in Articles V, VI, VII, and VIII hereof.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto. Any agreement on the part of a party
hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
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<PAGE> 149
ARTICLE XI
MISCELLANEOUS
11.1 SURVIVAL. The representations and warranties set forth in
Articles III and IV (other than the representations and warranties in Section
3.12) and the indemnification obligations of Mortgage Bank under Sections
9.1(a)(i), (ii), (iii), (v) and (vi) hereof shall be deemed to have been relied
upon by the party to whom they are made and survive the Closing until the first
anniversary of the Closing Date; provided, that if such day is not a business
day, such representations and warranties shall survive the Closing until the
next business day following such day (the "Representations and Warranties
Expiration Date"). The representations and warranties in Section 3.12 and the
indemnification obligations of Mortgage Bank under Sections 9.1(a)(iv), (vii)
and (viii) shall survive for as long as the conditions described in Sections
9.1(d)(ii), (iii) and (iv), respectively, could be satisfied (the "Section 3.12
and Certain Indemnities Expiration Date"). Unless otherwise specified herein,
all other covenants and duties provided herein shall survive the Closing until
the first anniversary of the Closing Date (or if such day is not a business
day, the next business day following such day). Additionally, if any
Unresolved Claims are outstanding on the Representations and Warranties
Expiration Date or the Section 3.12 and Certain Indemnities Expiration Date, as
applicable, such representations and warranties or indemnity duties pertinent
to the Unresolved Claims shall survive the Closing until the date of the final
resolution of any Unresolved Claims outstanding on the Representations and
Warranties Expiration Date or the Section 3.12 and Certain Indemnities
Expiration Date, as applicable (including, if appropriate, payment in full of
such Unresolved Claims to FTNC). No investigation made by or on behalf of
either party shall affect the representations and warranties made pursuant to
this Agreement.
11.2 EXPENSES. Except as otherwise specified in this Agreement, each
party hereto shall bear and pay all costs and expenses incurred by it in
connection with the transactions contemplated hereby, including fees and
expenses of its own brokers, finders, financial consultants, accountants and
counsel ("Transaction Expenses"), provided, however, that nothing contained in
this Section 11.2 shall limit a party's rights to recover damages for willful
breach of this Agreement as specified in Section 10.2 hereof. All Transaction
Expenses incurred by Sellers or Mortgage Bank shall be either paid or accrued
on the Closing Date Balance Sheet Date and no Transaction Expenses which are
not so paid or accrued shall be a liability of or paid by FTNC or any of its
Affiliates. If FTNC terminates this Agreement in accordance with the
provisions of Section 2.2(c), FTNC shall reimburse Mortgage Bank for
Transaction Expenses incurred by Mortgage Bank up to an amount not to exceed
$75,000.00.
11.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits and the
Disclosure Schedule, contains the entire agreement and understanding of the
parties with respect to its subject matter. This Agreement supersedes all
prior arrangements and understandings between the parties, both written or
oral, with respect to its subject matter.
11.4 PARTIES IN INTEREST. The Agreement shall be binding upon and
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any other Person
any rights, remedies, obligations or liabilities of any nature whatsoever under
or by reason of this Agreement.
11.5 ASSIGNMENT. No party hereto may assign any of its rights or
obligations hereunder to any other Person, without prior written consent of the
other parties, provided, however, FTNC or FTB may assign its rights and
obligations hereunder to any one or more of its Affiliates (whether existing on
the date hereof or hereafter created) designated to carry out all or part of
the transaction contemplated hereby.
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<PAGE> 150
11.6 NOTICES. All notices or other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
prepaid registered or certified mail (return receipt requested), or by
overnight courier, or telecopy addressed as follows:
<TABLE>
<S> <C>
(a) If to Sellers' Representative, to:
(i) L. Gregory Brown
612 West 47th Street
Kansas City, Missouri 64112
Attention: L. Gregory Brown
Facsimile: (816) 756-3248
(ii) J.D. Zimmerman, Esq.
5819 Nieman Road
Shawnee, Kansas
Attention: J.D. Zimmerman, Esq.
Facsimile: (816) 268-8877
Copies to:
Youngblood & Owens, LC
600 N. Pearl, Suite 600
Dallas, TX 75201
Attention: Diane S. Owens
Facsimile: (214) 969-5701
(b) If to FTB, to:
First Tennessee Bank National Association
165 Madison Avenue
Memphis, Tennessee 38103
Attention: Elbert L. Thomas, Jr.
Facsimile: (901) 523-4614
Copies to:
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell
2000 First Tennessee Building
Memphis, Tennessee 38103
Attention: Charles T. Tuggle, Jr., Esq.
Facsimile: (901) 577-2303
</TABLE>
- 49 -
<PAGE> 151
<TABLE>
<S> <C>
First Tennessee Bank National Association
165 Madison Avenue
Memphis, Tennessee 38103
Attention: Harry A. Johnson, III, Esq. (FTB General Counsel)
Facsimile: (901) 523-4248
(c) If to FTNC, to:
First Tennessee National Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Attention: Elbert L. Thomas, Jr.
Facsimile: (901) 523-4614
Copies to:
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell
2000 First Tennessee Building
Memphis, Tennessee 38103
Attention: Charles T. Tuggle, Jr., Esq.
Facsimile: (901) 577-2303
First Tennessee National Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Attention: Harry A. Johnson, III, Esq. (FTNC General Counsel)
Facsimile: (901) 523-4248
</TABLE>
11.7 CAPTIONS. The table of contents and captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
Agreement.
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<PAGE> 152
11.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee, without giving effect to
the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date first written
above.
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By: /s/ Elbert L. Thomas, Jr.
-----------------------------------
Title: Senior Vice President
-----------------------------------
FIRST TENNESSEE NATIONAL CORPORATION
By: /s/ Elbert L. Thomas, Jr.
-----------------------------------
Title: Senior Vice President
-----------------------------------
CARL I. BROWN AND COMPANY
By: /s/ L. Gregory Brown
-----------------------------------
Title: President
-----------------------------------
The undersigned hereby execute this Agreement for the limited purpose
of joining in the covenants and obligations set forth in Section 5.9 hereof.
/s/ Carl I. Brown
---------------------------------------
CARL I. BROWN, Individually
/s/ Molly S. Brown
---------------------------------------
MOLLY S. BROWN, Individually
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<PAGE> 153
EXHIBIT "C"
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of ______________, 1995, by
and among FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), ________________
___________________________ ("Sellers' Representative"), and FIRST TENNESSEE
BANK NATIONAL ASSOCIATION, acting in its fiduciary capacity through its
corporate trust department ("Escrow Agent") ("FTB"). All terms not otherwise
defined in this Escrow Agreement shall have the meanings set forth in the
Merger Agreement (as defined in Recital B below).
R E C I T A L S
A. Sellers own ninety and one-half percent (90.5%) of the issued and
outstanding capital stock of Carl I. Brown and Company, a Kansas corporation
("Mortgage Bank").
B. FTB and FTNC have entered into an Agreement with Mortgage Bank
dated as of September __, 1994 (the "Merger Agreement"), which provides that
FTB will acquire all of the issued and outstanding capital stock of Mortgage
Bank pursuant to a merger of First Tennessee Interim Corporation with and into
Mortgage Bank (the "Acquisition").
C. The Merger Agreement contains certain representations, warranties
and covenants made by Mortgage Bank with respect to which FTNC and FTB desire
security for the faithful performance thereof.
THEREFORE, the parties hereto agree as follows:
1. Deposit of Shares of FTNC Common Stock.
1.01. As provided in Section 2.6(c)(iv) of the Merger Agreement,
shares of FTNC Common Stock in the respective amounts set forth in Section 1.06
hereof (with respect to Escrow Fund A (defined below), the "A Escrow Shares,"
with respect to Escrow Fund B (defined below), the "B Escrow Shares" and,
collectively, the "Escrow Shares") shall be deposited and left on deposit with
the Escrow Agent for the Escrow Periods (as defined in Section 1.08 hereof).
The A Escrow Shares shall be represented by a stock certificate registered in
the name of the Escrow Agent or its nominee, and the B Escrow Shares shall be
represented by a stock certificate registered in the name of the Escrow Agent
or its nominee. Each certificate shall bear such restrictive legend as may be
required by the Merger Agreement, and such certificates shall be delivered to
the Escrow Agent. The A Escrow Shares and any Reserves with respect thereto
(as defined in and established pursuant to Section 1.05 hereof) shall serve as
an escrow fund hereinafter referred to as "Escrow Fund A", and the B Escrow
Shares, and any Reserves with respect thereto (as defined and established
pursuant to Section 1.05 hereof) shall serve as an escrow fund hereinafter
referred to as "Escrow Fund B". Escrow Fund B shall serve as an escrow fund
only for claims by FTNC or FTB after the Closing Date for Taxes and Losses
indemnifiable pursuant to Section 9.1(a)(iv) of the Merger Agreement and Escrow
Fund A shall serve as an escrow fund for all other claims by FTNC or FTB after
the Closing Date for Losses indemnifiable under the Merger Agreement and
Mitigation Expenses. All claims for Taxes and Losses indemnifiable under the
Merger Agreement and Mitigation Expenses are herein referred to as "Escrow
Claims").
1.02. Upon receipt of the Escrow Shares, the Escrow Agent shall hold
and dispose of them in accordance with the terms of this Escrow Agreement.
Upon the expiration of the respective Escrow Periods for Escrow Fund A and
Escrow Fund B as set forth in Section 1.08, the Escrow Agent shall distribute
to the Sellers their relative proportion, as set forth on Schedule A, of the
remaining A Escrow Shares and Reserves and B Escrow Shares and Reserves, as
applicable. The number of shares to be distributed pursuant to the preceding
<PAGE> 154
sentence to any Seller who has (according to Section 1.05) are
equivalent to the amount of such Seller's remaining Reserve in either Escrow
Fund A or Escrow Fund B. All such distributions to Sellers are subject to
diminution by costs and expenses of Sellers' Representative and the Escrow
Agent presented and paid in accordance with Section 9 hereof.
1.03. Cash dividends or other distributions paid with respect to the
Escrow Shares shall be distributed to the Sellers in proportion to their
respective interests set forth on Schedule A hereto as soon as practicable
after the receipt thereof by the Escrow Agent; provided, however, that such
proportions shall be adjusted as necessary for purposes of such distribution to
reflect any reduction in the number of Escrow Shares held by a particular
Seller as a result of such Seller's creation of a Reserve. The Escrow Agent
shall vote or cause to be voted Escrow Shares in accordance with instructions
given it by Sellers entitled to vote such shares and shall promptly transmit to
Sellers all proxy materials and other information relating to the Escrow Shares
received by it.
1.04. If FTNC shall effect any reorganization, reclassification,
consolidation, merger or other event which results in the exchange of
securities or other assets for the Escrow Shares ("Replacement Securities") or
if FTNC shall issue any additional shares upon any stock split or stock
dividend affecting the Escrow Shares ("Additional Securities"), the Replacement
Securities or Additional Securities shall be delivered to Escrow Agent and when
received by the Escrow Agent such Replacement Securities or Additional
Securities shall become or be included in the Escrow Shares for the purposes of
this Escrow Agreement.
1.05. At any time during the respective Escrow Periods following the
time of the publication of financial results covering at least 30 days of
combined operations of FTNC and Mortgage Bank within the meaning of Section
201-01 of the SEC's Codification of Financial Reporting Policies, the Escrow
Agent, at the written instruction of any Seller, which instruction indicates
that Seller is acting in compliance with applicable securities laws, and
subject to compliance with applicable securities laws, shall cause to be sold
all or a portion of the pro rata portion of the A Escrow Shares or B Escrow
Shares or both, as set forth in the written instruction of such Seller,
allocable to such Seller which have not previously been sold, distributed or
withdrawn hereunder, and shall establish with respect to Escrow Fund A or
Escrow Fund B or both, as applicable, a reserve of the cash proceeds of such
sale or sales (such reserve is herein referred to as a "Reserve"). Proceeds
from a sale of the Escrow Shares shall at all times be under the dominion and
control of the Escrow Agent and subject to the escrow interest and security
interest of FTNC as provided in Section 1.09 hereof; provided, that if during
the applicable Escrow Period the aggregate amount of all Reserves held by the
Escrow Agent for Escrow Fund A or Escrow Fund B equals or exceeds the
respective amounts set forth in Section 1.06(a) below (as such amounts may have
been reduced by the aggregate amount of Escrow Claims previously paid from
Escrow Fund A or Escrow Fund B, as applicable) (the "Required Escrow Balance"),
the Escrow Agent shall, in accordance with the written instruction of the
applicable Sellers' Representative, deliver to such Sellers' Representative for
distribution to the Sellers in accordance with Schedule A attached hereto the
pro rata portions of all or any portion of the assets held by the Escrow Agent
in Escrow Fund A or Escrow Fund B, as applicable, that exceed the Required
Escrow Balance of such fund. The Escrow Agent shall maintain each such Reserve
in a separate account so as to identify it as the Reserve attributable to such
Seller for either Escrow Fund A or Escrow Fund B, as applicable, and subject to
the escrow interests and security interest of FTNC in such proceeds. For
purposes of payments, distributions or withdrawals under this Escrow Agreement,
a Reserve established and attributable to a Seller pursuant to the foregoing
sentence shall be deemed to be equivalent to the number of Escrow Shares that
were sold at the time to create such Reserve. When amounts are to be withdrawn
out of Escrow Fund A or Escrow Fund B to be paid or distributed to any party
other than the Sellers, the Escrow Agent shall withdraw and pay to such party
cash from the Reserve attributed to such Seller for such Escrow Fund A or
Escrow Fund B, as applicable, to the extent that such Seller's pro rata portion
of such Escrow Shares, minus the number of such Escrow Shares sold to create
the applicable Reserve, is less than that Seller's pro rata portion of the
aggregate amount required to be paid or distributed.
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<PAGE> 155
1.06. (a) As soon as practicable after the Closing Date, (i) shares
of FTNC Common Stock equal to $2,000,000 ("Escrow Fund A"), and (ii) shares of
FTNC Common Stock equal to $2,500,000 ("Escrow Fund B") calculated at the
Closing Measurement Price shall be deposited by FTNC with the Escrow Agent.
(b) The amount of Escrow Fund A shall be reduced on the first
anniversary of the Closing Date, or if such day is not a Business Day, on the
next Business Day following such first anniversary of the Closing Date (the
"Escrow Fund A Adjustment Date") to (i) the amount of any Unresolved Claims (as
defined in the Merger Agreement) indemnifiable from Escrow Fund A outstanding
on the Escrow Fund A Adjustment Date, if any (the "Adjusted Escrow Fund A"),
and (ii) if there are no such Unresolved Claims outstanding on the Escrow Fund
A Adjustment Date, to zero. If Escrow Fund A is reduced to zero as provided in
clause (ii) of this Section 1.06(b), the A Escrow Shares and any Reserves with
respect thereto shall be distributed to the Sellers in accordance with the
terms of this Escrow Agreement.
(c) The amount of Escrow Fund B shall be reduced on the Limitations
Date (as hereinafter defined), or if such day is not a Business Day, on the
next Business Day following the Limitations Date (the "Escrow Fund B Adjustment
Date") to (i) the amount of any Unresolved Claims (as defined in the Merger
Agreement) indemnifiable from Escrow Fund B outstanding on the Escrow Fund B
Adjustment Date, if any (the "Adjusted Escrow Fund B"), and (ii) if there are
no such Unresolved Claims outstanding on the Escrow Fund B Adjustment Date, to
zero. If Escrow Fund B is reduced to zero as provided in clause (ii) of this
Section 1.06(c), the B Escrow Shares and any Reserves with respect thereto
shall be distributed to the Sellers in accordance with the terms of this Escrow
Agreement.
(d) The "Limitations Date" shall be the thirtieth (30th) day after the
later of the following dates: (i) the date on which the statute of limitations
rfor the assessment of additional federal income taxes shall have expired with
respect to all taxable years of Mortgage Bank ending prior to or on the Closing
Date (giving effect to any extensions thereof), or (ii) the earlier of the
following dates: (A) the date on which the statute of limitations for the
assessment of federal income taxes shall have expired with respect to the first
taxable year of the FTNC affiliated group ending after the Closing Date (giving
effect to any extensions thereof) or (B) the receipt of a 30-day letter (Notice
of Deficiency) from the Internal Revenue Service with respect to such first
taxable year of the FTNC affiliated group.
1.07. For purposes of calculating the number of Escrow Shares to be
included in any distribution, payment or withdrawal from Escrow Fund A or
Escrow Fund B for the purpose of satisfying Escrow Claims, Escrow Shares shall
be valued at the Closing Measurement Price.
1.08. For purposes of this Escrow Agreement, the terms "Escrow Period"
and "Escrow Periods" shall mean those respective periods of time that Sellers
are obligated to maintain A Escrow Shares or Reserves in Escrow Fund A and B
Escrow Shares or Reserves in Escrow Fund B. The Escrow Period with respect to
Escrow Fund A shall in no event be for a period in excess of the longer of (i)
one (1) year following the Closing Date or (ii) the date of final resolution of
any Unresolved Claims outstanding on the Escrow Fund A Adjustment Date
(including, if applicable, payment in full of such Unresolved Claims to FTNC).
The Escrow Period with respect to Escrow Fund B shall in no event be for a
period in excess of the longer of (i) the period ending on the Limitations Date
or (ii) the date of final resolution of any Unresolved Claims outstanding on
the Escrow Fund B Adjustment Date (including, if applicable, the payment in
full of such unresolved claims to FTNC).
1.09. (a) Each Seller hereby pledges, hypothecates, assigns,
transfers, sets over and delivers unto FTNC, and hereby grants to FTNC, a
security interest in its proportionate share of the Escrow Shares. The Escrow
Shares shall be held by the Escrow Agent as agent for and for the benefit of
FTNC for purposes of perfecting a security interest in the Escrow Shares and
Escrow Agent's possession of the Escrow Shares is hereby acknowledged to be
constructive possession by FTNC. Subject and subordinate in every respect to
the security interest and escrow interests of FTNC, the Escrow Agent holds the
Escrow Shares as to the Sellers in the respective proportions indicated on
Schedule A attached hereto.
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<PAGE> 156
(b) Upon a sale of any Escrow Shares and investment of the proceeds as
provided in Section 3.06 hereof, if and to the extent the Substitute Escrow
Assets (as defined in Section 3.06) constitute "book entry securities," the
Substitute Escrow Assets shall be issued in the name of the Escrow Agent for
the benefit of FTNC as the secured party or, if required to perfect FTNC's
security interest in the Substitute Escrow Assets, the Escrow Agent shall cause
the Substitute Escrow Assets to be issued in the name of FTNC. The Sellers
agree that FTNC shall have the right to cause the Escrow Agent to take such
actions with respect to the Substitute Escrow Assets as are reasonable and
customary to ensure the perfection of FTNC's security interest, but such action
shall in no way give the right to FTNC to have direct possession or to remove
control of the Escrow Shares or Reserves from the custody of the Escrow Agent
except upon a distribution to FTNC as provided in Section 3 hereof.
2. Sellers' Representative.
The individuals identified in the Merger Agreement as the Sellers'
Representative shall act as representatives for the Sellers with respect to
this Escrow Agreement for the respective purposes set forth in the Sellers'
Representative and Paying Agent Agreement of even date herewith. Neither
Sellers' Representative shall receive any compensation for his services.
Subject to the provisions of Section 9, the Sellers' Representative shall,
however, be reimbursed out of Escrow Fund A or Escrow Fund B, as applicable, as
provided in this Escrow Agreement for all reasonable expenses which he may
incur in the performance of his duties and powers hereunder including, if
necessary, the employment of agents, attorneys, accountants or other services.
There shall be no liability on the part of the Sellers' Representative for any
actions or omissions to act under this Escrow Agreement, or error or mistake of
judgment, unless Sellers' Representative shall have acted in bad faith,
negligently or fraudulently.
3. Indemnification: Claims Against Escrow.
3.01. The representation and warranties, covenants and agreements
contained in or made pursuant to the Merger Agreement shall survive the Closing
for the periods set forth in Section 11.1 of the Merger Agreement.
3.02. In addition to each Seller's indemnification obligations set
forth in the Sellers' Agreement of even date herewith, and not in limitation
thereof, to the extent of Escrow Fund A and Escrow Fund B created hereunder and
for the Escrow Periods described in Section 1.08 hereof, the Sellers shall pay
to FTNC and FTB and each of their Affiliates in accordance with the terms and
conditions of this Escrow Agreement any and all Escrow Claims (as defined in
this Escrow Agreement) arising out of, resulting from or based on (i) any
inaccuracy in or breach or non-performance of any of the representations,
warranties, covenants or agreements or (ii) any indemnity obligations made by
or of Mortgage Bank in or pursuant to the Merger Agreement. The amount which
FTNC may receive under this Escrow Agreement to satisfy the Sellers' indemnity
obligations shall be limited to the amounts set forth in Section 1.06 hereof
regardless of the value of the A Escrow Shares in Escrow Fund A and the B
Escrow Shares in Escrow Fund B.
3.03. The A Escrow Shares and any Reserves established therefrom, and
the B Escrow Shares and any Reserves established therefrom, to the extent
required to satisfy any Escrow Claims made in accordance herewith, shall be
held by the Escrow Agent until payment to FTNC of the amount of all Escrow
Claims to which it may be entitled in accordance with this Section 3 hereof but
in no event shall such Escrow Shares and Reserves be held beyond the applicable
Escrow Period for Escrow Fund A and Escrow Fund B as set forth in Section 1.08
hereof.
3.04. Upon the presentation of an Escrow Claim by FTNC or FTB to the
Escrow Agent, the Escrow Agent shall promptly following its receipt of such
notice send a copy of FTNC's notice to the appropriate Sellers' Representative.
No Escrow Claim by FTNC or FTB pursuant to this Escrow Agreement shall be
effective unless written notice is received by the Escrow Agent prior to the
respective Escrow Fund A Adjustment Date and Escrow Fund B Adjustment Date set
forth in Section 1.08 hereof. If the Sellers'
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<PAGE> 157
Representative shall object to such Escrow Claim, he shall give written
notice of such objection to the Escrow Agent and FTNC within ten (10) Business
Days after the receipt of the notice sent to the Escrow Agent shall thereupon
make a distribution from Escrow Fund A or Escrow Fund B, as applicable, to the
party making the claim in the amount so agreed by the Sellers' Representative.
3.05. In the event that the Sellers' Representative shall not have
responded to any Escrow Claim within ten (10) Business Days after receipt of
notice of a claim, or the Sellers' Representative shall have made timely
objection in whole or in part to any such Escrow Claim of FTNC or FTB, by
delivering written notice of such objection to Escrow Agent and FTNC, and the
Sellers' Representative and FTNC shall have failed to resolve or compromise the
Escrow Claim within five (5) Business Days from the date of FTNC's receipt of
such objection (or such longer period as may be mutually agreed in writing by
FTNC and the Sellers' Representative), then the Escrow Claim shall be settled
by arbitration in Memphis, Tennessee in accordance with the rules of the
American Arbitration Association ("AAA") and the procedures set forth below:
(a) Within twenty (20) days after receiving written demand for
arbitration, the parties involved in the dispute shall attempt to reach
agreement upon the selection of a qualified impartial arbitrator. If the
parties cannot agree upon an arbitrator within such twenty (20) day
period, then each of FTNC and the appropriate Sellers' Representative
shall appoint one arbitrator, and the two arbitrators so appointed, each
of whose fees and expenses shall be treated as attorneys' fees for
purposes of this Section 3.05, shall then together appoint a third
arbitrator ("neutral arbitrator") from a list of persons supplied by the
AAA in Memphis, Tennessee. If one party shall fail to appoint the
arbitrator to be appointed by it within seven (7) Business Days of the
end of the applicable five (5) Business Day period provided for above,
the arbitrator appointed by the other party shall select from a list of
persons supplied by the AAA a person who shall serve as the single
neutral arbitrator for purposes of the arbitration. If each party shall
have appointed one arbitrator but such designees cannot agree on the
person to act as the neutral arbitrator within a period of two (2)
Business Days after the appointment of the second arbitrator, then either
side may apply to the AAA in Memphis, Tennessee, who shall appoint a
neutral arbitrator. The arbitrator shall promptly obtain such
information regarding the matter as he deems desirable and shall decide
the matter and render a written award which shall be delivered to FTNC,
the Sellers' Representative and the Escrow Agent. As used hereafter the
term "arbitrator" shall include the singular and the plural as
applicable.
(b) As part of each such award, the arbitrator shall establish the
reasonable fee of the neutral arbitrator in accordance with the rules of
the AAA and expenses in connection therewith. In the event that the
arbitrator shall totally uphold any claim by FTNC, then FTNC shall be
entitled to reimbursement of the attorneys' fees and other costs out of
Escrow Fund A or Escrow Fund B, as applicable. In the event that the
arbitrator shall totally deny any claim by FTNC, then the Sellers shall
be entitled to reimbursement of attorneys' fees and other costs by FTNC.
If any claim is partially upheld, there shall be distributed or paid out
of the Escrow Fund A or Escrow Fund B, as applicable, the proportion of
the total costs which bears the same ratio as the portion of the claim
which is upheld bears to the entire claim and the balance shall be paid
by FTNC. Any part of the fees and expenses of the neutral arbitrator or
the attorneys' fees of FTNC to be distributed or paid out of Escrow Fund
A or Escrow Fund B, as applicable, shall be specifically so directed in
the arbitrator's award.
(c) Any award shall be a conclusive determination of the matter and
shall be binding upon FTNC and any of its Affiliates, including FTB, the
Sellers, the Sellers' Representative and the Escrow Agent, and shall not
be contested by any of them. In the event that the arbitrator shall
determine that FTNC shall be entitled to any indemnification by reason of
its claim, an executed copy of the award setting forth the amount of the
indemnification shall be delivered to the Escrow Agent, and the Escrow
Agent shall thereupon make a distribution or payment from Escrow Fund A
or Escrow Fund B, as applicable, to FTNC in accordance with Section 1.05
of the amount to which such party is entitled for
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<PAGE> 158
indemnification, together with the portion, if any, of the arbitrator's
fee to be paid from escrow fund A or Escrow Fund B, as applicable.
(d) If a matter claimed to be subject to indemnification involves a
third party claim which has not yet been determined, the arbitrator may
in his discretion make a separate determination solely as to whether the
third-party claim is one for which indemnification may be had or may
defer a determination as to whether indemnification may be had pending
further development of information as to the nature of the third-party
claim. If the arbitrator determines that the matter is subject to
indemnification or defers such a determination, the arbitrator may then
adjourn the arbitration proceeding pending the outcome of the third-party
claim, and determine the amount of the indemnification at such time. If
the arbitrator determines that the third-party claim is not subject to
indemnification, he shall set forth the basis of his decision in detail.
3.06. Investments of Reserves. Any Reserves relating to Escrow Fund A
and Escrow Fund B may be invested by the Escrow Agent, and, upon the written
request of L. Gregory Brown as the Sellers' Representative, shall be invested,
as directed by such Sellers' Representative, by the Escrow Agent, if and to the
extent then permitted by law, in direct obligations of the United States of
America or obligations which as to principal and interest constitute full faith
and credit obligations of the United States of America which have a maturity of
not more than 365 days or in any mutual fund selected by the Escrow Agent in
its discretion which is rated by a nationally recognized rating agency and
which invests solely in the foregoing described securities or repurchase
agreements fully collateralized by such securities ("Substitute Escrow
Assets"). Any interest, profit or loss on such investments shall be credited or
charged to the applicable Reserve and shall remain part of Escrow Fund A or
Escrow Fund B, as applicable, and subject to FTNC's escrow interest and
security interest. The Escrow Agent may sell or present for redemption any
obligations so purchased whenever it shall be necessary in order to provide
moneys to meet any payment, and neither the Escrow Agent nor the Sellers'
Representative shall be liable or responsible for any loss resulting from such
investment. The Escrow Agent may act as principal or agent in the making or
disposing of any investment.
4. Transfer of Interest in Escrow Shares. No Seller may assign or
transfer his interest in the A Escrow Shares or any related Reserves or the B
Escrow Shares or any related Reserves in whole or in part, except as required
by operation of law and except for sales as provided in Section 1.05. Any
assignment or transfer made in violation of this Section 4 shall be void ab
initio. In the event of any transfer by operation of law, and notwithstanding
any attempted assignment or transfer in violation of this Section 4, all Escrow
Shares and Reserves shall remain subject to this Escrow Agreement and no
assignment or transfer by operation of law or attempted assignment or transfer
in violation of this Section 4 by any Seller shall in any way affect any rights
or security interest FTNC may have in such Escrow Shares or Reserves. Upon any
such permitted assignment or transfer, the Escrow Agent shall notify the other
parties hereto of the name(s), address(es) and interest(s) of the assignee(s)
or transferee(s) who shall thereupon become "Sellers" for purposes of this
Escrow Agreement. No right or interest of any Seller in the Escrow Shares or
in his or its account shall be liable for, or subject to, any other obligation
or liability of such Seller other than such obligations and liabilities that
exist under the Merger Agreement.
5. Sharing of Claims and Expenses. Except as otherwise agreed by the
Sellers, all amounts paid from Escrow Fund A or Escrow Fund B shall be charged
proportionately to each of the Sellers according to their respective interest
as set forth on Schedule A hereto.
6. Termination of Escrow. When all Escrow Shares and Reserves
therefrom held by Escrow Agent have been finally distributed in accordance
herewith, this Escrow Agreement shall terminate.
7. Distributions to Sellers. Unless otherwise specifically provided
herein, whenever it is provided in this Escrow Agreement that distributions of
Escrow Shares or cash shall be made pro rata to Sellers, such distributions
shall be made in the relative proportions indicated on Schedule A hereto.
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<PAGE> 159
8. Fractional Share Interests. FTNC shall not be required to issue
certificates for any fractional share interest to which any Sellers may be
entitled upon distribution of the Escrow Shares pursuant to Section 1.02. In
lieu of issuance, fractional share interests shall be aggregated and rounded
down to the nearest whole share, and the Escrow Agent shall cause such shares
to be sold and the proceeds therefrom to be distributed to such Sellers in
accordance with their relative interests in such fractional share interests.
9. Expenses. The expenses of the Sellers' Representative shall be
paid subsequent to the payment of all Escrow Claims at the end of the
applicable Escrow Period. Such payments shall be made in cash by the Escrow
Agent by withdrawing an amount out of Escrow Fund A or Escrow Fund B, as
applicable, in accordance with Section 1.05 and causing the applicable Escrow
Shares so withdrawn to be sold. If the Sellers' Representative incurs or pays
any costs or expenses as authorized under Section 2 of this Escrow Agreement,
then the Sellers' Representative shall give notice of such costs and expenses
to FTNC and the Escrow Agent. Any such claims by the Sellers' Representative
shall be paid in cash as described above. The Escrow Agent shall be reimbursed
for its normal out-of-pocket expenses including, but not by way of limitation,
the fees and costs of attorneys or agents which it may find necessary to engage
in performance of its duties hereunder, including costs arising from the
defense of any suits in which the Escrow Agent is named as a defendant. The
expenses of the Escrow Agent shall be paid in cash in full within thirty (30)
days following the Escrow Agent's notice to FTNC and the appropriate Sellers'
Representative of such costs and expenses. Such payments shall be made by
withdrawing an amount out of Escrow Fund A or Escrow Fund B, as applicable, in
accordance with Section 1.05 and causing the applicable Escrow Shares so
withdrawn to be sold.
10. Notices. Any notice required or permitted to be given hereunder
shall be deemed to be sufficiently given if delivered personally or sent by
registered or certified mail, postage prepaid, or by overnight courier or
telecopy, addressed to the addressee at his or its address last furnished to
the sender in writing by the addressee for the purpose of receiving notices
under this Escrow Agreement, or, unless and until such address shall have been
so furnished, addressed to the addressee as follows:
TO FTNC: First Tennessee National Corporation
P.O. Box 84
Memphis, Tennessee 38101
Attention: Elbert L. Thomas, Jr.,
Harry A. Johnson, III, Esq.
Telecopier: (901) 523-4614
with a copy to: Heiskell, Donelson, Bearman,
Adams, Williams & Caldwell
2000 First Tennessee Building
Memphis, Tennessee 38103
Attention: Charles T. Tuggle, Jr., Esq.
Telecopier: (901) 577-2303
TO SELLERS'
REPRESENTATIVE: (i) L. Gregory Brown
612 West 47th Street
Kansas City, Missouri 64112
Attention: L. Gregory Brown
Telecopier: (816) 756-3248
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<PAGE> 160
(ii) J.D. Zimmerman, Esq.
5819 Nieman Road
Shawnee, Kansas
Attention: J.D. Zimmerman, Esq.
Telecopier: (816) 268-8877
with a copy to: Youngblood & Owens, LC
600 N. Pearl, Suite 600
Dallas, TX 75201
Attention: Diane S. Owens
Telecopier: (214) 969-5701
TO ESCROW AGENT: First Tennessee Bank National Association,
Corporate Trust Division
4385 Poplar Avenue
Memphis, Tennessee 38117
Attention: Dennis D. Gillespie
Telecopier: (901) 681-2450
11. Liability of Escrow Agent. The Escrow Agent's sole liability
hereunder shall be to hold the Escrow Shares and any moneys received with
respect thereto, and to make payments, distributions and withdrawals therefrom
in accordance with the terms of this Escrow Agreement and to distribute
information as provided in Section 1.03 hereof. The Escrow Agent shall at no
time during the performance of its duties hereunder be required to advance any
of its own funds in order to satisfy its obligations hereunder. The Escrow
Agent shall not be liable for any act performed in good faith or in reliance on
any document, instrument or statement believed by it to be genuine. The Escrow
Agent may rely upon any instruction by either Sellers' Representative. The
Escrow Agent shall not be liable for any of its own acts or omissions unless it
is determined by a court of competent jurisdiction by clear and convincing
evidence that the Escrow Agent is guilty of gross negligence or willful
misconduct. If any dispute should arise with respect to the payment or
ownership or right of possession of Escrow Fund A or Escrow Fund B, or any part
of either of them, at any time, which cannot be settled under other provisions
hereof, the Escrow Agent is authorized to retain in its possession, without
liability to anyone, all or any part of Escrow Fund A or Escrow Fund B, as
applicable, or the proceeds from any sale thereof until such dispute shall have
been settled either by mutual agreement between the parties concerned or until
otherwise ordered by a court having jurisdiction over it or by arbitration as
provided in Section 3.05.
12. Resignation or Removal of Escrow Agent. The Escrow Agent may
resign following the giving of thirty (30) days' prior written notice to the
other parties hereto. Similarly, the Escrow Agent may be removed and replaced
following the giving of thirty (30) days' prior written notice to the Escrow
Agent by each of the other parties hereto. In either event, the duties of the
Escrow Agent shall, if a successor has been appointed, terminate thirty (30)
days after the date of such notice (or as of such earlier date as may be
mutually agreeable); and the Escrow Agent shall then deliver the balance of
Escrow Fund A and Escrow Fund B, as applicable, then in its possession to a
successor Escrow Agent as shall be appointed by the other parties hereto as
evidenced by a written notice filed with the Escrow Agent.
If the other parties hereto are unable to agree upon a successor or
shall have failed to appoint a successor prior to the expiration of thirty (30)
days following the date of notice of resignation or removal, the then acting
Escrow Agent may petition any court of competent jurisdiction for the
appointment of a successor Escrow Agent or otherwise appropriate relief; and
any such resulting appointment shall be binding upon all of the parties hereto.
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<PAGE> 161
Upon acknowledgment by any successor Escrow Agent of the receipt of the
then remaining balance(s) of Escrow Fund A and Escrow Fund B, as applicable,
the then acting Escrow Agent shall be fully released and relieved of all
duties, responsibilities, and obligations under this Escrow Agreement.
13. Continuance of Escrow Agreement. This Escrow Agreement shall be
binding upon the parties hereto and their respective transferees, successors,
assigns, legal representatives, heirs and legatees.
14. Amendment. This Escrow Agreement may be amended only in writing
and only if executed by FTNC, Escrow Agent and the Sellers' Representative for
the applicable fund affected by such amendment.
15. Assignment. FTNC may, upon written notice to each Sellers'
Representative and the Escrow Agent, assign all of its rights, duties and
interests hereunder to FTB or any of its other Affiliates, which, upon such
assignment, shall succeed to all such rights, duties and interests.
16. Governing Law. This Escrow Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Tennessee.
17. Escrow Agent's Compensation. By the execution of this Escrow
Agreement, the Escrow Agent acknowledges the receipt of ___________________
_____ AND NO/100 DOLLARS ($___________________) from FTNC (the "Payment"). The
Payment is in full satisfaction of all fees owing to Escrow Agent (except as
provided in this paragraph) for the term of this Escrow Agreement. The
expenses of Escrow Agent incurred in connection with this Escrow Agreement
shall be paid in accordance with the terms of Section 9 above. The Escrow
Agent may elect to charge any individual Seller the Escrow Agent's then current
transaction fee for any investment instruction given pursuant to Sections 1.05,
3.06 or 4 of this Escrow Agreement.
18. Business Day. For purposes of this Escrow Agreement, the term
"Business Day" shall mean any day on which (i) banks in Tennessee and Missouri
are not required or authorized to remain closed, and (ii) The New York Stock
Exchange is not closed.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date and year first above written.
ESCROW AGENT
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By:
---------------------------------------
Title:
------------------------------------
FTNC
FIRST TENNESSEE NATIONAL CORPORATION
By:
---------------------------------------
Title:
------------------------------------
SELLERS' REPRESENTATIVE WITH RESPECT TO ESCROW FUND A
-----------------------------------------------------
JEFFREY D. ZIMMERMAN
SELLERS' REPRESENTATIVE WITH RESPECT TO ESCROW FUND B
-----------------------------------------------------
L. GREGORY BROWN
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<PAGE> 162
ESCROW AGREEMENT
DATED AS OF ______________, 1995
SCHEDULE A
<TABLE>
<S> <C>
Seller Percentage of Escrow Shares
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- ---------------------- ---------------------------
- ---------------------- ---------------------------
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</TABLE>
<PAGE> 163
Formula for determining the number of shares of FTNC Common Stock to be
deposited in escrow by each of the above holders:
Escrow Shares multiplied by the percentage set forth opposite the holders' name
above.
<PAGE> 164
EXHIBIT "E"
FORM OF SELLERS' REPRESENTATIVE AND
PAYING AGENT AGREEMENT
THIS SELLERS' REPRESENTATIVE AND PAYING AGENT AGREEMENT (this "Paying
Agent Agreement"), dated as of _______________, 1995, is made by and among
those persons listed on the signature pages hereto (collectively, the "Sellers"
and singly, a "Seller"), L. GREGORY BROWN ("Brown") for the purposes set forth
in Section 1(a) below, and JEFFREY D. ZIMMERMAN ("Zimmerman") for the purposes
set forth in Section 1(b) below. All terms not otherwise defined in this
Paying Agent Agreement shall have the meanings set forth in the Agreement (as
defined in Recital B below).
RECITALS
A. Sellers own all of the issued and outstanding capital stock of Carl
I. Brown and Company, a Kansas corporation ("Mortgage Bank").
B. First Tennessee Bank National Association ("FTB") and First
Tennessee National Corporation ("FTNC") have entered into an Agreement and Plan
of Merger with Mortgage Bank dated as of September __, 1994 (the "Agreement"),
pursuant to which FTB will acquire all of the issued and outstanding capital
stock of Mortgage Bank pursuant to a merger (the "Acquisition").
C. In connection with the Agreement and the Acquisition, Sellers
desire to appoint Brown and Zimmerman to represent Sellers and enforce Sellers'
rights under the Agreement for the respective purposes set forth below.
D. Sellers also desire to appoint Brown to act as the paying agent for
purposes of collecting, holding and disbursing the consideration to be
exchanged under the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Designation.
(a) Brown. Subject to the terms and conditions of this Paying Agent
Agreement and the Agreement, Brown is designated by each of the Sellers to
serve as the sole representative of the Sellers with respect to the matters set
forth herein, in the Agreement, the Sellers' Agreement and the Escrow Agreement
with respect to calculation of Closing Purchase Price and Final Purchase Price
and for claims for indemnification by FTNC or FTB under Section 9.1(a)(iv) of
the Agreement.
(b) Zimmerman. Subject to the terms and conditions of this Paying
Agent Agreement and the Agreement, Zimmerman is designated by each of the
Sellers to serve as the sole representative of the Sellers with respect to the
matters set forth herein, in the Agreement, the Sellers' Agreement, and the
Escrow Agreement, with respect to claims for indemnification by FTNC or FTB
under Section 9.1(a)(i), (ii), (iii), (v), (vi), (vii) and (viii) of the
Agreement.
2. Authority. (a) Each of the Sellers, by execution of this
Agreement, irrevocably appoint Brown as the agent, proxy, and attorney-in-fact
for such Seller for all purposes of the Agreement and the Escrow Agreement set
forth in Section 1(a) above, including full power and authority on such
Seller's behalf to:
(a) take all actions which Brown considers necessary or
desirable in connection with the defense, pursuit or settlement of any
adjustments to the Closing Purchase Price and any claims for
indemnification pursuant to Section 9.1(a)(iv) of the Agreement,
including to sue, defend,
<PAGE> 165
negotiate, settle, compromise and otherwise handle any such
adjustments to the Closing Purchase Price and any such claims for
indemnification made by or against, and any other disputes with, FTB
or FTNC pursuant to the Agreement, Escrow Agreement, the Sellers'
Agreement or any of the agreements or transactions contemplated
thereby;
(b) engage and employ agents and representatives (including
accountants, legal counsel and other professionals) and to incur such
other expenses as it shall deem necessary or prudent in connection
with the administration of the foregoing;
(c) provide for all expenses incurred in connection with the
administration of the foregoing to be paid by directing the Sellers to
pay (or to reimburse Brown for) such expenses in the amounts
determined by applying the procedures specified in Section 9 below;
(d) disburse all indemnification payments received from FTB
and FTNC under the Agreement in the amounts determined by applying the
procedures specified in Section 9 below;
(e) accept and receive notices with respect to the matters set
forth in Section 1(a) above pursuant to the Agreement and Escrow
Agreement;
(f) take all other actions and exercise all other rights which
Brown (in his sole discretion) considers necessary or appropriate in
connection with the Agreement, the Sellers' Agreement and the Escrow
Agreement with respect to the matters set forth in Section 1(a) above;
and
(g) direct the Escrow Agent (as defined in the Escrow
Agreement) to disburse remaining Escrow Shares (as defined in the
Escrow Agreement) and any Reserves in the Escrow Fund and in the Taxes
Escrow Fund (as defined in the Escrow Agreement) upon termination of
the Escrow Agreement in accordance with its terms.
Each Seller agrees that such agency and proxy are coupled with an interest, and
are therefore irrevocable without the consent of Brown and shall survive the
death, incapacity, bankruptcy, dissolution or liquidation of any Seller. All
decisions and acts by Brown shall be binding upon all the Sellers, and no
Seller shall have the right to object, dissent, protest or otherwise contest
the same.
(b) Each of the Sellers, by execution of this Agreement, irrevocably
appoint Zimmerman as the agent, proxy, and attorney-in-fact for such Seller for
all purposes of the Agreement and the Escrow Agreement set forth in Section
1(b) above, including full power and authority on such Seller's behalf to:
(a) take all actions which Zimmerman considers necessary or
desirable in connection with the defense, pursuit or settlement and
any claims for indemnification with respect to the matters set forth
in Section 1(b) above, including to sue, defend, negotiate, settle,
compromise and otherwise handle any such claims for indemnification
made by or against, and any other disputes with, FTB or FTNC pursuant
to the Agreement, Escrow Agreement, the Sellers' Agreement or any of
the agreements or transactions contemplated thereby;
(b) engage and employ agents and representatives (including
accountants, legal counsel and other professionals) and to incur such
other expenses as it shall deem necessary or prudent in connection
with the administration of the foregoing;
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<PAGE> 166
(c) provide for all expenses incurred in connection with the
administration of the foregoing to be paid by directing the Sellers to
pay (or to reimburse Zimmerman for) such expenses in the amounts
determined by applying the procedures specified in Section 9 below;
(d) disburse all indemnification payments received from FTB
and FTNC under the Agreement in the amounts determined by applying the
procedures specified in Section 9 below;
(e) accept and receive notices with respect to the matters set
forth in Section 1(b) above pursuant to the Agreement and Escrow
Agreement;
(f) take all other actions and exercise all other rights which
Zimmerman (in his sole discretion) considers necessary or appropriate
in connection with the Agreement, the Sellers' Agreement and the
Escrow Agreement with respect to the matters set forth in Section 1(b)
above.
Each Seller agrees that such agency and proxy are coupled with an interest, and
are therefore irrevocable without the consent of Zimmerman and shall survive
the death, incapacity, bankruptcy, dissolution or liquidation of any Seller.
All decisions and acts by Zimmerman shall be binding upon all the Sellers, and
no Seller shall have the right to object, dissent, protest or otherwise contest
the same.
3. Funding of Paying Agent.
As promptly as practicable after the Closing of the transactions
contemplated by the Agreement, FTNC (or its duly appointed transfer agent)
shall deliver to Brown the transmittal materials for use in exchanging the
Sellers' certificates of CIB Stock for FTNC Common Stock (except for those
shares of FTNC Common Stock being deposited into escrow pursuant to the terms
of the Escrow Agreement (the "Escrow Agreement")) and, except for the Escrow
Shares, upon surrender of the CIB Stock certificates and necessary transmittal
materials pursuant to Section 2.4 of the Agreement (the "Stock"), the Paying
Agent shall be entitled to receive the Stock.
4. Disposition of the Funds and Securities. Brown shall hold the FTNC
Common Stock and funds issued to Sellers in lieu of fractional shares of FTNC
Common Stock in trust for the Sellers and deliver such FTNC Common Stock and
funds as follows:
(a) As promptly as practicable after the Closing, Brown shall
deliver the FTNC Common Stock to the Sellers in accordance with
Exhibit A hereto.
(b) In addition, Brown shall deliver all funds to the Sellers
as promptly as practicable after Closing in pro rata portions to each
Seller.
5. Duties as Paying Agent. The duties of Brown as the paying agent are
only as herein specifically provided and are purely ministerial in nature. In
performing his duties hereunder, Brown shall act as an agent in a fiduciary
capacity on behalf of all parties.
6. Resignation. In the event that either Brown or Zimmerman shall
resign for any reason, Brown shall select another representative and paying
agent to fill such vacancies and such substituted representative/agent shall be
deemed to be the Sellers' representative and paying agent for all purposes of
the Agreement, the Escrow Agreement and the Sellers' Agreement.
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<PAGE> 167
7. Termination. Brown's obligation as paying agent shall terminate
when the FTNC Common Stock and any funds issued in lieu of fractional shares
thereof, have been fully distributed in accordance with the provisions of
Section 4 above.
8. Exculpation. Neither Brown nor Zimmerman nor any agent employed by
either of them shall be liable to any Seller relating to the performance of his
duties under this Paying Agent Agreement as Sellers' Representative or Paying
Agent, as applicable, for any errors in judgment, oversight, breach of duty or
otherwise except to the extent it is finally determined in a court of competent
jurisdiction that the actions taken or not taken by Brown or Zimmerman, as
applicable, constituted gross negligence, fraud or were taken or not taken in
bad faith. Brown and Zimmerman shall each be indemnified and held harmless by
each Seller, in amounts determined by applying the procedures specified in
Section 9, against all expenses (including attorneys' fees), judgements, fines
and other amounts paid or incurred in connection with any action, suit,
proceeding or claim to which Brown or Zimmerman is made a party by reason of
the fact that he was acting as Sellers' Representative or Paying Agent, as
applicable, pursuant to this Paying Agent Agreement, the Agreement or the
Escrow Agreement; provided, however, that neither Brown nor Zimmerman, shall be
entitled to indemnification hereunder to the extent it is finally determined in
a court of jurisdiction that the actions taken or not taken by such person
constituted gross negligence or fraud or were taken or not taken in bad faith.
Each of Brown and Zimmerman shall be protected in acting upon any notice,
statement or certificate believed by him to be genuine and to have been
furnished by the appropriate person and in acting or refusing to act in good
faith or any matter. With respect to his duties as paying agent, Brown may, in
the event of any conflict between the parties to this Paying Agent Agreement,
institute an interpleader action, suit or proceeding he deems appropriate to
resolve the conflict.
9. Allocation of Payments. Whenever Sellers are entitled to receive
any payments under the Agreement or are obligated to make any payments under
the Agreement, each Seller shall be entitled to receive or shall be obligated
to make such portion of any such payment that is equal to his pro rata interest
with respect thereto.
10. Counterparts. This Paying Agent Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one Agreement.
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<PAGE> 168
11. Governing Law. This Paying Agent Agreement shall be governed by
and construed in accordance with the laws of the State of ________________,
without giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Paying Agent
Agreement to be executed by their duly authorized officers as of the date first
written above.
SELLERS:
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<PAGE> 169
EXHIBIT "F"
FORM OF SELLERS' AGREEMENT
THIS SELLERS' AGREEMENT (the "Sellers' Agreement"), dated as of
January __, 1995, is made by and among the Persons listed on the signature pages
attached hereto (collectively, the "Sellers" and singularly, a "Seller"), CARL
I. BROWN, individually, and MOLLY S. BROWN, individually (Carl I. Brown and
Molly S. Brown collectively "the Browns"), FIRST TENNESSEE BANK NATIONAL
ASSOCIATION ("FTB"), and FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"). All
terms not otherwise defined in this Sellers' Agreement shall have the meanings
set forth in the Merger Agreement (as defined in Recital B below).
RECITALS
A. Sellers own ninety and one-half percent (90 1/2%) of the issued and
outstanding capital stock of Carl I. Brown and Company, a Kansas corporation
("Mortgage Bank").
B. FTB and FTNC have entered into an Agreement and Plan of Merger with
Mortgage Bank dated as of September 6, 1994 (the "Merger Agreement"), which
provides that FTB will acquire all of the issued and outstanding capital stock
of Mortgage Bank pursuant to the merger of First Tennessee Interim Corporation
with and into Mortgage Bank (the "Merger" or "Acquisition").
C. In connection with the Merger Agreement, and in furtherance of its
purposes, Sellers, the Browns, FTB and FTNC desire to make the agreements
contained in this Sellers' Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Ownership of Shares. Each Seller represents that it has good and
marketable title to the issued and outstanding capital stock of Mortgage Bank
to be exchanged by such Seller pursuant to the Merger Agreement, free and clear
of all Encumbrances, contracts, rights, options and assignments whatsoever.
Following the Merger, in accordance with the terms and subject to the
conditions of the Merger Agreement and this Sellers' Agreement, FTB shall have
good and marketable title to ninety and one-half percent (90.5%) of the issued
and outstanding shares of CIB Common Stock which are all of the shares of CIB
Common Stock to be exchanged by the Sellers, free and clear of any and all
claims, charges, defenses, offsets, Encumbrances of any kind or nature,
contracts, rights, options and assignments.
2. Sellers' Refund. If the Final Purchase Price is less than the
Closing Purchase Price or if Sellers are required to make payments to FTNC
under Section 2.10 of the Merger Agreement, each Seller shall refund or pay to
FTNC, at such Seller's option (and, as to any holder of CIB Common Stock who is
not a Seller but who receives FTNC Common Stock in connection with the Merger,
the Browns agree to cause such Person to refund or pay to FTNC at such Person's
option), either (i) cash or (ii) FTNC Common Stock valued at the Closing
Measurement Price, as to each Seller or Person, proportionate to the amount of
FTNC Common Stock received by such Seller or Person at Closing and having an
aggregate value equal to the difference between the Final Purchase Price and
the Closing Purchase Price and/or the amounts due under Section 2.10 of the
Merger Agreement, as applicable.
3. Indemnification.
(A) Sellers have delivered to FTNC and FTB this date at FTNC's expense
the Escrow Agreement, the purpose of which shall be to secure and fund in part
Mortgage Bank's liability for breach of any representation, warranty, covenant
and indemnity obligations under the Agreement up to the respective amounts of
Escrow Fund A and Escrow Fund B (as defined in the Escrow Agreement). As to
any claim or right of FTNC or FTB against Mortgage Bank arising from Mortgage
Bank's breach of any representations, warranties and covenants
<PAGE> 170
provided in, and from Mortgage Bank's indemnity obligations arising under the
Merger Agreement ("Escrow Claims"), FTNC or FTB shall first proceed against
Escrow Fund A and Escrow Fund B, as applicable, and if there remain any
unsatisfied Escrow Claims, FTNC may then proceed against the Sellers under
Sections 3(B) and 3(C) below and the Browns under Section 3(D) below. Except
as to the Sellers' and Browns' joint and several guarantee and indemnity
obligations herein provided and as provided in the Escrow Agreement, the
Sellers and the Browns shall not have any other or additional direct or
personal liability for Mortgage Bank's duties, liabilities and obligations
under the Merger Agreement. The terms and provisions set forth in the Escrow
Agreement shall be substantially in the form set forth in Exhibit "C" to the
Merger Agreement with such changes as shall be reasonably mutually
satisfactory.
(B) From and after the Closing Date, each Seller, jointly and
severally, for themselves, their heirs, executors, administrators, successors
and assigns, absolutely and unconditionally guarantees the indemnity
obligations of Mortgage Bank arising under Sections 9.1(a)(i), (ii), (iii),
(v), (vi), and (vii). The aggregate amount the Sellers shall be required to
pay under this Section 3(B) shall not exceed Three Million Dollars
($3,000,000.00).
(C) From and after the Closing Date, each Seller, jointly and
severally, for themselves, their heirs, executors, administrators, successors
and assigns, absolutely and unconditionally guarantees the indemnity
obligations of Mortgage Bank arising under Sections 9.1(a)(iv) and (viii) of
the Merger Agreement. The aggregate amount the Sellers shall be required to
pay under this Section 3(C) shall not exceed the Final Purchase Price.
(D) (i) From and after the Closing Date, each of the Browns hereby
jointly and severally (together with the Sellers), for themselves, their heirs,
executors, administrators, successors and assigns, absolutely and
unconditionally guarantees the indemnity obligations of Mortgage Bank arising
under Section 9.1(a)(iv) of the Merger Agreement; provided, however, that no
claim may be made by FTNC or FTB against either of the Browns under this
Section 3(D)(i) except on the condition that funds or assets then available in
Escrow Fund B are not sufficient to satisfy in full a claim for indemnity
arising under Section 9.1(a)(iv) of the Merger Agreement.
(ii) From and after the Closing Date, each of the Browns hereby
jointly and severally, for themselves, their heirs, executors, administrators,
successors and assigns, absolutely and unconditionally guarantees the indemnity
obligations of Mortgage Bank arising under Sections 9.1(a)(i), (ii), (iii),
(v), (vi), (vii) and (viii) of the Merger Agreement; provided, however, that no
claim may be made by FTNC or FTB against either of the Browns under this
Section 3(D)(ii) except on the conditions that (x) funds or assets then
available in Escrow Fund A are not sufficient to satisfy such claim in full,
(y) if any one or more of the Sellers is then in existence, FTNC or FTB shall
have first made a claim against the then existing Sellers under Sections 3(B)
or 3(C) or both, as applicable, and such Sellers are unable to satisfy in full
such claims because they do not have sufficient assets and (z) if any one or
more of the Sellers shall have made one or more distributions to any one or
more partners (other than either or both of the Browns) and, as a result, the
Person or Persons to whom the distributions have been made have assumed the
joint and several guaranty obligations of the distributing Seller as provided
in Section 3(M)(vii) of this Sellers' Agreement, FTNC or FTB shall have made
written demand on such Persons and such Persons shall not have honored FTNC's
or FTB's demand within thirty (30) days of the date such demand is made or, if
they have honored such demand, the aggregate amounts paid by any such Persons
do not satisfy in full the indemnity obligations for which FTNC or FTB has made
demand.
(iii) Each of the Brown's joint and several guaranty obligations under
this Section 3(D) shall not exceed the aggregate fair market value (determined
as to each distribution at the time such distribution is made) of the
distributions and the unpaid balance of any loans received by him or her,
respectively, from (x) the grantor retained annuity trusts executed by each of
them under Grantor Retained Annuity Trust Agreements dated on or
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before September 30, 1994 (the "GRATS") (copies of which are attached as
Attachments B-1 and B-2), or (y) from any one or more Sellers, or (z) both.
(iv) Neither Carl I. Brown nor Molly S. Brown shall have individual
liability in their capacity as the general partners of the Sellers for any
obligations of the Sellers under this Sellers' Agreement, provided that this
provision shall not limit the duties, liabilities or obligations of Carl I.
Brown or Molly S. Brown, as herein described, in their respective capacities as
joint and several guarantors in their individual capacities.
(E) The respective joint and several guarantee obligations of the
Sellers under Sections 3(B) and 3(C) and the Browns under Section 3(D) for a
specific Escrow Claim made by FTNC or FTB shall be reduced by amounts actually
received by FTNC or FTB from Escrow Fund A or Escrow Fund B for that specific
Escrow Claim.
(F) The joint and several guaranties set forth in Section 3(B), (C)
and (D) above shall each be a guarantee of payment and not of performance and
shall each be a continuing, absolute and unconditional guaranty, and shall
remain in full force and effect until the following dates, as applicable:
(i) The joint and several guaranties set forth in Sections
3(B) and 3(D)(ii) above (except for the guaranty of Mortgage Bank's
indemnification obligations under Section 9.1(a)(viii) of the Merger
Agreement and Section 9.1(a)(vii) of the Merger Agreement, if Sellers'
Representative exercises his option provided in Section 9.1(d)(iv) of
the Merger Agreement) shall remain in full force and effect until the
first (1st) anniversary of the Closing Date (or, if such day is not a
business day, until the next business day following such date);
(ii) The joint and several guaranties set forth in Sections
3(C) and (D)(i) above as to Mortgage Bank's indemnity obligations
arising under Section 9.1(a)(iv) of the Merger Agreement shall remain
in full force and effect for so long as the conditions described in
Section 9.1(d)(ii) of the Merger Agreement could be satisfied;
(iii) The joint and several guaranties set forth in Sections
3(C) and 3(D)(ii) above as the Mortgage Bank's indemnity obligations
arising under Section 9.1(a)(viii) of the Merger Agreement shall
remain in full force and effect until the fifth (5th) anniversary of
the Closing Date (or, if such day is not a business day, until the
next business day following such date);
(iv) The joint and several guaranties set forth in Sections
3(B) and 3(D)(ii) above (as to Mortgage Bank's indemnification
obligations arising under Section 9.1(a)(vii) of the Merger Agreement)
shall, upon the exercise by Sellers' Representative of his option
provided in Section 9.1(d)(iv) of the Merger Agreement, remain in full
force and effect until the second (2nd) anniversary of the Closing
Date (or, if such day is not a business day, until the next business
day following such date);
(v) Notwithstanding the provisions of (i), (ii), (iii) and
(iv) above, if any Unresolved Claims (as defined in the Merger
Agreement) are outstanding on the Representations and Warranties
Expiration Date (as defined in the Merger Agreement) or the Section
3.12 and Certain Indemnities Expiration Date (as defined in the Merger
Agreement) the respective joint and several guaranty obligations of
the Sellers and the Browns, as herein specified, as they related to
Unresolved Claims, shall survive until the date of final resolution of
such Unresolved Claims.
(G) Each of FTNC and FTB is hereby expressly authorized to make from
time to time without notice to, receipt of consent by or agreement of, any
guarantor hereunder any modifications, amendments or waivers
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as to the Merger Agreement, including, but not limited to, all or any of its
rights or remedies under Article IX of the Agreement; and the liability of any
Seller or either of the Browns hereunder shall not be in any manner affected,
diminished or impaired thereby. It is expressly agreed that FTNC or FTB may at
any time make demand for payment hereunder on or bring suit against any Seller
or either of the Browns, may settle with any Seller or either or both of the
Browns for such sums or on such terms as FTNC or FTB may see fit and release
such Seller or either or both of the Browns from all further liability to FTNC
or FTB, without thereby impairing the rights of FTNC or FTB in any respect to
demand, sue for and collect the balance of any amounts owing to FTNC or FTB
from any Seller or either or both of the Browns not so released; and any claims
against Mortgage Bank or against any other Seller or either or both of the
Browns accruing to any Seller or either or both of the Browns by reason of
payments made hereunder shall be in all respects junior and subordinate to any
obligation then or subsequently owed by Mortgage Bank or by such other Seller
or either or both of the Browns to FTNC or FTB.
(H) Notwithstanding any other provision of this Sellers' Agreement to
the contrary, if the obligations of any Seller or either of the Browns
hereunder would otherwise be held or determined by a court of competent
jurisdiction in any action or proceeding involving any state corporate law or
any state or Federal bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other law affecting the rights of creditors generally,
to be void, invalid or unenforceable to any extent on account of the amount of
such Seller's or either of the Browns' liability under this Sellers' Agreement,
then notwithstanding any other provision of this Sellers' Agreement to the
contrary, the amount of such liability shall, without any further action by
such Seller or either of the Browns or any other person, be automatically
limited and reduced to the highest amount which is valid and enforceable as
determined in such action or proceeding.
(I) FTNC and FTB may without any notice whatsoever to anyone, sell,
assign or transfer all or any portion of its rights hereunder; and in that
event each and every immediate and successive assignee, transferee or holder of
all or any part of said rights shall have the right to enforce this Sellers'
Agreement, by suit or otherwise, for the benefit of such assignee, transferee
or holder, as fully as though such assignee, transferee or holder were herein
by name given such rights, powers and benefits; but FTNC shall have an
unimpaired right, prior and superior to that of any said assignee, transferee
or holder, to enforce this Sellers' Agreement for the benefit of FTNC as to so
much of its rights that have not been sold, assigned or transferred.
(J) ALL OF THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST THE OTHER ON
ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SELLERS'
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
(OR WHICH MAY BE DELIVERED IN THE FUTURE) IN CONNECTION HEREWITH.
(K) Each Seller and, as applicable, each of the Browns represents and
warrants that:
(i) Each Seller is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
Missouri; each Seller has the power and authority to own its
properties and assets and is duly qualified to carry on its business
in every jurisdiction wherein such qualification is necessary.
(ii) The execution, delivery and performance of this Sellers'
Agreement by each Seller and each of the Browns have been duly
authorized by all requisite action and will not violate any provision
of law, any order of any court or other agency of government, the
limited partnership agreement of any Seller, any provision of any
indenture, agreement or other instrument to which any Seller or either
of the Browns is a party, or by which any Seller's or either of the
Browns' respective properties or assets
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are bound, or be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under
any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of any Seller
or either of the Browns.
(iii) Each Seller has good and marketable title to all its
properties and assets; and all such properties and assets are free and
clear of all liens, encumbrances or other restrictions except as
otherwise expressly permitted by the provisions hereof.
(L) Each Seller and each of the Browns covenants and agrees that from
the date hereof and until the expiration of the applicable periods described in
Section 3(F) hereof, unless with respect to each Seller's covenants and
obligations under Sections 3(L)(i) and (ii) below, such Seller first gives
notice to FTNC or FTB in writing of its intention to act or omit to act in any
manner that would result in the violation of such Sellers' covenants and
obligations but such Seller otherwise acts in full compliance with its
obligations under this Sellers' Agreement, each Seller will:
(i) Perform all things necessary to preserve and keep in full
force and effect its existence, rights and franchises, and comply with
all laws applicable to it.
(ii) Maintain, preserve, and protect all of its properties.
(iii) Furnish such information regarding the operations,
business affairs and financial condition of such Seller as FTNC may
reasonably request, including but not limited to true and exact copies
of its books of account and tax returns, and all information furnished
to the owners of its partnership interests, or any governmental
authority, and permit the copying of the same.
(M) Each Seller covenants and agrees that at all times from and after
the Closing Date and until the expiration of the applicable periods described
in Section 3(F) hereof, unless FTNC shall otherwise consent in writing, such
consent to be at the discretion of FTNC, no Seller will, either directly or
indirectly:
(i) Incur, create, assume or permit to exist any indebtedness
or liability, or on account of deposit, advance or progress payments
under contracts, or any other indebtedness or liability, including,
but not limited to, indebtedness evidenced by notes, bonds, debentures
or similar obligations except for those certain promissory notes (the
"Notes") executed by the Sellers in favor of Mortgage Bank (a) of even
date herewith having an aggregate principal balance of $1,000,000.00,
and (b) dated on or before April 15, 1995 having an aggregate
principal balance of $4,000,000.00 and a maturity date of not later
than July 15, 1995.
(ii) Create, assume or suffer to exist any mortgage, pledge,
lien, charge or other encumbrance of any nature whatsoever on any of
its assets, now or hereafter owned except for those certain Pledge and
Security Agreements executed by the Sellers of even date herewith in
order to secure the Sellers' obligations under the Notes.
(iii) Guarantee or otherwise in any way become or be
responsible for the indebtedness or obligations of any other Person,
by any means whatsoever, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of
funds to any other Person through the purchase of goods, supplies or
services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the indebtedness of
any other Person, or otherwise.
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<PAGE> 174
(iv) Sell, lease, transfer or dispose of all or a substantial
part of its assets except (i) in consideration for the fair value of
such asset in a transaction to parties that are not related to the
Browns by blood or marriage, (ii) for distribution to the GRATS for
the purpose of enabling the GRATS to make distributions to the Browns
pursuant to Section 2 of the GRATS and (iii) distributions to the
partners of a Seller.
(v) Enter into any transaction of merger or consolidation,
acquire any other business or corporation, or acquire all or
substantially all of the property or assets of any other Person.
(vi) Except in full compliance with the provisions of Section
3(M)(vii) below, declare or pay, or set apart any funds for the
payment of, any distributions on any partnership interest, or apply
any of its funds, properties, or assets to or set apart any funds,
properties or assets for, the purchase or other retirement of or make
any other distribution (whether by reduction of partnership capital or
otherwise) in respect of, any partnership interest; or pay any salary,
fee or other compensation of any nature to or for the benefit of the
Sellers or the Browns or any Person related to the Browns by blood or
marriage which exceeds in the aggregate the sum of One Thousand
Dollars ($1,000.00) in any fiscal year.
(vii) Except for (a) distributions to the GRATS for the
purpose of enabling the GRATS to make required distributions to the
Browns pursuant to Section 2 of the GRATS (but not including
distributions under Section 3 of the GRATS) and (b) distributions to
partners other than the GRATS in an amount not in excess of the
product of (1) their pro rata share under the Seller's partnership
agreement of any dividends received on the FTNC Common Stock times (2)
the combined highest marginal federal and Kansas state income tax rate
applicable in the year of receipt (taking into account the federal tax
benefit of deducting any state income tax), make any interim
distribution, distribution in liquidation of a partnership interest in
whole or in part or distribution in liquidation of the Seller to any
partner, except on the condition precedent that the Seller shall have
delivered to FTNC an assumption-of-liability agreement (an "Assumption
Agreement") in the form of Attachment "A" hereto, duly executed and
delivered by the partner to whom the distribution is made, and if the
distribution is to a GRAT for the benefit of anyone other than Carl I.
Brown or Molly S. Brown, an Assumption Agreement duly executed and
delivered by the beneficiary or beneficiaries of the GRAT. Under the
Assumption Agreement, the Person receiving the distribution and, if
the distributee is a GRAT, the beneficiary (other than Carl I. Brown
and Molly S. Brown) of the GRAT shall assume the joint and several
guaranty obligations of the distributing Seller up to, but not greater
than, the fair market value of the distribution on the date made. If
any person receiving any such distribution lacks legal capacity to
execute and deliver the Assumption Agreement, the Seller shall, prior
to making the distribution to such person, execute and deliver to FTNC
a security agreement or collateral pledge agreement in form and
substance satisfactory to FTNC securing the Seller's indemnification
obligations in an amount equal to the amount of such distribution and
shall take all actions required to perfect the security interest of
FTNC evidenced thereby including without limitation delivery to FTNC
or its designated bailee of the collateral, notation on the records of
a nominee or financial intermediary of a book entry transfer of the
security interest in the collateral and filing in the appropriate
offices of financing statements, as required under the Uniform
Commercial Code or other applicable law, and the distribution shall be
made subject to such security agreement or collateral pledge
agreement. For purposes of this Sellers' Agreement, the term
"partner" shall include Assignees and Partners of any Seller as those
terms are defined in Section 3.2 of the Seller's partnership
agreement.
(viii) Permit or allow loans to partners and employees of any
Seller, except for those certain loans by each Seller to Carl I. Brown
having an aggregate principal balance of $1,000,000.00.
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4. Resale Limitations/Representations.
Each Seller who is a director, executive officer or an "affiliate", and
each other director, executive officer or "affiliate" (for purposes of Rule 145
under the Securities Act) of Mortgage Bank shall deliver simultaneously with
this Sellers' Agreement to FTNC a written agreement satisfactory to FTNC
providing, among other matters, that such person will not sell, pledge,
transfer or otherwise dispose of, or take any action which would reduce his or
her risk with respect to, any shares of CIB Stock held by such person or the
shares of FTNC Common Stock to be received by such person on the Closing Date
(i) 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 (ii) during the periods during which any such sale, pledge,
transfer or other disposition or other action would, under GAAP or the rules,
regulations or interpretations of the SEC, disqualify the Acquisition for
pooling of interests accounting treatment. The Sellers and each of the Browns
understand that such period in general encompasses the period commencing thirty
(30) days prior to the Acquisition and ending at the time of the publication of
financial results covering at least thirty (30) days of combined operations of
FTNC and Mortgage Bank within the meaning of Section 201-01 of the SEC's
Codification of Financial Reporting Policies.
5. Pooling of Interests Accounting Treatment. None of the Sellers or
the Browns shall take any action or fail to take any action which would cause
the Acquisition to fail to qualify as a pooling-of-interests for accounting
purposes. FTB and FTNC acknowledge receipt of that certain Statement of Facts
and Planned Transactions dated September 1, 1994 (the "Statement") pursuant to
Section 5.13 of the Merger Agreement. Neither FTB nor FTNC shall assert and
each of them waives any claim for damages against any Seller or either of the
Browns if the Acquisition fails to qualify for pooling-of-interests accounting
treatment as the consequence of any fact or action described in the Statement.
6. Counterparts. This Sellers' Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
Agreement.
7. Governing Law. This Sellers' Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Sellers'
Agreement to be executed by their duly authorized officers as of the date first
written above.
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By:
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Title:
-----------------------------------
FIRST TENNESSEE NATIONAL CORPORATION
By:
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Title:
-----------------------------------
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SELLERS:
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CARL I. BROWN
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MOLLY S. BROWN
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ATTACHMENT "A"
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated and effective as of this
_____ day of ________________, 19__, by and between ____________________
_________________________________________________________ ("Assignor") and
___________________________________________________ ("Assignee"); Assignor and
Assignee individually a "Party" and collectively the "Parties".
W I T N E S S E T H :
WHEREAS, Assignor has entered into that certain Sellers' Agreement (the
"Sellers' Agreement") dated ____________, 1995, by and among Assignor,
___________________________________, ___________________________________,
___________________________________ (collectively, the "Sellers"), Carl I.
Brown, Molly S. Brown (Carl I. Brown and Molly S. Brown collectively, the
"Browns"), First Tennessee Bank National Association ("FTB") and First
Tennessee National Corporation ("FTNC") attached hereto as EXHIBIT "A"
providing, among other things, for the joint and several guaranty by Seller of
certain indemnification obligations of Carl I. Brown and Company ("Mortgage
Bank") in favor of FTNC and FTB;
WHEREAS, in connection with the distribution in the amount of
$_________________ (the "Distribution") that Assignor desires to make to
Assignee, Assignor is required under the Sellers' Agreement as a condition to
making the Distribution to assign and delegate to Assignee to the extent of the
amount of the Distribution Assignor's joint and several guarantee obligations
under the Sellers' Agreement subject to and in accordance with the terms and
conditions of this Assignment and Assumption Agreement; and
WHEREAS, to satisfy the requirements of the Sellers' Agreement to
enable Assignee to receive the Distribution, Assignee accepts from Assignor the
assignment and delegation of the duties and obligations of Assignor under the
Sellers' Agreement subject to and in accordance with the terms and conditions
of this Assignment and Assumption Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and
undertakings set forth herein, the receipt and sufficiency are hereby
acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized words and phrases used herein shall have the same meanings
as ascribed to them in the Sellers' Agreement and the Merger Agreement (as
defined in the Sellers' Agreement) unless the context hereof shall require
otherwise. The following words or phrases not defined in the Sellers' Agreement
shall have the following meanings:
ASSIGNEE:
----------------------------------
ASSIGNOR:
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DISTRIBUTION DATE: __________________, 19__.
DISTRIBUTION: That certain distribution having a fair market value on
the Distribution Date of $______________ to be distributed by Assignor to
Assignee on the Distribution Date.
ARTICLE II
AGREEMENT TO ASSIGN AND ASSUME
SECTION 2.01 ASSIGNMENT OF SELLERS' AGREEMENT
For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Assignor hereby assigns, transfers, conveys, sets over and
delegates to Assignee on and after the Distribution Date to the extent and
amount of the Distribution the Assignor's joint and several guarantee
obligations under the Sellers' Agreement. Assignee accepts and assumes, on and
after the Distribution Date the Assignor's duties and obligations thereunder.
If the Distribution is a partial distribution of Assignor's assets, Assignor is
not released from and shall remain fully liable as to its joint and several
guarantee obligations under the Sellers' Agreement, it being the intent of the
parties that following a partial distribution both the Assignor and the
Assignee (as to the Assignee up to the amount of the Distribution) shall have
joint and several liability as guarantors under the Sellers' Agreement.
ARTICLE III
WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF ASSIGNOR
Assignor represents and warrants to Assignee that, as of the
Distribution Date:
(a) Assignor is a limited partnership organized under the
laws of the State of Missouri, duly organized, validly existing and in good
standing in the jurisdiction of its organization [or Assignor is winding up its
affairs in connection with Seller's dissolution as a limited partnership in
accordance with the laws of the State of Missouri].
(b) Assignor has full power and authority to execute, deliver
and perform its obligations under this Assignment and Assumption Agreement; the
execution, delivery and performance of this Assignment and Assumption Agreement
by Assignor and the consummation of the transactions contemplated herein have
been duly and validly authorized; Assignor has duly executed and delivered this
Assignment and Assumption Agreement; and this Assignment and Assumption
Agreement constitutes the legal, valid and binding obligation of Assignor
enforceable in accordance with its terms, subject to bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the rights of
creditors generally, and to principles of equity.
(c) The Sellers' Agreement is in full force and effect.
SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF ASSIGNEE
Assignee hereby represents and warrants to Assignor that, as of the
Distribution Date:
(a) Assignee is a ________________ [under the laws of the
jurisdiction of its ______________________ duly organized, validly existing and
in good standing under the laws of the
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jurisdiction of its ________________________ and in any jurisdiction in which
such qualification is required in order to perform the acts contemplated to be
performed by it under this Assignment and Assumption Agreement].
(b) Assignee has the [requisite legal capacity, and the full
[corporate] power and authority] to execute and perform this Assignment and
Assumption Agreement; [the execution and performance of this Assignment and
Assumption Agreement by Assignee and the consummation of the transactions
contemplated herein have been duly and validly authorized;] Assignee has duly
executed and delivered this Assignment and Assumption Agreement; and this
Assignment and Assumption Agreement constitutes a legal, valid and binding
obligation of Assignee enforceable in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, moratorium and other laws affecting the
rights of creditors generally, and to principles of equity.
(c) Neither the execution and delivery of this Assignment and
Assumption Agreement, the acceptance and assumption by Assignee of Assignor's
duties and obligations under the Sellers' Agreement as set forth herein, nor
the fulfillment of or compliance with the terms and conditions of this
Assignment and Assumption Agreement conflicts with or results in a breach of
any of the terms, conditions, or provisions of [the [charter or
bylaws/certificate of [limited]partnership] of Assignee or] any agreement or
other instrument to which Assignee or [his/her/its] property is subject, or
constitutes a default under any of the foregoing, or results in the violation
of any law, rule, regulation, order, judgment or decree to which Assignee or
[his/her/its] property is subject.
(d) There is no litigation pending or, to Assignee's knowledge,
threatened which, if determined adversely to Assignee, would adversely affect
the execution, delivery or enforceability of this Assignment and Assumption
Agreement or which would have a material adverse effect on the financial
condition of Assignee or the ability of the Assignee to perform [his/her/its]
its obligations as set forth herein.
ARTICLE IV
COVENANTS
SECTION 4.01 SUBSEQUENT AGREEMENTS AND ACTIONS
Assignee and Assignor agree to execute and deliver to the other such
documents, to take such actions and make such adjustments and reconciliations
as may, from time to time, reasonably be requested of the other and to
cooperate in all material respects in order to effectuate the purposes and to
carry out the terms of this Assignment and Assumption Agreement and the
Sellers' Agreement to the extent of Assignee's assumption of Assignor's duties
and obligations hereunder and the transactions contemplated herein and therein.
Assignee expressly acknowledges and agrees that Assignor shall deliver an
executed copy of this Assignment and Assumption Agreement to FTNC and FTB in
accordance with the terms of the Sellers' Agreement, and that FTNC and FTB
shall be third party beneficiaries of this Assignment and Assumption Agreement.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties set forth herein shall survive the
execution of this Assignment and Assumption Agreement and shall extend for so
long as the joint and several guarantee obligations of Assignor
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assumed herein by Assignee shall remain in full force and effect as provided in
Section 3(F) of the Sellers' Agreement.
SECTION 5.02 INTERPRETATION
The Parties agree that each Party and its attorneys have reviewed and
negotiated this Assignment and Assumption Agreement and that the normal rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Assignment
and Assumption Agreement. The words "hereof," "herein," "hereunder" and other
words of similar import refer to this Assignment and Assumption Agreement as a
whole. All exhibits and schedules attached or to be attached hereto, and all
other agreements and instruments referred to herein, are hereby incorporated by
reference into this Assignment and Assumption Agreement as fully as if copied
herein verbatim. The section and other headings contained in this Assignment
and Assumption Agreement are for reference purposes only and shall not affect
the interpretation of this Assignment and Assumption Agreement.
SECTION 5.03 NOTICES AND ADDRESSES
All demands, notices, offers, acceptances, waivers and other
communications under this Agreement shall be in writing and shall be deemed to
have been both given and received when delivered to the other Party in person
or, if mailed, when deposited in the U.S. Mail, by certified mail, postage
prepaid, with return receipt requested, to the Parties at the following
addresses:
(a) If to Assignor:
---------------------------------------
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ATTN:
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With copies to:
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ATTN:
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(b) If to Assignee:
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ATTN:
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(c) If to FTNC:
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ATTN:
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<PAGE> 181
With copies to:
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ATTN:
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or to such other address as any Party, by notice to the others, may designate
from time to time.
SECTION 5.04 LAW TO GOVERN
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS (EXCLUDING CONFLICT OF LAWS RULES) OF THE
STATE OF MISSOURI AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 5.05 COUNTERPARTS; EFFECTIVENESS
This Assignment and Assumption Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 5.06 SEVERABILITY
If any one or more of the provisions contained in this Assignment and
Assumption Agreement shall for any reason be held in any jurisdiction invalid,
illegal or unenforceable for any reason, this Assignment and Assumption
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. Such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
any other provisions of this Assignment and Assumption Agreement, and any such
invalidity, illegality or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To
the extent permitted by applicable law, the Parties hereto waive any provision
of law which prohibits or renders unenforceable any provision hereof.
SECTION 5.07 ENTIRE AGREEMENT
This Assignment and Assumption Agreement, together with the exhibits
hereto and documents referred to herein as having been furnished to the
Parties, sets forth the entire understanding of the Parties, and supersedes all
other prior or contemporaneous representations, agreements and understandings,
oral or otherwise, between or among the Parties with respect to the matters
contained herein.
SECTION 5.08 MODIFICATION, AMENDMENT, ETC.
Each and every modification and amendment of this Assignment and
Assumption Agreement must be in writing and signed by the Parties hereto and by
FTNC.
SECTION 5.09 RELATIONSHIP OF PARTIES
With respect to the subject matter hereof, neither Party is or has been
the agent of the other and each has acted at all times as an independent
contractor.
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<PAGE> 182
SECTION 5.10 INDEMNITY
From and after the Distribution Date, Assignee hereby agrees to
indemnify, defend and hold Assignor harmless from and against any and all
liabilities, obligations, demands, claims, actions, suits, disbursements,
losses, expenses, damages, penalties, fines or forfeitures, threatened or
actual, and legal fees and related costs, judgments and other costs and
expenses which may be imposed on, incurred by or asserted against Assignor
relating to, based or grounded upon the performance by Assignee of its
obligations hereunder and under the terms of the Sellers' Agreement.
SECTION 5.11 ATTORNEYS' FEES
In the event of any dispute or action at law or in equity between the
Parties in relation to this Assignment and Assumption Agreement, the
non-prevailing Party, in addition to any other sums which such other Party may
be called upon to pay, will pay to the other Party or to FTNC all costs and
expenses of such dispute, action or suit, including reasonable attorneys' fees
incurred in the enforcement of this Assignment and Assumption Agreement.
IN WITNESS WHEREOF, the Assignor and Assignee have executed this
Assignment and Assumption Agreement by and through their duly authorized
officers on the date and year first above written.
-------------------------------------------
("Assignor")
By:
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Title:
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("Assignor")
By:
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Title:
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<PAGE> 183
EXHIBIT "A"
[SELLERS' AGREEMENT]
A-1
<PAGE> 184
EXHIBIT "J"
================================================================================
FORM OF REGISTRATION RIGHTS AGREEMENT
================================================================================
REGISTRATION RIGHTS AGREEMENT, dated as of ______________, 1994 (this
"Agreement"), by and among FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), and
the persons listed on the signature page hereto ("Shareholders").
RECITALS OF FACT
This Agreement is being entered into pursuant to the Agreement and Plan
of Merger, between FTNC, First Tennessee Bank National Association and Carl I.
Brown and Company ("Mortgage Bank") (the "Merger Agreement"). As a condition
to the closing of the merger of First Tennessee Interim Corporation with and
into Mortgage Bank pursuant to the Merger Agreement, FTNC has agreed to provide
registration rights with respect to the shares of common stock, par value $2.50
per share (the "Stock"), of FTNC to be issued to Shareholders as consideration
pursuant to the Merger Agreement, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Affiliate," with respect to any person, shall mean any person
controlling, controlled by or under common control with such person.
(b) [Intentionally left blank]
(c) "Closing Date" shall mean the Closing Date specified in the Merger
Agreement.
(d) "Commission" shall mean the Securities and Exchange Commission
created under the Exchange Act, or, if at any time after the execution of this
Agreement such Commission is not existing and performing the duties now
assigned to it under the Exchange Act or the Securities Act, whichever is the
relevant statute for the particular purpose, then "Commission" shall mean the
body performing such duties at such time.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, and the rules and regulations promulgated thereunder,
all as the same shall be amended from time to time.
(f) "Offering" shall mean the offering or sale of shares of Stock by
one or more Shareholders pursuant to the Registration Statement in accordance
with the intended methods and timing of disposition by Shareholders as set
forth in the Registration Statement.
(g) The term "person" shall mean an individual, corporation,
association, partnership, joint venture, trust, unincorporated organization,
government or political subdivision thereof or governmental agency.
(h) "Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, and the rules, regulations and forms promulgated thereunder,
all as the same shall be amended from time to time
(i) "Selling Shareholder" shall mean a Shareholder selling shares of
Stock in an Offering.
<PAGE> 185
2. Registration Under the Securities Act. As soon as practicable
after the Closing Date, FTNC shall file a "shelf" registration statement (the
"Registration Statement") providing for the sale by Shareholders (individually
or collectively) of the Stock, pursuant to Rule 415 of the Commission under the
Securities Act, and/or any similar rule that may be adopted by the Commission,
with respect to all of the Stock. FTNC agrees to use its best efforts to cause
the Registration Statement to be effective on or about the first day a person
who is an "affiliate" (for purposes of Rule 145 under the Securities Act) could
sell Stock without disqualifying the Merger for pooling-of-interests accounting
treatment, which in general is the period ending at the time of publication of
financial results covering at least thirty (30) days of combined operations of
FTNC and Carl I. Brown and Company within the meaning of Section 201-01 of the
Commission's Codification of Financial Reporting Policies and to keep such
Registration Statement continuously effective until the earliest of (i) two (2)
years from the date of the closing of the transaction by which the Stock is
issued to the Selling Shareholders, (ii) the completion of two (2) Offerings
under the Registration Statement, or (iii) the date as of which fewer than ten
percent (10%) of the initial number of shares of the Stock is held by
Shareholders; provided, however, (a) FTNC will not be required to file such
registration statement for a period of time (not to exceed ninety days) when
(i) FTNC has determined to proceed with a public offering of its securities
and, in the judgment of the managing underwriter thereof delivered in writing
to FTNC, such filing would have a materially adverse effect on such offering,
or (ii) FTNC is in possession of material information that it deems advisable
not to disclose in a registration statement or (iii) FTNC is engaged in any
program for the purchase of shares of FTNC Common Stock, unless such repurchase
program and the registration may proceed concurrently pursuant to an exemption
under Rule 10b-6 promulgated under the Exchange Act.
3. Procedures for Offering. (a) At any time after the Registration
Statement is declared effective by the Commission, upon not less than ten (10)
business days' prior written notice ("Notice") L. Gregory Brown as the
representative of the Shareholders ("Shareholders' Representative") or any duly
appointed successors may notify FTNC in writing of the intent of one or more
Shareholders to participate as Selling Shareholders in an Offering to be
completed within thirty (30) days following the date that any supplements to
the Registration Statement and Prospectus are made or amendments to the
Registration Statement are declared effective and the Offering commences (the
"Offering Period"). In addition, in the event the market value of the Stock to
be sold in the Offering exceeds $20 million, the Offering shall be underwritten
by an investment banking firm acceptable to FTNC. No Offering shall be for
fewer than one percent (1%) of the then outstanding shares of FTNC's common
stock, par value $2.50 per share ("FTNC Common Stock") or if the remaining
total number of shares of Stock is less than one percent (1%) of the then
outstanding number of shares of FTNC Common Stock, all of the remaining shares
of Stock.
(b) Each notice delivered to FTNC pursuant to Section 3(a) hereto
shall specify the number of shares of Stock intended to be offered and sold by
the Selling Shareholder(s), shall express the present intent of such Selling
Shareholder(s) to offer such shares for sale, shall describe the nature or
method of the proposed offering, including whether such Offering shall be
underwritten and naming the underwriter(s) if known, and shall contain an
undertaking of the Selling Shareholder(s) to provide all information and
materials and take all other action as may be required in order to permit FTNC
to comply with all applicable requirements of the Commission.
(c) At any time after receipt of written notice of a proposed Offering
and prior to the end of the Offering Period, FTNC may by notice (a "Blackout
Notice") to the Selling Shareholders, and any underwriters, postpone completion
of the Offering (i) for a period of up to ninety (90) days in connection with
any matter referred to in Section 4(d)(v)(B), (C) and (D) (the "Blackout
Period"); or (ii) for such shorter period as is reasonably necessary to take
any action required as a result of an event referred to in Section 4(d)(ii),
(iii), (iv) or (v)(A). Unless FTNC delivers a Blackout Notice as provided
above, in the event that an Offering shall not be completed within the
respective Offering Period, FTNC shall be under no further obligation to effect
such Offering hereunder. FTNC shall not exercise its option to impose a
Blackout Period on the Selling Shareholders under this Section 3(c) if FTNC
does not also exercise its option to impose a blackout period on all other
shareholders of FTNC who are parties to
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<PAGE> 186
a registration rights agreement having provisions comparable to those contained
in this Section 3(c) and who have notified FTNC of an intent to participate as
selling shareholders in an offering as provided in such other shareholders'
registration rights agreement with FTNC to be conducted during a period which
is during a Blackout Period imposed by FTNC on the Selling Shareholders.
(d) If FTNC shall provide the Selling Shareholders with a Blackout
Notice during any Offering Period, at such time as the events or circumstances
which necessitated the Blackout Notice cease to exist, FTNC shall notify the
Selling Shareholder(s) of such fact.
(e) The Selling Shareholder(s) hereby agree to notify FTNC if the
number of shares of Stock intended to be offered pursuant to an Offering are
sold prior to the end of the respective Offering Period which notice shall
terminate the Offering Period.
(f) Following delivery of a Blackout Notice during the period
completion of the Offering is postponed, prior to offering or selling shares of
the Stock under Rule 145 of the Securities Act, a Selling Shareholder shall
obtain advice of counsel that such sale will not be in violation of the federal
securities laws.
4. Registration Procedures. In connection with FTNC's obligations
pursuant to Sections 2 and 3 hereof, FTNC shall:
(a) prepare and file with the Commission the Registration Statement on
Form S-3 (or any other form for which FTNC is eligible and which will permit
distribution of the Stock in the manner contemplated hereby) and use its best
efforts to cause the Registration Statement to become effective as soon as
practicable thereafter;
(b) prepare and file with the Commission such amendments and
supplements to the Registration Statement or statements hereunder and the
prospectus used in connection therewith as may be necessary to maintain the
effectiveness of the Registration Statement for the applicable period specified
in Section 2 hereof, and comply with the provisions of the Securities Act with
respect to each offering made during such applicable period;
(c) provide the Selling Shareholders and any underwriters to be
included in the Registration Statement hereunder (which term, for purposes of
this Agreement, shall include a person deemed to be an underwriter within the
meaning of Section 2(11) of the Securities Act) of the securities being sold
and counsel for such underwriters the opportunity to participate in the
preparation of the Registration Statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto; and,
subject to the execution of confidentiality agreements in a form or forms
reasonably satisfactory to FTNC, make available for inspection by such persons
such financial and other information, books and records of FTNC, and cause the
officers, directors and employees of FTNC, and counsel and independent
certified public accountants of FTNC, to respond to such inquiries, as shall be
reasonably necessary, in the opinion of counsel to the Selling Shareholders and
any such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act;
(d) promptly notify the Selling Shareholders and the managing
underwriters, if any, of the securities being sold and (if requested by any
such person) confirm such advice in writing, (i) when the Registration
Statement, the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to the Registration
Statement or the prospectus or for additional or supplemental information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by FTNC of any notification
with respect to the suspension of the qualification of the Stock sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (v) at any time when a prospectus is required to be delivered under
the Securities Act, of (A) the happening of any event as a result of which such
Registration
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<PAGE> 187
Statement, prospectus, any prospectus supplement, or any document incorporated
by reference in any of the foregoing contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in the light of the
circumstances under which they are made and FTNC shall promptly prepare a
supplement or amendment to such prospectus or Registration Statement so that
such prospectus will not contain any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; (B) that FTNC is in possession of
material information that it deems advisable not to disclose in a registration
statement; (C) that FTNC has determined to proceed with a public offering of
its securities and, in the judgment of the managing underwriter thereof or of
FTNC (if such offering is not underwritten), such Offering would have a
materially adverse effect on the FTNC offering; or (D) that FTNC is engaged in
any program for the purchase of shares of FTNC Common Stock, unless such
repurchase program and the proposed Offering may proceed concurrently pursuant
to an exemption under Rule 10b-6 promulgated under the Exchange Act;
(e) promptly notify the Selling Shareholders of, and make reasonable
efforts to obtain the withdrawal at the earliest possible date of, any order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto;
(f) if requested by any Selling Shareholder, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
Selling Shareholder or such managing underwriter or underwriters specify should
be included therein relating to the Offering, including, without limitation,
information with respect to the number of shares of Stock being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Stock to be sold in such Offering, except to the
extent that FTNC is advised in a written opinion of counsel that the inclusion
of such information is reasonably likely to violate applicable securities laws;
and make all required filings of such prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(g) furnish to each Selling Shareholder and each underwriter, if any,
of the securities being sold such number of copies of the Registration
Statement, each such amendment and supplement thereto (in each case including
all exhibits thereto), the prospectus included in the Registration Statement
and such other documents as any Selling Shareholder and such underwriter, if
any, may reasonably request in order to facilitate the disposition of the Stock
being offered; FTNC consents to the use of the prospectus or any amendment or
supplement thereto by each Selling Shareholder, and the underwriters, if any in
connection with the Offering solely covered by such prospectus or any
supplement or amendment thereto;
(h) use its best efforts to (i) register or qualify the Stock and the
Offering under such other securities laws or Blue Sky laws of such
jurisdictions as any Selling Shareholder shall reasonably request, (ii) take
any and all such actions as may be reasonably necessary or advisable to enable
any Selling Shareholder and each underwriter, if any, of Stock being sold to
consummate such Offering in such jurisdictions of such Stock; provided,
however, that FTNC shall not be required for any such purpose to (A) qualify
generally to do business as a foreign corporation in any jurisdiction wherein
it would not otherwise be required to qualify but for the requirements of this
Section 4(h) or (B) consent to general service of process in any such
jurisdiction;
(i) use its best efforts to cause all of the Stock to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of FTNC to allow
consummation of the Offering;
(j) cause all such shares of Stock to be listed on each securities
exchange on which similar securities issued by FTNC are then listed; and
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<PAGE> 188
(k) cooperate with each Selling Shareholder and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Stock to be sold in the Offering.
FTNC may require any Selling Shareholder and any underwriter to furnish
to FTNC such information regarding such Selling Shareholder and the
distribution of Stock as FTNC may from time to time reasonably request in order
to comply with the Securities Act. Each Shareholder, on behalf of itself, its
Affiliates and any underwriter, agrees to notify FTNC as promptly as
practicable of any inaccuracy or change in information previously furnished by
them to FTNC or of the happening of any event in either case as a result of
which any prospectus contains an untrue statement of a material fact regarding
any Shareholder or the distribution of such Stock or omits to state any
material fact regarding any Shareholder or the distribution of such Stock
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they are made, not misleading, and
to furnish promptly to FTNC any additional information required to correct or
update any previously furnished information or required so that such prospectus
shall not contain, with respect to such person or the distribution of such
Stock, an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
5. Expenses. All expenses incident to FTNC's performance of or
compliance with this Agreement will be borne by FTNC, including, without
limitation: all Commission and any National Association of Securities Dealers,
Inc. registration and filing fees and expenses; fees and expenses of compliance
with securities and Blue Sky laws (including reasonable fees and disbursements
of counsel for the underwriters, if any, in connection with Blue Sky
qualifications of the Stock and the preparation of legal investment surveys, if
any) and listing on any national securities exchange or exchanges on which
listing may be sought, document and security certificate preparation and
printing expenses, messenger and delivery expenses; fees and expenses of any
transfer agent; internal expenses (including, without limitation, all salaries
and expenses of FTNC's officers and employees performing legal or accounting
duties); fees and disbursements of counsel and independent certified public
accountants of FTNC collectively, the "expenses"). Notwithstanding the
foregoing, the Selling Shareholders shall pay all underwriting discounts and
commissions attributable to the sale of Stock and the fees and disbursements of
any counsel or other advisors or experts retained by any Selling Shareholder or
any underwriters; provided, that in the case of any underwritten offering, the
underwriters shall be represented by a firm of counsel reasonably acceptable to
FTNC.
6. Indemnification.
(a) Indemnification by FTNC. FTNC shall, and it hereby agrees to,
indemnify and hold harmless each Selling Shareholder and each of their
directors and officers, and each other person, if any, which controls any such
person within the meaning of the Securities Act, from and against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected (including legal fees)
with the consent of FTNC) to which such Selling Shareholder, such director,
officer or controlling person thereof, may become subject under the Securities
Act, the common law or otherwise insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and FTNC
shall reimburse each Selling Shareholder, such director, officer or controlling
person thereof; for any legal or any other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that FTNC shall not be liable to any
such person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding, whether commenced or threatened, in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, or preliminary, final or summary prospectus, or
amendment or
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<PAGE> 189
supplement, in reliance upon and in conformity with written information
furnished to FTNC by any of such persons; and provided, further, that FTNC
shall not be liable to any such person under the indemnity agreement in this
Section 6(a) with respect to any preliminary prospectus to the extent that any
such loss, claim, damage or liability of such person results from the fact that
shares of Stock were sold to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the prospectus
(excluding documents incorporated by reference) or of the prospectus as then
amended or supplemented (excluding documents incorporated by reference) if FTNC
has previously furnished copies thereof to such Selling Shareholder or such
underwriter in compliance with Section 4(g) of this Agreement.
(b) Indemnification by Selling Shareholders. Each Selling Shareholder
shall, and each Selling Shareholder hereby agrees to and each Selling
Shareholder, by acting in such capacity shall be deemed to agree to, hold
harmless FTNC, each director, officer of FTNC and each other person, if any,
who controls FTNC within the meaning of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, and
expenses including fees of counsel and any amounts paid in settlement effected
with the consent of such holder) to which FTNC, such director or officer or
controlling person may become subject under the Securities Act, the common law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof) or
expenses arise out of or (i) are based upon any untrue statement or alleged
untrue statement of any material fact in or omission or alleged omission to
state a material fact required to be stated in the Registration Statement, or
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto, or necessary to make the statements therein
not misleading, to the extent, but only to the extent, such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to FTNC by any Selling
Shareholder or such underwriter or (ii) results from the fact that shares of
Stock were sold to a person to whom there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the prospectus (excluding
documents incorporated by reference) or of the prospectus as then amended or
supplemented (excluding documents incorporated by reference) if FTNC has
previously furnished copies thereof to such Selling Shareholder or such
underwriter in compliance with Section 4(g) of this Agreement.
(c) Notices of Claims. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding
with respect to which a claim for indemnification may be made pursuant to this
Section 6, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of any obligations under Section 6(a) or 6(b) hereof. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such indemnified
party, and after such notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation unless the indemnifying party has
failed to assume the defense of such claim and to employ counsel reasonably
satisfactory to such indemnified person. No indemnifying party shall consent
to entry of any judgment or enter into any settlement with respect to a claim
without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim for
all persons that may be entitled to or obligated to provide indemnification or
contribution under this Section 6. No indemnified party shall consent to entry
of any judgment or enter into any settlement of any action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party, which consent shall not be unreasonably withheld.
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<PAGE> 190
(d) Contribution. If for any reason the indemnification provided for
in Section 6(a) or Section 6(b) is unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses specifically covered by the indemnification provisions
set forth in Section 6(a) or Section 6(b), then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and the
indemnified party, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the first
sentence of this paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) In the case of any underwritten offering, FTNC agrees, and each
Selling Shareholder agrees, respectively, to provide customary indemnification
and contribution to any person who participates as an underwriter, broker or
dealer, and each affiliate officer, director or partner of such underwriter,
broker or dealer, and each other person, if any, which controls any such
underwriter, broker or dealer within the meaning of the Securities Act, in the
offering of sale of Stock.
7. Underwritten Offering.
(a) Selection of Underwriters or Agents. If any of the Stock covered
by the Registration Statement pursuant to Section 2 of this Agreement is to be
sold or is required to be sold pursuant to an underwritten Offering, the
managing underwriter or underwriters or agents thereof shall be designated by
the Selling Shareholders selling under the Registration Statement, provided
that such designated managing underwriter or underwriters or agents is or are
reasonably acceptable to FTNC.
(b) Underwriting Agreement. The Registration Statement shall include,
as an exhibit thereto, a form of underwriting agreement, containing
representations, warranties, covenants and conditions in form and substance
customary for secondary distributions of the type contemplated hereby. In the
case of any underwritten Offering, FTNC, Selling Shareholders and the managing
underwriter or underwriters shall become parties to an agreement or agreements
substantially in the form of such underwriting agreement.
8. Maximum Number of Offerings. (a) The Shareholders shall be
entitled to no more than two (2) Offerings.
(b) If a Blackout Notice is given before (i) all the Stock subject to
the Offering has been sold during the Offering Period, and (ii) twenty-three
(23) days of the subject Offering Period have expired, the discontinued
Offering shall not be deemed to be an Offering for purposes of this Agreement.
9. Confidentiality. All information furnished by FTNC to the Selling
Shareholders regarding a Blackout Period, including the Blackout Notice, shall
be kept confidential and the Selling Shareholders shall cause such information
to be kept confidential.
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<PAGE> 191
10. Miscellaneous.
(a) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, if delivered personally, by courier or
by telecopy, or three days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) as follows:
if to FTNC: Harry A. Johnson, III
Executive Vice President
and General Counsel
First Tennessee National Corporation
165 Madison Avenue
Memphis, TN 38103
Copy to: Heiskell, Donelson, Bearman, Adams,
Williams & Caldwell
2000 First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: Charles T. Tuggle, Jr.
if to Shareholders: (i) L. Gregory Brown
612 West 47th Street
Kansas City, Missouri 64112
Attention: L. Gregory Brown
Telecopier: (816) 756-3248
(ii) J.D. Zimmerman, Esq.
5819 Nieman Road
Shawnee, Kansas
Attention: J.D. Zimmerman, Esq.
Telecopier: (816) 268-8877
Copy to: Youngblood & Owens, LC
600 N. Pearl, Suite 600
Dallas, TX 75201
Attention: Diane S. Owens
Telecopier: (214) 969-5701
(b) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the parties hereto and any underwriters acting hereunder in
connection with an underwritten Offering, and their respective successors.
(c) Governing Law. This agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the state of Tennessee, without
giving effect to conflict of laws principles.
(d) Headings. The descriptive headings of the several Sections and
paragraphs of this Agreement are for convenience of reference only, and do not
constitute a part of and shall not be deemed to limit or affect in any way any
of the provisions of this Agreement.
(e) Entire Agreement; Amendments. This Agreement and other writings
referred to herein or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
- 8 -
<PAGE> 192
matter. This Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter. This Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by FTNC and
Shareholders.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be duly executed by their duly authorized officers as of the date
first written above.
FIRST TENNESSEE NATIONAL CORPORATION
By:
-----------------------------------
Title:
--------------------------------
[SHAREHOLDERS]
- 9 -
<PAGE> 193
APPENDIX "B"
Section 17-6712 of Kansas'
1972 General Corporation Code
17-6712. PAYMENT FOR "STOCK" OF "STOCKHOLDER" OBJECTING TO MERGER OR
CONSOLIDATION; "STOCKHOLDER," "STOCK" AND "SHARE" DEFINED; NOTICE TO OBJECTING
STOCKHOLDERS; DEMAND FOR PAYMENT; APPRAISAL AND DETERMINATION OF VALUE BY
DISTRICT COURT, WHEN; TAXATION OF COSTS; RIGHTS OF OBJECTING STOCKHOLDERS;
STATUS OF STOCK; SECTION INAPPLICABLE TO CERTAIN SHARES OF STOCK. (a) When
used in this section, the work "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) The corporation surviving or resulting from any merger or
consolidation, within 10 days after the effective date of the merger or
consolidation, shall notify each stockholder of any corporation of this state
so merging or consolidating who objected thereto in writing and whose shares
either were not entitled to vote or were not voted in favor of the merger or
consolidation, and who filed such written objection with the corporation before
the taking of the vote on the merger or consolidation, that the merger or
consolidation has become effective. If any such stockholder, within 20 days
after the date of mailing of the notice, shall demand in writing, from the
corporation surviving or resulting from the merger or consolidation, payment of
the value of the stockholder's stock, the surviving or resulting corporation
shall pay to the stockholder, within 30 days after the expiration of the period
of 20 days, the value of the stockholder's stock on the effective date of the
merger or consolidation, exclusive of any element of value arising from the
expectation or accomplishment of the merger or consolidation.
(c) If during a period of 30 days following the period of 20 days
provided for in subsection (b), the corporation and any such stockholder fail
to agree upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an
appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the
thirty-day period.
(d) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the corporation, which shall file with the
clerk of such court, within 10 days after such service, 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 corporation. If the petition shall be
filed by the corporation, the petition shall be accompanied by such duly
verified list. The clerk of the court shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
corporation and to the stockholders shown upon the list at the addresses
therein stated and notice shall also be given by publishing a notice at least
once, at least one week before the day of the hearing, in a newspaper of
general circulation in the county in which the court is located. The court may
direct such additional publication of notice as it deems advisable. The forms
of the notices by mail and by publication shall be approved by the court.
<PAGE> 194
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint an
appraiser or appraisers to determine such value. Any such appraiser may
examine any of the books and records of the corporation or corporations the
stock of which such appraiser is charged with the duty of valuing, and such
appraiser shall make a determination of the value of the shares upon such
investigation as seems proper to the appraiser. The appraiser or appraisers
shall also afford a reasonable opportunity to the parties interested to submit
to the appraiser or appraisers pertinent evidence on the value of the shares.
The appraiser or appraisers, also, shall have the powers and authority
conferred upon masters by K.S.A. 60-253 and amendments thereto.
(f) The appraiser or appraisers shall determine the value of the stock
of the stockholders adjudged by the court to be entitled to payment therefor
and shall file a report respecting such value in the office of the clerk of the
court, and notice of the filing of such report shall be given by the clerk of
the court to the parties in interest. Such report shall be subject to
exceptions to be heard before the court both upon the law and facts. The court
by its decree shall determine the value of the stock of the stockholders
entitled to payment therefor and shall direct the payment of such value,
together with interest, if any, as hereinafter provided, to the stockholders'
entitled thereto by the surviving or resulting corporation. Upon payment of
the judgment by the surviving or resulting corporation, the clerk of the
district court shall surrender to the corporation the certificates of shares of
stock held by the clerk pursuant to subsection (g). The decree may be enforced
as other judgments of the district court may be enforced, whether such
surviving or resulting corporation be a corporation of this state or of any
other state.
(g) At the time of appointing the appraiser or appraisers, the court
shall require the stockholders who hold certificated shares and who demanded
payment for their shares to submit their certificates of stock to the
clerk of the court, to be held by the clerk pending the appraisal proceedings.
If any stockholder fails to comply with such direction, the court shall dismiss
the proceedings as to such stockholder.
(h) The cost of any such appraisal, including a resonable fee to and
the reasonable expenses of the appraiser, but exclusive of fees of counsel or
of experts retained by any party, shall be determined by the court and taxed
upon the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's
stock as herein provided shall not thereafter be entitled to vote such stock
for any purpose or be entitled to the payment of dividends or other
distribution 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, unless the appointment of an appraiser or appraisers
shall not be applied for within the time herein provided, or the proceeding be
dismissed as to such stockholder, or unless such stockholder with the written
approval of the corporation shall deliver to the corporation a written
withdrawal of the stockholder's objections to and an acceptance of the merger
or consolidation, in any of which cases the right of such stockholder to
payment for the stockholder's stock shall cease.
- 2 -
<PAGE> 195
(j) The shares of the surviving or resulting corporation into 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.
(k) This section shall not apply to the shares of any class or series
of a class 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 at which the agreement of merger or consolidation is to be acted
on, were either (1) registered on a national securities exchange, or (2) held
of record by not less than 2,000 stockholder, unless the articles of
incorporation of the corporation issuing such stock shall otherwise provide;
not shall this section apply to any of the 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 K.S.A. 17-6701 and amendments thereto. This subsection shall
not be applicable to the holders of a class or series of a class of stock of a
constituent corporation if under the terms of a merger of [sic] consolidation
pursuant to K.S.A. 17-6701 or 17-6702, and amendments thereto, such holders are
required to accept for such stock anything except (i) stock or stock and cash
in lieu of fractional shares of the corporation surviving or resulting from
such merger or consolidation, or (ii) stock or stock and cash in lieu of
fractional shares of any other corporation, which at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders at which the agreement of merger or consolidation is to
be acted on, were either registered on a national securities exchange or held
of record by not less than 2,000 stockholders, or (iii) a combination of stock
or stock and cash in lieu of fractional shares as set forth in (i) and (ii) of
this subsection.
- 3 -
<PAGE> 196
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(i) Restated Charter of FTNC, as amended, attached as Exhibit 3(i) to FTNC's registration statement on Form S-4
(No. 33-53331) filed April 28, 1994, and incorporated herein by reference.
3(ii) Bylaws of FTNC, as amended, attached as Exhibit 3(ii) to FTNC's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, and incorporated herein by reference.
4(a) Form of Common Stock Certificate, incorporated herein by reference to exhibit 4(a) 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 in FTNC's
1993 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*
</TABLE>
II - 1
<PAGE> 197
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
8 Opinion Regarding Tax Matters*
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Price Waterhouse LLP
23(c) Consent of Baylor and Backus
23(d) Consent of Ernst & Young LLP
23(e) Consents of Heiskell, Donelson, Bearman, Adams, Williams & Caldwell included in Exhibit 8
23(f) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney*
99(a) Form of Proxy for Special Meeting of Shareholders of CIB
(b) Financial Statement Schedules--Not applicable
(c) Not Applicable
* - Previously filed.
</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 of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(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 in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) 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 in the Registration
Statement or any material change to such information 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 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is
II - 2
<PAGE> 198
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 such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) 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 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.
(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> 199
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Memphis, State of Tennessee, on November 22, 1994.
FIRST TENNESSEE NATIONAL CORPORATION
By: Susan Schmidt Bies
----------------------------------
Susan Schmidt Bies, Executive Vice
President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the 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>
Ralph Horn* Chief Executive Officer (principal November 22, 1994
- ---------------------------------- executive officer) and a Director
Ralph Horn
Susan Schmidt Bies* Executive Vice President and November 22, 1994
- ---------------------------------- Chief Financial Officer (principal
Susan Schmidt Bies financial officer)
James F. Keen* Senior Vice President and November 22, 1994
- ---------------------------------- Controller (principal
James F. Keen accounting officer)
Jack A. Belz* Director November 22, 1994
- ----------------------------------
Jack A. Belz
Robert C. Blattberg* Director November 22, 1994
- ----------------------------------
Robert C. Blattberg
J. R. Hyde, III* Director November 22, 1994
- ----------------------------------
J. R. Hyde, III
Joseph Orgill* Director November 22, 1994
- ----------------------------------
Joseph Orgill, III
Director November __, 1994
- ---------------------------------
Richard E. Ray
Vicki G. Roman* Director November 22, 1994
- ----------------------------------
Vicki G. Roman
Michael D. Rose* Director November 22, 1994
- ----------------------------------
Michael D. Rose
</TABLE>
II - 4
<PAGE> 200
<TABLE>
<S> <C> <C>
William B. Sansom* Director November 22, 1994
- ----------------------------------
William B. Sansom
Gordon P. Street, Jr.* Director November 22, 1994
- ----------------------------------
Gordon P. Street
Ronald Terry* Director November 22, 1994
- ----------------------------------
Ronald Terry
- --------------------------------- Director November __, 1994
R. Brad Martin
*By: Clyde A. Billings, Jr. November 22, 1994
-----------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
</TABLE>
[The Power of Attorney is included herein as Exhibit 24.]
II - 5
<PAGE> 201
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2 Agreement and Plan of Merger (included as Appendix "A" to the Proxy Statement-Prospectus)
3(i) Restated Charter of FTNC, as amended, attached as Exhibit 3(i) to FTNC's registration statement on Form S-4
(No. 33-53331) filed April 28, 1994, and incorporated herein by reference.
3(ii) Bylaws of FTNC, as amended, attached as Exhibit 3(ii) to FTNC's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, and incorporated herein by reference.
4(a) Form of Common Stock Certificate, incorporated herein by reference to exhibit 4(a) 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 in FTNC's
1993 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*
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Price Waterhouse LLP
23(c) Consent of Baylor and Backus
23(d) Consent of Ernst & Young LLP
23(e) Consents of Heiskell, Donelson, Bearman, Adams, Williams & Caldwell included in Exhibit 8
23(f) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney*
99(a) Form of Proxy for Special Meeting of Shareholders of CIB
* - Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
(INLUCDED AS APPENDIX "A" TO THE PROXY STATEMENT-PROSPECTUS)
Omitted Schedules and Annexes
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules, annexes
and exhibits to Exhibit 2 of this Registration Statement have been omitted.
Set forth below is a list of such omitted documents.
Exhibit A - Base Exchange Price
Exhibit B - Disclosure Schedule
Exhibit C - Escrow Agreement - form included
Exhibit D - Schedule of CIB Common Stock
Exhibit E - Paying Agent Agreement - form included
Exhibit F - Sellers' Agreement - form included
Exhibit G - Section 9.1(a)(viii) Indemnity Schedule
Exhibit H - Section 9.1(a)(vii) Indemnity Schedule
Exhibit I - Covenant-not-to-Compete and Non-Solicitation
Payments
Exhibit J - Registration Rights Agreement - form included
Exhibit K - Disposed Assets and Paid Receivables
Exhibit L - Parties to Employment Agreements and
Covenants-not-to-compete
<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 (Post-Effective Amendment
No. 1 to Form S-4) of our report dated January 18, 1994, incorporated by
reference in First Tennessee National Corporation's Form 10-K for the year
ended December 31, 1993, and to all references to our firm included in this
registration statement.
Arthur Andersen LLP
Memphis, Tennessee
November 22, 1994
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-4 of First Tennessee National Corporation
of our reports dated January 10, 1994 and January 11, 1993 relating to the
financial statements of Carl I. Brown and Company, which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Price Waterhouse LLP
---------------------
Price Waterhouse LLP
Kansas City, Missouri
November 22, 1994
<PAGE> 1
EXHIBIT 23(c)
BAYLOR AND BACKUS
CERTIFIED PUBLIC ACCOUNTANTS
2112 NORTH ROAN STREET
FIRST TENNESSEE BUILDING, SUITE 801
P. O. BOX 1736
JOHNSON CITY, TN 37605
TELEPHONE 615-282-9000
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, 1993, and to all
references to our firm included in this registration statement.
Baylor and Backus
- ----------------------------
Baylor and Backus
Certified Public Accountants
Johnson City, Tennessee
November 22, 1994
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Post-Effective Amendment No. 1 to Registration Statement (Form S-4) and
related Prospectus of First Tennessee National Corporation for the registration
of 1,235,657 shares of its common stock and associated rights and to the
incorporation by reference therein 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 LLP
Baltimore, Maryland
November 21, 1994
<PAGE> 1
PROXY
Carl I. Brown and Company
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CARL I. BROWN AND
COMPANY FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
________________, 199_)
The undersigned hereby appoints L. Gregory Brown and Eric S. Brown,
and any one or more of them with full powers of substitution, as attorneys and
proxies for the undersigned, to represent and vote all shares of Common Stock
of Carl I. Brown and Company ("CIB") standing in my name on the books and
records of CIB 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 main office of Carl I. Brown and Company, _______________________,
Kansas City, Missouri, on ________________, 199_ at 10:00 a.m., local time, and
at any and all adjournments as follows:
<TABLE>
For Against Abstain
_________ __________ __________
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger dated as of
September 6, 1994, (the "Merger Agreement") by and between
First Tennessee National Corporation ("FTNC"), First
Tennessee Bank National Association ("FTB"), and CIB which
provides for the merger of First Tennessee Interim
Corporation, a wholly-owned subsidiary of FTNC, with and
into CIB and provides that immediately prior to the merger
FTNC will direct that all shares of CIB Common Stock, as the
surviving corporation, be issued directly to FTB, as a
result of which CIB will become a wholly-owned subsidiary of
FTB. ____________ _____________ _____________
2. At their discretion, on such other business as may
properly come before the Special Meeting or any adjournments
or postponements thereof. ____________ _____________ _____________
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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 HEREON
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and, after notification to the Secretary
of Carl I. Brown and Company 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 _____th day of __________________, 199_; 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>
