<PAGE> 1
As filed with the Securities and Exchange Commission on January 5, 1994
Registration No. 33-51387
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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)
<TABLE>
<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. MICHAEL E. CALLAWAY
Vice President & Counsel Bell and Associates
First Tennessee National Corporation 140 Ocoee St., N.E.
165 Madison Avenue Cleveland, TN 37364
Memphis, Tennessee 38103 (615) 476-8541
(901) 523-5679
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective and after conditions contained in Merger Agreement have been
satisfied.
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: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORMS S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- -------------------------- ---------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and Facing page of Registration Statement; Outside Front Cover
Outside Front Cover Page of Prospectus Page
2. Inside Front and Outside Back Cover Pages Available Information; Table of Contents
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; The Special Meeting; The Merger
and Other Information
4. Terms of the Transaction Summary; The Merger; Incorporation of Certain Documents by
Reference; 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 CBTC; Index to CBTC
Than S-2 or S-3 Companies Financial Information
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited Incorporation of Certain Documents by Reference; Summary;
The Special Meeting; Experts; The Merger; Cover Page of
Proxy Statement-Prospectus
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or in
an Exchange Offer
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i
<PAGE> 3
January 10, 1994
Dear Cleveland Bank & Trust Company Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Cleveland Bank & Trust Company to be held at the main office of Cleveland
Bank & Trust Company, 775 Raider Drive, N.W., Cleveland, Tennessee on
February 23, 1994 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 "Merger Agreement") that
provides for the merger of First Tennessee Interim Bank, a newly chartered and
wholly-owned subsidiary of First Tennessee National Corporation, with and into
Cleveland Bank & Trust Company (the "Merger"), as a result of which Cleveland
Bank & Trust Company will become a wholly-owned subsidiary of First Tennessee
National Corporation.
The Merger Agreement generally provides for a tax-free exchange in
which Cleveland Bank & Trust Company shareholders will receive shares of First
Tennessee National Corporation common stock in exchange for shares of Cleveland
Bank & Trust Company common stock.
The proposed Merger has been unanimously approved by the Boards of
Directors of both First Tennessee National Corporation and Cleveland Bank &
Trust Company.
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 Cleveland Bank & Trust Company 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 CLEVELAND BANK & TRUST COMPANY AND
ITS SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE MERGER.
Sincerely,
/s/ W. Sam McReynolds
W. SAM McREYNOLDS
Chairman
<PAGE> 4
CLEVELAND BANK & TRUST COMPANY
================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD February 23, 1994
================================================================================
Notice is hereby given that a Special Meeting of Shareholders of
Cleveland Bank & Trust Company ("CBTC") has been called by the Board of
Directors and will be held at the main office of Cleveland Bank & Trust
Company, 775 Raider Drive, N.W., Cleveland, Tennessee, on February 23, 1994 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 for Merger dated as of July 23, 1993 (the "Merger Agreement") by and
between First Tennessee National Corporation ("FTNC") and Cleveland Bank &
Trust Company ("CBTC"). The Merger Agreement provides for the merger of First
Tennessee Interim Bank, a newly chartered and wholly-owned subsidiary of FTNC,
with and into CBTC, as a result of which CBTC will become a wholly-owned
subsidiary of FTNC, all as more fully described in the accompanying Proxy
Statement-Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come
before the meeting.
Whether or not you plan to attend, please complete, date and sign the
enclosed proxy card and return it at once in the stamped return envelope in
order to insure that your shares will be represented at the meeting. If you
attend in person, the proxy can be disregarded, if you wish, and you may vote
your own shares.
Only shareholders of record at the close of business on
January 7, 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,
/s/ Michael E. Callaway
Michael E. Callaway, Secretary
Cleveland, Tennessee
Dated: January 10, 1994
THE BOARD OF DIRECTORS OF CLEVELAND BANK & TRUST COMPANY UNANIMOUSLY
RECOMMENDS THAT THE HOLDERS OF CLEVELAND BANK & TRUST COMPANY COMMON STOCK VOTE
TO APPROVE THE PROPOSAL.
<PAGE> 5
PROXY STATEMENT
CLEVELAND BANK & TRUST COMPANY
SPECIAL MEETING TO BE HELD ON February 23, 1994
PROSPECTUS
FIRST TENNESSEE NATIONAL CORPORATION
1,269,570 SHARES OF COMMON STOCK
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $10.00 per share (the "CBTC Common Stock"), of
Cleveland Bank & Trust Company ("CBTC"), a Tennessee state bank, in connection
with the solicitation of proxies by the CBTC Board of Directors (the "CBTC
Board") for use at the Special Meeting of CBTC shareholders to be held at 10:00
a.m., local time, on February 23, 1994, at the main office of Cleveland
Bank & Trust Company, 775 Raider Drive, N.W., Cleveland, Tennessee, and at any
adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the shareholders of record of CBTC Common
Stock as of the close of business on January 7, 1994 will consider and vote
upon a proposal to approve the Agreement and Plan of Merger dated as of July
23, 1993, (the "Merger Agreement"), by and between First Tennessee National
Corporation ("FTNC"), a Tennessee corporation registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended, and CBTC,
pursuant to which, among other things, First Tennessee Interim Bank, a newly
chartered and wholly-owned subsidiary of FTNC, will merge with and into CBTC,
with CBTC surviving the merger (the "Merger"), and as a result of which, CBTC
will become a wholly-owned subsidiary of FTNC. Upon consummation of the
Merger, each outstanding share of CBTC Common Stock (other than shares held
directly or indirectly by FTNC or any of its subsidiary banks, except in a
fiduciary capacity or in satisfaction of a debt previously contracted, and
shares held in the treasury of CBTC, which shares shall be canceled, retired
and cease to exist by virtue of the Merger and without any payment made in
respect thereof) will be converted into the right to receive shares of common
stock, par value $2.50 per share, of FTNC ("FTNC Common Stock") as described
herein. For a description of the Merger Agreement, which is included herein in
its entirety as Appendix "A" to this Proxy Statement-Prospectus, see "The
Merger."
This Proxy Statement-Prospectus also constitutes a prospectus of FTNC
in respect of up to 1,269,750 shares of FTNC Common Stock to be issued to
shareholders of CBTC in connection with the Merger. The shares of FTNC Common
Stock to be issued in connection with the Merger are based upon the conversion
of each outstanding share of CBTC Common Stock into shares of FTNC Common Stock
as described herein. See "The Merger -- Terms of the Merger."
The outstanding shares of FTNC Common Stock are, and the shares
offered hereby will be, included for quotation on the National Association of
Securities Dealers Automated Quotation System - National Market System
("NASDAQ/NMS"). The last reported sale price of FTNC Common Stock on the
NASDAQ/NMS on December 29, 1993 was $38.25 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 CBTC has been supplied by CBTC. This Proxy Statement-Prospectus
and the accompanying proxy card are first being mailed to shareholders of CBTC
on or about January 10, 1994.
THE SHARES OF FTNC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS JANUARY 10, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
BACKGROUND OF AND REASONS FOR THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
OPINION OF FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
SURRENDER OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
CONDUCT OF BUSINESS PENDING MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
NO SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
WAIVER AND AMENDMENT; TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
INTERESTS OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
STOCK OPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
SHAREHOLDERS' DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
RESALE OF FTNC COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
NASDAQ/NMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
CERTAIN REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
PAYMENT OF DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
CERTAIN TRANSACTIONS BY FTNC WITH ITS AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . - 36 -
CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
FTNC SUPPORT OF SUBSIDIARY BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
FDIC INSURANCE ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
INFORMATION CONCERNING CBTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
SELECTED STATISTICAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS . . . . . . - 42 -
</TABLE>
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OWNERSHIP OF CBTC COMMON STOCK AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
DESCRIPTION OF FTNC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
AUTHORIZED CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
FTNC COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
SHAREHOLDER PROTECTION RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
SUBORDINATED CAPITAL NOTES DUE 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
RESIDENCY REQUIREMENT FOR AND REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . - 50 -
SPECIAL MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS . . . . . . . . . . . . . . . . . . . . . - 51 -
SHAREHOLDER PROPOSALS AND NOMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
ACTION BY WRITTEN CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
PREEMPTIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
AMENDMENT OF ARTICLES OF INCORPORATION OR CHARTER AND BYLAWS . . . . . . . . . . . . . . . . - 52 -
LOANS SECURED BY AND ACQUISITIONS OF ISSUER'S STOCK . . . . . . . . . . . . . . . . . . . . - 52 -
VOLUNTARY DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
GREENMAIL ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
DIVIDENDS AND OTHER DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
RIGHTS OF HOLDERS OF CAPITAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
SHAREHOLDER RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
TENNESSEE INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
VALIDITY OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
INDEX TO PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
INDEX TO CBTC FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
APPENDICES:
Appendix A Agreement and Plan of Merger, including Stock Option
Agreement as Annex 1 thereto
Appendix B Opinion of Alex Sheshunoff & Co.
Appendix C Tennessee Code Annotated, Section 45-2-1309
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<PAGE> 8
AVAILABLE INFORMATION
FTNC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be obtained, upon payment of prescribed
fees, from the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In addition, such reports, proxy statements and other information can
be inspected at the SEC's facilities referred to above and at the SEC's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511. The FTNC Common Stock is included for quotation on NASDAQ/NMS and
such reports, proxy statements and other information concerning FTNC should be
available for inspection and copying at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. FTNC
has filed with the SEC a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of FTNC
Common Stock and associated rights to be issued pursuant to the Merger
Agreement. This Proxy Statement-Prospectus does not contain all the
information set forth in the Registration Statement. Such additional
information may be obtained from the SEC's principal office in Washington, D.C.
Statements contained in this Proxy Statement-Prospectus or in any document
incorporated by reference in this Proxy Statement-Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are hereby incorporated by
reference in this Proxy Statement-Prospectus and made a part hereof: (a)
FTNC's Annual Report on Form 10-K for the year ended December 31, 1992, and its
Form 8 filed March 23, 1993, and Forms 10-K/A filed on April 28 and June 29,
1993, amending its Annual Report on Form 10-K; (b) FTNC's Current Reports on
Form 8-K filed February 18, 1993, August 24, 1993, and October 18, 1993; (c)
FTNC's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993,
June 30, 1993 and September 30, 1993; (d) FTNC's proxy statement dated March
12, 1993, exclusive of the Board Compensation Committee Report and the Total
Shareholder Return Performance Graph on pages 11-14 thereof; (e) the
description of FTNC Common Stock contained in FTNC's registration statement on
Form 10, filed April 14, 1970, pursuant to Section 12 of the Exchange Act (and
any amendments or reports filed for the purpose of updating the description);
and (f) FTNC's registration statement on Form 8- A, filed September 8, 1989,
pursuant to which FTNC registered the Shareholder Protection Rights under the
Exchange Act.
All documents filed by FTNC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement-Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained 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.
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<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 February 15, 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 CBTC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSQUENT 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, CBTC and the matters to be considered at
the Special Meeting and is qualified in all respects by the information
appearing elsewhere and incorporated by reference in this Proxy
Statement-Prospectus, the Appendices hereto and the documents referred to
herein.
PARTIES TO THE MERGER
FTNC. FTNC is a regional bank holding company incorporated under the
laws of Tennessee, which, through First Tennessee Bank National Association,
Memphis, Tennessee ("FTB") and its other banking and banking-related
subsidiaries, provides a broad range of financial services primarily in the
State of Tennessee. FTNC was incorporated in Tennessee in 1968. At September
30, 1993, FTNC had consolidated total assets of approximately $9.5 billion,
consolidated total deposits of approximately $6.7 billion and equity capital of
approximately $656.5 million. At December 31, 1992, based on information in
the American Banker, an industry journal, FTNC ranked 61st among bank holding
companies in the United States and first among bank holding companies
headquartered in Tennessee in terms of total assets.
FTNC coordinates the financial resources of the consolidated
enterprise and maintains systems of financial, operational and administrative
control that allow coordination of selected policies and activities. FTNC
operates principally through FTB, which was chartered as a national banking
association in 1864. As of September 30, 1993, FTB was the largest commercial
bank headquartered in Tennessee both in terms of total assets and deposits. At
September 30, 1993, FTB had total assets of approximately $9.3 billion, total
deposits of approximately $6.6 billion and equity capital of approximately
$611.3 million. FTB conducts a broad range of retail banking and fiduciary
services and had 205 banking locations at September 30, 1993. FTB also offers
a comprehensive range of financial services, including bond broker/ agency
services and nationwide check clearing, to companies throughout the
southeastern United States and selected national markets. Bond broker/agency
services provided by FTB consist primarily of the sale of bank-eligible
securities to other financial institutions. Subsidiaries of FTNC and FTB are
engaged primarily in providing 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.
CBTC. CBTC is a state bank, organized under the laws of the state of
Tennessee in 1906. It operates a general banking business and provides
fiduciary services through a trust department from six locations in Bradley
County, Tennessee. At September 30, 1993, CBTC had total assets of
approximately $225 million, total deposits of approximately $199 million, and
equity capital of approximately $22.8 million.
The executive offices of CBTC are located at 775 Raider Drive, N.W.,
Cleveland, Tennessee 37312, the mailing address is P.O. Box 4170, Cleveland,
TN 37320-4170, and the telephone number is (615) 559-7600.
- 6 -
<PAGE> 11
Additional information about FTNC and its subsidiaries is included in
documents incorporated by reference in this Proxy Statement-Prospectus. See
"Incorporation of Certain Documents by Reference."
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held on February 23, 1994 at 10:00
a.m., local time, at the main office of CBTC, 775 Raider Drive, N.W.,
Cleveland, Tennessee. The purpose of the Special Meeting is to consider and
vote upon a proposal to approve the Merger Agreement.
VOTE REQUIRED; RECORD DATE
Only CBTC shareholders of record at the close of business on
January 7, 1994 (the "CBTC Record Date") will be entitled to vote at
the Special Meeting. The affirmative vote of the holders of two-thirds (2/3)
of the shares outstanding on such date is required to approve the Merger
Agreement. "Abstentions" and broker "non votes" will have the same effect as a
vote "against" approval of the Merger Agreement. See "The Special Meeting
Vote Required." As of the CBTC Record Date, there were 100,000 shares of CBTC
Common Stock entitled to be voted.
The directors and executive officers of CBTC and their affiliates
beneficially owned, as of the CBTC Record Date, 20,549 shares, or approximately
20.5%, of the outstanding shares of CBTC Common Stock. CBTC has been advised
that such directors and executive officers intend to vote their shares in favor
of approval of the Merger Agreement. As of the CBTC Record Date, CBTC, through
its Trust Department, held of record or in the name of nominees 15,215 shares
(or approximately 15.2% of the outstanding shares) of CBTC Common Stock as
fiduciary and as agent.
As of the CBTC Record Date, FTNC and its subsidiaries beneficially
owned no shares of CBTC Common Stock, and the directors and executive officers
of FTNC beneficially owned no shares of CBTC Common Stock.
TERMS OF THE MERGER
On the Effective Date (as defined below) of the Merger, First
Tennessee Interim Bank ("Interim Bank"), a newly chartered and wholly-owned
subsidiary of FTNC formed for the purpose of effecting the Merger, will merge
with and into CBTC with CBTC being the surviving entity. As a result of the
merger of Interim Bank and CBTC, CBTC will become a wholly-owned subsidiary of
FTNC. CBTC will continue to operate after the Merger under the same name and
with the same Charter and Bylaws as were in effect immediately prior to the
Merger. The directors and officers of CBTC after the Merger will remain the
same as prior to the Merger without any prejudice to the rights of FTNC as
CBTC's sole shareholder.
Upon consummation of the Merger, each outstanding share of CBTC Common
Stock (other than shares held directly or indirectly by FTNC or any subsidiary
of FTNC, except in a fiduciary capacity or in satisfaction of a debt previously
contracted, and shares held in the treasury of CBTC, which shares shall be
canceled, retired and cease to exist by virtue of the Merger and without any
payment made in respect thereof) will be converted into the right to receive
shares of FTNC Common Stock. Each share of CBTC Common Stock issued and
outstanding at the Effective Date will become and be converted into the right
to receive the number of shares of FTNC Common Stock equal to the Conversion
Number (the "Conversion Number") determined as follows:
- 7 -
<PAGE> 12
The Conversion Number shall be equal to the quotient of
$438.00 divided by the FTNC Common Stock Average Price (as
defined below); provided, however, if such quotient would
otherwise be less than 10.5011, it shall be 10.5011, and if
such quotient would otherwise exceed 12.6957, it shall be
12.6957. "FTNC Common Stock Average Price" means the average
of the closing prices of the FTNC Common Stock for the twenty
(20) business days (the "Calculation Period") immediately
prior to the day on which the Board of Governors of the
Federal Reserve System approves the Merger (the "Calculation
Date").
If the Calculation Date had been December 29, 1993, the Conversion
Number would have been 11.6937, and the number of shares of FTNC Common Stock
exchanged for all outstanding shares of CBTC Common Stock would have been
1,169,370.
No fractional shares of FTNC Common Stock will be issued in connection
with the Merger. In lieu of fractional shares, FTNC will make a cash payment
equal to the fractional interest which a CBTC shareholder would otherwise
receive multiplied by the average price of FTNC's Common Stock, based on the
closing prices over the 10 business days immediately prior to the fifth
calendar day prior to the Effective Date. The holders of CBTC Common Stock at
the Effective Date will become holders of FTNC Common Stock. Each outstanding
share of FTNC Common Stock will remain outstanding and unchanged as a result of
the Merger. See "The Merger -- Terms of the Merger."
EFFECTIVE DATE
The Merger will become effective at the time of the filing of a
certificate of merger or on such later date as the certificate of merger may
specify (the "Effective Date"). Unless otherwise mutually agreed upon by FTNC
and CBTC, the Effective Date will occur on the last business day of the month
during which the expiration of all applicable waiting periods in connection
with governmental approvals occurs and all conditions to the consummation of
the Merger Agreement have been satisfied or waived.
REASONS FOR THE MERGER; RECOMMENDATION OF CBTC BOARD OF DIRECTORS
The CBTC Board believes the Merger is fair to and in the best interest
of CBTC and its shareholders and recommends that CBTC's shareholders vote FOR
approval of the Merger Agreement. The CBTC Board believes that the Merger will
provide significant value to all CBTC shareholders and also enable them to
participate in opportunities for growth that the CBTC Board believes 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 CBTC in
the Merger, see "The Merger -- Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISER
Alex Sheshunoff & Co. ("Sheshunoff"), Austin, Texas, has delivered its
written opinion to the CBTC Board to the effect that, as of August 13, 1993,
the terms of the Merger are fair and equitable to all of the holders of CBTC
Common Stock from a financial point of view. A copy of the opinion of
Sheshunoff dated as of August 13, 1993 is attached hereto as Appendix "B." The
opinion should be read in its entirety for a description of the procedures
followed, assumptions and qualifications made, matters considered, and the
limitations undertaken by Sheshunoff. See "The Merger -- Opinion of Financial
Adviser."
- 8 -
<PAGE> 13
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the shareholder approval solicited hereby, receipt of the necessary
regulatory approvals, receipt of opinions of counsel regarding certain tax
aspects of the Merger, receipt of assurances that the Merger qualifies for
pooling-of-interests accounting treatment, implementation, to the extent
consistent with generally accepted accounting principles ("GAAP"), of certain
adjustments to CBTC's loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves), a
requirement that fewer than 10% of the outstanding shares of CBTC stock are
voted against the Merger, and satisfaction of customary closing conditions.
The regulatory approvals and consents necessary to consummate the
transactions contemplated by the Merger Agreement include the approval of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
the Federal Deposit Insurance Corporation ("FDIC"), and the Commissioner of the
Tennessee Department of Financial Institutions (the "Tennessee Commissioner").
Applications have been submitted for such approvals. There can be no
assurances as to when, if or with what conditions such approvals or waiver will
be granted. See "The Merger -- Conditions to Consummation of the Merger," "--
Regulatory Approvals," "-- Conduct of Business Pending the Merger" and
"--Certain Regulatory Considerations."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Date by the mutual consent of FTNC and CBTC, by either of them
individually under certain specified circumstances, including, if the Merger
has not become effective by July 23, 1994, or by CBTC if FTNC's Common Stock
Average Price is less than $34.50 per share. See "The Merger -- Waiver and
Amendment; Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of CBTC's management and the CBTC Board have certain
interests in the Merger that are in addition to their interests as shareholders
of CBTC generally. These consist of provisions in the Merger Agreement
relating to indemnification. See "The Merger -- Interest of Certain Persons in
the Merger."
STOCK OPTION AGREEMENT
As a condition to FTNC's entering into the Merger Agreement, FTNC and
CBTC also entered into a Stock Option Agreement, dated as of July 23, 1993 (the
"Stock Option Agreement"), pursuant to which FTNC has the right, upon the
occurrence of certain events (none of which has occurred to the best of FTNC's
and CBTC's knowledge), to purchase up to 19,900 shares of CBTC Common Stock
(representing 19.9% of the outstanding shares), subject to adjustment in
certain circumstances and subject to termination within certain periods, at an
exercise price per share of $222.04 (the "Option"). The Stock Option Agreement
may discourage competing offers to the Merger and is intended to increase the
likelihood that the Merger will be consummated in accordance with the terms of
the Merger Agreement. In the event that preemptive rights may be exercised,
such exercise would further discourage competing offers.
- 9 -
<PAGE> 14
In the event that CBTC's shareholders fail to approve the Merger
Agreement, either CBTC or FTNC may terminate the Merger Agreement in accordance
with its terms. See "The Merger -- Waiver and Amendment; Termination." If no
Initial Triggering Event (as such term is defined in "The Merger -- Stock
Option Agreement") occurs prior to such termination, the Stock Option Agreement
will automatically terminate at such time. If an Initial Triggering Event does
occur prior to the termination of the Merger Agreement, then FTNC will be
entitled to exercise its rights under the Stock Option Agreement if a
Subsequent Triggering Event (as such term is defined in "The Merger -- Stock
Option Agreement") occurs within 18 months after such termination.
A copy of the Stock Option Agreement is set forth in Annex 1 to the
Merger Agreement, a copy of which is attached to this Proxy
Statement-Prospectus as Appendix "A." See "The Merger -- Stock Option
Agreement."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Date, shareholders of CBTC 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 CBTC with respect to certain important matters, including,
but not limited to, their rights to remove directors, call special meetings,
make loans secured by and acquire issuer stock, act by written consent,
dissolve the corporation, receive dividends, amend the charter and bylaws,
submit shareholder proposals or nominations of director candidates, dissent
with respect to their shares, exercise preemptive rights, the rights of the
holders of debt securities, Tennessee state income taxation of dividends, 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 the Tennessee Banking Act ("TBA"), holders of CBTC Common Stock
who vote against the Merger and who deliver to CBTC the required written demand
and who otherwise comply with the requirements of the TBA will be entitled to
receive the value of their shares in cash as determined under the provisions of
the TBA. SUCH DISSENTERS' RIGHTS WILL BE LOST, HOWEVER, IF THE PROCEDURAL
REQUIREMENTS OF THE TBA 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 CBTC
or FTNC as a result of the Merger and CBTC's shareholders will not recognize
gain or loss upon the receipt of FTNC Common Stock in exchange for CBTC Common
Stock, except to the extent of any cash received in lieu of fractional shares.
Consummation of the Merger is dependent upon, among other conditions, receipt
by each of FTNC and CBTC of an opinion of counsel, dated as of the Effective
Date, substantially to this effect. See "The Merger -- Certain Federal Income
Tax Consequences."
- 10 -
<PAGE> 15
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
pooling-of-interests of FTNC and CBTC under GAAP. Consummation of the Merger
is conditioned upon receipt by FTNC of a letter from its independent public
accountants 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/NMS
(symbol: FTEN). The following table sets forth the high and low closing price
of FTNC Common Stock as reported on NASDAQ/NMS for the first, second, third and
fourth quarters of 1993 through December 29, 1993, and on a quarterly basis for
the two years ended December 31, 1992 and 1991. 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>
1993 1992 1991
---------------------------------- ---------------------------------- ----------------------------------
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> <C>
40 1/2 43 1/2 47 43 1/4 37 1/4 38 36 3/4 34 7/8 27 5/8 25 7/8 20 7/8 17 3/8
36 1/4 38 7/8 37 3/4 36 1/8 35 33 1/8 32 7/8 26 3/8 24 1/8 21 1/8 17 1/8 14 3/8
</TABLE>
There is no established public trading market for CBTC Common Stock,
and trading in such shares is sporadic and generally confined to the
communities in which CBTC has operations or shareholders. Management of CBTC
occasionally becomes aware of sales of CBTC Common Stock. Since January 1,
1991 through the date of this Proxy Statement-Prospectus, management of CBTC
believes that the prices for sales of CBTC Common Stock have ranged between
$100 and $125 per share.
The following table sets forth the closing price per share of FTNC
Common Stock and the equivalent per share price for CBTC Common Stock giving
effect to the Merger as of July 14, 1993, the last business day preceding
public announcement of the execution of the Merger Agreement; and as of
December 29, 1993, the last practicable date prior to the mailing of this
Proxy Statement- Prospectus. The equivalent price per share of CBTC Common
Stock at each specified date represents the closing price of a share of FTNC
Common Stock on such date multiplied by 10.8483 and 11.6937, respectively,
assuming that to be the Conversion Number provided for in the Merger Agreement.
Management of CBTC is not aware of any sales of CBTC Common Stock on or about
July 14, 1993.
FTNC Equivalent Price
Common Stock Per CBTC Share
------------ -----------------
July 14, 1993 $39.75 $431.22
December 29, 1993 38.25 447.28
CBTC shareholders are advised to obtain current market quotations for
FTNC Common Stock. The market price of FTNC Common Stock at the Effective Date
may be higher or lower than the market price at the time the Merger Agreement
was executed, at the date of mailing of this Proxy Statement-Prospectus, at the
time of the Special Meeting, or at the Calculation Date.
- 11 -
<PAGE> 16
EQUIVALENT AND PRO FORMA SHARE DATA
The following table presents selected comparative unaudited per share
data for FTNC Common Stock and CBTC Common Stock on a historical basis and for
FTNC Common Stock on a pro forma combined basis and CBTC 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 CBTC, 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 CBTC Financial Information."
- 12 -
<PAGE> 17
EQUIVALENT AND PRO FORMA SHARE DATA (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30 Twelve Months Ended
------------------ ------------------------------
1993 1992 1992 1991 1990
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Per Common Share:(1)
FTNC $ 3.20 $ 2.77 $ 3.19 $ 2.63 $ 2.01
CBTC 24.26 20.00 26.29 13.21 19.59
FTNC pro forma (lower exchange range limit) 3.14 2.72 3.14 2.56 1.99
FTNC pro forma (upper exchange range limit) 3.16 2.74 3.16 2.58 2.00
CBTC pro forma equivalent (lower exchange range limit) 39.86 34.53 39.86 32.50 25.26
CBTC pro forma equivalent (upper exchange range limit) 33.18 28.77 33.18 27.09 21.00
Fully Diluted Income Per Common Share:(1)
FTNC $ 3.14 $ 2.71 $ 3.12 $ 2.60 $ 2.00
CBTC 24.26 20.00 26.29 13.21 19.59
FTNC pro forma (lower exchange range limit) 3.08 2.66 3.08 2.53 1.98
FTNC pro forma (upper exchange range limit) 3.11 2.68 3.10 2.55 2.00
CBTC pro forma equivalent (lower exchange range limit) 39.10 33.77 39.10 32.12 25.14
CBTC pro forma equivalent (upper exchange range limit) 32.66 28.14 32.55 26.78 21.00
Dividends Declared Per Common Share:(2)
FTNC $ 1.08 $ .90 $ 1.26 $ 1.14 $ 1.09
CBTC 6.00 2.70 7.50 5.50 5.50
FTNC pro forma 1.08 .90 1.26 1.14 1.09
CBTC pro forma equivalent (lower exchange range limit) 13.71 11.43 16.00 14.47 13.84
CBTC pro forma equivalent (upper exchange range limit) 11.34 9.45 13.23 11.97 11.45
Book Value Per Common Share (end of period):(3)
FTNC $ 23.31 $ 21.24 $ 21.25 $ 19.39 $ 17.91
CBTC 227.60 206.68 207.83 187.65 179.02
FTNC pro forma (lower exchange range limit) 23.07 21.03 21.04 19.19 17.75
FTNC pro forma (upper exchange range limit) 23.25 21.19 21.19 19.33 17.88
CBTC pro forma (lower exchange range limit) 292.89 266.99 267.12 243.63 225.35
CBTC pro forma (upper exchange range limit) 244.15 222.52 222.52 202.99 187.76
</TABLE>
(1) Pro forma income per share is calculated using combined historical
income for FTNC and CBTC 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 CBTC
as adjusted by the upper and lower limits of exchange ratios of
10.5011 and 12.6957. The Merger Agreement with CBTC provides for a
range of exchange ratios determined by FTNC's average stock price
prior to the consumation of the merger. The CBTC pro forma equivalent
income per share amounts are computed by multiplying the FTNC pro
forma amounts by their respective exchange ratios.
(2) FTNC pro forma dividends per share represent historical dividends paid
by FTNC. CBTC pro forma equivalent dividends per share represent
12.6957 and 10.5011, respectively, of such amounts.
(3) FTNC pro forma book value per common share is based upon the
historical total common equity of the combined entity divided by the
total pro forma common shares of the combined entity assuming
conversion of CBTC's common stock at the exchange ratio of 12.6957 and
10.5011. CBTC pro forma equivalent book value per common share is
based on the respective exchange ratio.
- 13 -
<PAGE> 18
SELECTED FINANCIAL DATA AND RATIOS
The following tables present for FTNC and CBTC, on a historical basis,
selected unaudited consolidated financial data and ratios. This information is
based on the consolidated financial statements of FTNC and CBTC included herein
or incorporated herein by reference and should be read in conjunction therewith
and with the notes thereto. Per share amounts have been adjusted for FTNC's
3-for-2 stock split effected May 22, 1992. See "Incorporation of Certain
Documents by Reference," "Index to Pro Forma Financial Information," and "Index
to CBTC Financial Information." Results of the 9 months ended September 30,
1993 are not necessarily indicative of results to be expected for the entire
year. All adjustments necessary to arrive at a fair statement of results of
interim period operations of FTNC and CBTC, in the opinion of the management of
the respective companies, have been included and are of a normal recurring
nature.
- 14 -
<PAGE> 19
SELECTED FINANCIAL DATA AND RATIOS (UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Twelve Months Ended
----------------- ---------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
--------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Interest Income and Other Income:
FTNC $ 622,141 $ 623,024 $ 824,246 $ 831,796 $ 814,457 $ 782,312 $ 676,573
CBTC 13,504 13,761 18,272 18,984 19,856 18,108 15,439
FTNC pro forma 635,645 636,785 842,518 850,780 834,313 800,420 692,012
Net Income Applicable to Common Stock:
FTNC $ 90,037 $ 77,368 $ 89,165 $ 73,022 $ 56,580 $ 37,355 $ 61,399
CBTC 2,426 2,000 2,629 1,321 1,959 1,703 1,518
FTNC pro forma 92,463 79,368 91,794 74,343 58,539 39,058 62,917
Net Income per Common Share:(1)
FTNC $ 3.20 $ 2.77 $ 3.19 $ 2.63 $ 2.01 $ 1.33 $ 2.20
CBTC 24.26 20.00 26.29 13.21 19.59 17.03 15.18
FTNC pro forma (upper exchange ratio) 3.14 2.72 3.14 2.56 1.99 1.33 2.16
FTNC pro forma (lower exchange ratio) 3.16 2.74 3.16 2.58 2.00 1.34 2.18
Dividends Declared per Common Share:
FTNC $ 1.08 $ .90 $ 1.26 $ 1.14 $ 1.09 $ .96 $ .86
CBTC 6.00 2.70 7.50 5.50 5.50 5.00 4.20
FTNC pro forma(2) 1.08 .90 1.26 1.14 1.09 .96 .86
Total Assets (end of period):
FTNC $9,458,720 $8,621,195 $8,925,774 $8,760,715 $7,485,199 $7,149,357 $6,697,877
CBTC 224,658 215,638 222,849 200,835 190,153 185,082 164,590
FTNC pro forma 9,683,378 8,836,833 9,148,623 8,961,550 7,675,352 7,334,439 6,862,467
Long-Term Debt and Capital Leases:
(end of period):
FTNC $ 91,489 $ 128,531 $ 127,637 $ 128,671 $ 129,057 $ 129,955 $ 134,526
CBTC 2,167 2,513 2,426 2,772 3,117 3,463 3,809
FTNC pro forma 93,656 131,044 130,063 131,443 132,174 133,418 138,335
Performance Ratios:
Return on Average Assets
FTNC 1.37% 1.26% 1.07% .95% .79% .54% .95%
CBTC 1.44 1.30 1.27 .67 1.03 .97 .95
FTNC pro forma 1.37 1.26 1.08 .95 .79 .55 .95
Return on Average Shareholders' Equity
FTNC 19.23 18.17 15.44 14.14 11.63 7.95 13.89
CBTC 14.81 13.52 13.10 7.13 11.28 10.55 10.05
FTNC pro forma 19.08 18.02 15.36 13.90 11.62 8.04 13.76
Shareholders' Equity to Total Assets
(end of period)
FTNC 6.94 6.90 6.69 6.15 6.64 6.69 6.93
CBTC 10.13 9.58 9.33 9.34 9.41 8.93 9.37
FTNC pro forma 7.01 6.97 6.76 6.22 6.71 6.75 6.99
</TABLE>
(1) Pro forma income per share is calculated using combined historical
income for FTNC and CBTC 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 CBTC
as adjusted by the upper and lower limits of exchange ratios of
10.5011 and 12.6957. The Merger Agreement with CBTC provides for a
range of exchange ratios determined by FTNC's average stock price
prior to the consumation of the merger.
(2) FTNC pro forma dividends per share represent historical divideds paid
by FTNC.
- 15 -
<PAGE> 20
THE SPECIAL MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of CBTC
Common Stock is accompanied by a proxy card furnished in connection with the
CBTC 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 February 23, 1994, at the main
office of CBTC, 775 Raider Drive, N.W., Cleveland, Tennessee. Only holders of
record of CBTC Common Stock at the close of business on January 7, 1994
are entitled to receive notice of and to vote at the Special Meeting. At the
Special Meeting, shareholders will consider and vote upon (a) a proposal to
approve the Merger Agreement and (b) such other matters as may properly be
brought before the Special Meeting or any adjournments or postponements
thereof.
HOLDERS OF CBTC COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO CBTC IN THE ENCLOSED,
POSTAGE PAID ENVELOPE.
Any holder of CBTC 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 CBTC, at the main
office, 775 Raider Drive, N.W., P. O. Box 4170, Cleveland, Tennessee
37320-4170, Attention: Secretary, provided such notice or proxy is actually
received by CBTC before the vote of shareholders. The shares of CBTC 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 Merger Agreement. If any
other matters are properly presented at the Special Meeting for consideration,
the persons named in the CBTC proxy card enclosed herewith will have
discretionary authority to vote on such matters in accordance with their best
judgment. The CBTC Board is unaware of any matter to be presented at the
Special Meeting other than the proposal to approve the Merger Agreement.
The cost of soliciting proxies from holders of CBTC Common Stock will
be borne by CBTC. Such solicitation will be made by mail but also may be made
by telephone or in person by the directors, officers and employees of CBTC (who
will receive no additional compensation for doing so). In addition, CBTC will
make arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals.
CBTC SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of CBTC Common Stock entitled to vote at the Special Meeting
is required in order to approve the Merger Agreement. Therefore, a failure to
return a properly executed proxy card or to vote in person at the Special
Meeting will have the same effect as a vote against the Merger Agreement. As
of the CBTC Record Date, there were 100,000 shares of CBTC Common Stock
outstanding and entitled to vote at the Special Meeting, with each share being
entitled to one vote.
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A majority of the outstanding shares entitled to vote at the Special
Meeting constitutes a quorum for purposes of that meeting. An "abstention"
will be considered present for quorum purposes, but will have the same effect
as a vote "against" the proposal to approve the Merger Agreement. Broker "non
votes" will not be considered present for quorum purposes and will have the
same effect as a vote "against" the proposal to approve the Merger Agreement.
As of the CBTC Record Date, the directors and executive officers of
CBTC and their affiliates beneficially owned a total of 20,549 shares or
approximately 20.5% of the outstanding shares of CBTC Common Stock. CBTC has
been advised that such directors and executive officers intend to vote their
shares in favor of approval of the Merger Agreement. As of the CBTC Record
Date, CBTC, through its Trust Department, held of record or in the name of
nominees 15,215 shares, or approximately 15.2% of the outstanding CBTC Common
Stock as fiduciary for the beneficiaries of certain trusts and estates and as
agent. The beneficiaries of such trusts and estates are entitled to vote such
shares.
As of the CBTC Record Date, the directors and executive officers of
FTNC and their affiliates beneficially owned no shares of CBTC Common Stock.
On the CBTC Record Date, FTNC and its subsidiaries beneficially owned no shares
of CBTC Common Stock.
RECOMMENDATION
FOR THE REASONS DESCRIBED BELOW, THE CBTC BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, BELIEVES THE MERGER IS IN THE BEST INTEREST OF
CBTC AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS OF CBTC VOTE FOR
APPROVAL OF THE MERGER AGREEMENT. IN MAKING ITS RECOMMENDATION TO
SHAREHOLDERS, THE CBTC BOARD CONSIDERED, AMONG OTHER THINGS, THE OPINION OF
SHESHUNOFF THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR AND EQUITABLE TO ALL
OF THE CBTC SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. SEE "THE MERGER --
BACKGROUND OF AND REASONS FOR THE MERGER" AND "-- OPINION OF FINANCIAL
ADVISER."
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, is qualified in its entirety by
reference to the Merger Agreement, which is incorporated herein by reference
and attached hereto as Appendix "A." CBTC shareholders are urged to read
carefully the Merger Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background. In early February, 1993, a vice president of First
Virginia Banks, Inc. ("FVB") called W. Sam McReynolds, Chairman and CEO of
CBTC, to schedule a meeting to discuss the possibility of an acquisition of
CBTC by FVB. On February 23, 1993, Mr. McReynolds met with the Chairman and
the President of FVB in Falls Church, Virginia, to discuss in further detail
the possible acquisition. Mr. McReynolds then had discussions with counsel and
S. K. Johnston, Jr., a CBTC shareholder, and thereafter agreed to permit
representatives of FVB to meet informally with the CBTC Board. That meeting
was held on May 11, 1993 at which time the Chairman and President of FVB made a
proposal to acquire CBTC. The CBTC Board retained Sheshunoff to evaluate the
FVB proposal. On June 8, 1993 the CBTC Board met to receive Sheshunoff's
report and authorized its Executive Committee to negotiate with FVB. On June
17, 1993, the CBTC Board met in a special meeting to consider the terms and
conditions of the proposed acquisition by FVB. Thereafter, a letter of intent
was executed by FVB and CBTC, pursuant to which FVB proposed to acquire CBTC
for approximately $39.965 million in FVB Common Stock, subject to certain
conditions, including due diligence reviews of CBTC by FVB and of FVB by CBTC
and to approval by the CBTC and FVB Boards of Directors of a definitive
agreement.
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Earlier in the year during the course of the initial conversations
between FVB and CBTC, on April 22, 1993, Ralph Horn, President and Chief
Operating Officer of FTNC, had called Mr. McReynolds to schedule a meeting. It
was Mr. Horn's intention to discuss a possible affiliation between FTNC and
CBTC, although the subject of the meeting was not discussed. No meeting was
held, and on June 13, 1993, Mr. Horn met Mr. McReynolds at a bankers'
association meeting and suggested scheduling a meeting. No time was fixed for
the meeting. On June 24, 1993, the proposed FVB-CBTC transaction was
announced, and on June 25, Mr. Horn called Mr. McReynolds to indicate that
FTNC was very interested in exploring the possibility of an affiliation between
FTNC and CBTC if the arrangement that CBTC had with FVB was non-binding. On
June 29, after determining that the arrangement with FVB was non-binding, Mr.
McReynolds and Michael E. Callaway, a director of and counsel to CBTC, met with
Mr. Horn, J. Kenneth Glass, President, Tennessee Banking Group, of First
Tennessee Bank National Association and Elbert L. Thomas, Senior Vice President
of FTNC, in Chattanooga, Tennessee to discuss an affiliation between FTNC and
CBTC. That meeting concluded with the execution of a confidentiality agreement
and was followed by the exchange of information and discussions between FTNC
and CBTC relative to the proposed transaction.
A special meeting of the CBTC Board was held on July 13, 1993, to
receive the report and recommendation of Sheshunoff relative to the merits of
the FVB and FTNC proposals. The CBTC Board unanimously approved an affiliation
with FTNC and authorized the CBTC Executive Committee, within certain
parameters and subject to certain conditions, to negotiate a definitive
agreement with FTNC, and further authorized Mr. McReynolds to execute an
agreement and plan of merger with FTNC on behalf of CBTC upon approval of a
definitive agreement by the CBTC Executive Committee. On July 23, 1993, the
CBTC Executive Committee approved the Merger Agreement. The report of
Sheshunoff is described below in the section entitled "Opinion of Financial
Advisor."
The FTNC Board unanimously approved the Merger Agreement at a special
meeting held on July 27, 1993.
Reasons for the Merger. In reaching its determination that the Merger
and Merger Agreement are fair to, and in the best interest of, CBTC and its
shareholders, the CBTC Board consulted with its advisers, as well as with CBTC
management, and considered a number of factors, including, without limitation,
the following:
a. The CBTC Board's familiarity with and review of CBTC's
business, operations, earnings and financial condition;
b. The provision in the Merger Agreement providing for a 30-day
due diligence review period following execution of the Merger Agreement and the
receipt pursuant thereto of a due diligence report on FTNC satisfactory to
CBTC;
c. The condition contained in the Merger Agreement that CBTC
shall have received the opinion of Alex Sheshunoff & Co. that the terms of the
Merger Agreement are fair to the shareholders of CBTC from a financial point of
view. (See "Opinion of Financial Advisor")
d. Based on the opinion of Sheshunoff, the CBTC's Board's belief
that the offer made by FTNC was superior to that of FVB;
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<PAGE> 23
e. The CBTC Board's belief that it was in the best interest of
CBTC to affiliate with a Tennessee corporation, well-known within the state,
and that such a relationship would benefit both CBTC and FTNC.
f. The CBTC Board's desire that after the Merger CBTC would be
operated under the same name and with a degree of autonomy comparable to that
which it had enjoyed prior to the Merger.
g. The CBTC Board's belief that the terms of the Merger Agreement
are attractive in that the Merger Agreement allows CBTC shareholders to become
shareholders in FTNC, an institution which is the largest bank holding company
headquartered in Tennessee, whose stock is widely distributed and traded over
NASDAQ's National Market System.
h. The CBTC Board's review of possible affiliation partners of
CBTC other than FTNC, including FVB, the prospects of such other possible
affiliation partners and the likelihood of any such affiliations;
i. The CBTC Board's belief, based upon analysis of the
anticipated financial effects of the Merger, that upon consummation of the
Merger, FTNC and its banking subsidiaries would be well capitalized
institutions, the financial positions of which would be well in excess of all
applicable regulatory capital requirements;
j. The CBTC Board's belief that the "corporate culture" of FTNC
conforms very closely to its own.
k. The CBTC Board's belief that, in light of the reasons
discussed above, FTNC was the most attractive choice as a long term affiliation
partner of CBTC;
l. The expectation that the Merger will generally be a tax-free
transaction of CBTC and its shareholders and that the Merger will be accounted
for under the pooling-of-interests method of accounting. (See "Certain Federal
Income Tax Consequences" and "Accounting Treatment");
m. The current and prospective economic and regulatory
environment and competitive constraints facing the banking the industry and
financial institutions in CBTC's market area;
The CBTC Board did not assign any specific or relative weight to the
foregoing factors in their considerations.
OPINION OF FINANCIAL ADVISER
In June 1993, CBTC retained Sheshunoff on the basis of its experience,
to render a written fairness opinion (the "Opinion") to the CBTC Board and the
shareholders of CBTC. Sheshunoff has been in the business of consulting for
the banking industry for twenty years, including the appraisal and valuation of
banking institutions and their securities in connection with mergers and
acquisitions and equity offerings. Sheshunoff has a long history of
familiarity and involvement with the banking industry nationwide, as well as
familiarity with the Tennessee market and recent transactions in this market.
Sheshunoff reviewed the negotiated terms of the Merger including the exchange
ratio and corporate governance matters. Except as described herein,
Sheshunoff is not affiliated in any way with CBTC, FTNC or their respective
affiliates.
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<PAGE> 24
On August 13, 1993, in connection with its consideration of the Merger
Agreement, Sheshunoff issued its Opinion to the CBTC Board that, in its opinion
as investment bankers, the terms of the Merger as provided in the Merger
Agreement are fair, from a financial perspective, to CBTC and its shareholders.
This Opinion is based upon conditions as they existed on June 30, 1993. A copy
of the Opinion is attached as Appendix "B" to this Proxy Statement-Prospectus
and should be read in its entirety by CBTC shareholders. Sheshunoff's written
opinion does not constitute an endorsement of the Merger or a recommendation to
any shareholder as to how such shareholder should vote at the Special Meeting.
In rendering its written Opinion, Sheshunoff reviewed certain publicly
available information concerning FTNC and CBTC, including each party's audited
financial statements and FTNC's annual report. Sheshunoff considered many
factors in making its evaluation. In arriving at its Opinion regarding the
fairness of the transaction, Sheshunoff reviewed: (i) the Merger Agreement;
(ii) the June 30, 1993 Report of Condition and Income for each organization and
the audited December 31, 1992 Balance Sheet and Income Statements for each
organization; (iii) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (iv) each
organization's internal loan classification list; (v) a listing of other real
estate owned for each organization; (vi) the budget and long range operating
plan of each organization; (vii) the listing and description of significant
real properties for each organization; (viii) material leases on real and
personal property; and (ix) market conditions and current trading levels of
outstanding equity securities of both organizations. Sheshunoff conducted an
on- site review of each organization's historical performance, current
financial condition and performed a market area analysis. Sheshunoff discussed
with the management of FTNC and CBTC the relative operating performance and
future prospects of each organization, primarily with respect to the current
level of their earnings and future expected operating results, giving weight to
Sheshunoff's assessment of the future of the banking industry and each
organization's performance within the industry. Sheshunoff compared the
results of operation of CBTC with those of Tennessee banks with total assets of
$100 to $499 million. Sheshunoff compared the results of FTNC's operations
with regional bank holding companies with total assets of $1 billion and
greater. Sheshunoff reviewed and analyzed the terms and conditions of selected
proposed mergers announced during the first half of 1993, which were located in
the South.
Many variables affect the value of banks, not the least of which is
the uncertainty of future events, so that the relative importance of the
valuation variables differs in different situations, with the result that
appraisal theorists argue about which variables are the most appropriate ones
on which to focus. Although most appraisers agree that the primary financial
variables to be considered are earnings, equity, dividends or dividend-paying
capacity, asset quality and cash flow. In addition, in most instances, if not
all, value is further tempered by non-financial factors such as marketability,
voting rights or block size, history of past sales of the banking company's
stock, nature and relationship of the other shareholdings in the bank, and
special ownership or management considerations.
Sheshunoff analyzed the transaction value on a cash equivalent fair
market value basis using the standard evaluation techniques (as discussed
below) including comparable sales multiples, net present value, cash flow
analysis, return on investment and the price equity index based on certain
assumptions of projected growth, earnings and dividends and a range of discount
rates from 10% to 15%.
Net asset value is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes liquidation
on the date of appraisal with the recognition of securities gains or losses,
real estate appreciation or depreciation and any adjustments to the loan loss
reserve, discounts to the loan portfolio or changes in the net value of other
assets. As such, it is not the
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best approach to use when valuing a going concern, because it is based on
historical costs and varying accounting methods. Even if the assets and
liabilities are adjusted to reflect prevailing prices and yields (which is
often of limited accuracy because readily available data is often lacking), it
still results in a liquidation value for the concern. Furthermore, since this
method does not take into account the values attributable to the going concern
such as the interrelationship among the company's assets, liabilities, customer
relations, market presence, image and reputation, and staff expertise and
depth, little weight is given by Sheshunoff to the net asset value method of
valuation.
Market value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The market value is frequently used to determine the price of a
minority block of stock when both the quantity and the quality of the
"comparable" data are deemed sufficient. However, the relative thinness of the
specific market for the stock of the banking company being appraised may result
in the need to review alternative markets for comparative pricing purposes.
The "hypothetical" market value for a small bank with a thin market for its
stock is normally determined by comparison to the average price to earnings,
price to equity and dividend yield of local or regional publicly-traded bank
issues, adjusting for significant differences in financial performance criteria
and for any lack of marketability or liquidity. The market value in connection
with the evaluation of control of a bank is determined by the previous sales of
banking companies in the state or region. In valuing a business enterprise,
when sufficient comparable trade data is available, the market value deserves
greater weighting than the net asset value and similar emphasis as the
investment value.
Sheshunoff maintains substantial files concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
Tennessee banking companies and banking companies in the southern region of the
United States in the first half of 1993 and over the past five years. The
database provides comparable pricing and financial performance data for banking
companies sold or acquired. Organized by different peer groups, the data
present averages of financial performance and purchase price levels, thereby
facilitating a valid comparative purchase price analysis. In analyzing the
fair market value of CBTC, Sheshunoff has considered the market approach and
has evaluated price to equity and price to earnings multiples of the Southern
region banking organizations sold in the first half of 1993.
Sheshunoff calculated an "Adjusted Book Value" of $452.94 per share,
based on CBTC's June 30, 1993 equity and the average price to equity multiple
for regional banking organizations sold for stock in the first half of 1993.
Sheshunoff calculated an "Adjusted Earnings Value" of $381.73 per share, based
on CBTC's 1992 earnings and the average price to earnings multiple for regional
banking organizations sold for stock in the first half of 1993. The financial
performance characteristics of the regional banking organizations vary,
sometimes substantially, from those of CBTC. When the variance is significant
for relevant performance factors, adjustments to the price multiples is
appropriate when comparing them to the fair market value conclusion.
Investment value is sometimes referred to as the income value or
earnings value. The investment value is frequently defined as an estimate of
the present value of its future earnings or cash flow. In addition, another
popular investment value method is to determine the level of current annual
benefits (earnings, cash flow, dividends, etc.), and then capitalize one or
more of the benefit types using an appropriate capitalization rate such as an
earnings or dividend yield. Yet another method of calculating investment value
is a cash flow analysis of the ability of a banking company to service
acquisition debt obligations (at a certain price level) while providing
sufficient earnings for reasonable dividends and
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<PAGE> 26
capital adequacy requirements. In connection with the cash flow analysis, a
determination of the return on investment that would accrue to a prospective
buyer at the transaction value is calculated.
The investment or earnings value of any banking organization's stock
is an estimate of the present value of the future benefits, usually earnings,
cash flow or dividends, which will accrue to the stock. An earnings value is
calculated using an annual future earnings stream over a period of time of not
less than ten years, the residual value of the earnings stream after ten years,
assuming no earnings growth and an appropriate capitalization rate (the net
present value discount rate). Sheshunoff's computations were based on the
analysis of the banking industry, the economic and competitive situations in
CBTC's market area, and CBTC's current financial condition and historical
levels of growth and earnings. Using a net present value discount rate of 10%,
an acceptable discount rate considering the risk-return relationship most
investors would demand for an investment of this type as of the valuation date,
the "Net Present Value of Future Earnings," equaled to $408.79 per share.
Another method of valuing a control block of stock is the cash flow
method. This analysis assumes the formation of a one-bank holding company
with maximum leverage according to Federal Reserve System guidelines and
analyzes the ability of the bank to retire holding company acquisition debt
within a reasonable period of time while maintaining adequate capital. Using
this method Sheshunoff arrived at a value of $385.00 per share.
Return on investment analysis (ROI) also assumes the formation of a
one-bank holding company using maximum regulatory leverage and analyzes the ten
year ROI of a 33.33% equity investment at the transaction value of $451.55 per
share for CBTC compared to a liquidation at book value in the year 2002, and a
sale at ten times projected earnings for the year 2002. This ROI analysis
provides a benchmark for assessing the validity of the fair market value of a
majority block of stock. The ROI analysis is one approach to valuing a going
concern, and is directly impacted by the earnings stream, dividend payout
levels and levels of debt, if any. Other financial and nonfinancial factors
indirectly affect the ROI; however, these factors more directly influence the
level of ROI an investor would demand from an investment in a majority block of
stock of a specific bank at a certain point in time. The ROI, assuming
liquidation at book value in 2002, is 2.08%, and the ROI, assuming sale at ten
times earnings in 2002, is 11.39%.
Furthermore, a price level indicator, the price equity index, may be
used to confirm the validity of the fair market value. The price equity index
adjusts the fair market value to equity multiple in order to facilitate a truer
price level comparison with comparable banking organizations, regardless of the
differing levels of equity capital. The price equity index is derived by
multiplying the fair market value to equity multiple by the equity-to-assets
ratio. In this instance, a transaction value of $451.55 per share results in
an equity index of 19.83. The price equity index for southern banking
organizations sold for stock in the first half of 1993 equaled 15.80.
Finally, another test of appropriateness for the fair market value of
a majority block of stock is the net present value-to-fair market value ratio.
Theoretically, an earnings stream may be valued through the use of a net
present value analysis. In Sheshunoff's experience with majority community
banking organization stock valuations, it has determined that a relationship
does exist between the net present value of an "average" community banking
organization and the fair market value of a majority block of the banking
organization's stock. The net present value-to-fair market value ratio equals
90.53% for CBTC. There are many other factors to consider, when valuing a
going concern, which do not directly
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impact the earnings stream and the net present value but which do exert a
degree of influence over the fair market value of a going concern. These
factors include, but are not limited to, the general condition of the industry,
the economic and competitive situations in the market area and the expertise of
the management of the organization being valued. Sheshunoff determined that
the net present value-to-fair market value analysis is fair.
When the net asset value, market value and investment value methods
are subjectively weighed, using the appraiser's experience and judgment, it is
Sheshunoff's opinion that the proposed transaction is fair.
Sheshunoff considered this transaction as a merger rather than a cash
acquisition. Consideration was given to the levels of book value and earnings
per share appreciation or dilution percentages between the merger partners over
the next three to five years after consummation. A merger is usually completed
with the hopes of realizing economies of scale and earnings enhancement
opportunities, thereby providing a benefit to both shareholder groups that
otherwise might not be attainable. To justify the fairness of the transaction
for CBTC shareholders, it is important to project, based upon realistic
projections of future performance, a positive impact for CBTC shareholders.
Sheshunoff projected that CBTC shareholders will have a higher level of book
value, earnings per share and dividends per share after exchanging their common
stock for FTNC common stock than they would on a stand alone basis. Based upon
discussions with management of FTNC and CBTC, Sheshunoff estimates that the
combined entity would also be able to realize after-tax savings and earnings
enhancement opportunities based upon economies realized over time.
Sheshunoff's primary focus was on the short-term and long-term book value and
earnings per share appreciation potential for CBTC shareholders.
Neither FTNC nor CBTC imposed any limitations upon the scope of the
investigation to be performed by Sheshunoff in formulating its Opinion. In
rendering its Opinion, Sheshunoff did not independently verify the asset
quality and financial condition of FTNC or CBTC, but instead relied upon the
data provided by or on behalf of FTNC and CBTC to be true and accurate in all
material respects.
For its services as independent financial analyst for the Merger,
including the rendering of its Opinion referred to above, CBTC has paid
Sheshunoff aggregate fees of $35,000. CBTC also agreed to reimburse Sheshunoff
for its out of pocket expenses. Prior to being retained for this assignment,
Sheshunoff had not provided professional services and products to CBTC or FTNC,
except for certain products and services provided to CBTC, the revenues from
which were insignificant compared to CBTC's gross revenues.
TERMS OF THE MERGER
At the Effective Date, Interim Bank, a newly chartered and wholly
owned subsidiary of FTNC formed for the purpose of effecting the Merger, will
merge with and into CBTC, with CBTC being the surviving entity. As a result of
the Merger, CBTC will become a wholly-owned subsidiary of FTNC and will
continue to operate after the Merger under the same name and with the same
Charter and Bylaws as were in effect immediately prior to the Merger. The
directors and officers of CBTC after the Merger will remain the same as prior
to the Merger without any prejudice to the rights of FTNC as CBTC's sole
shareholder. Upon consummation of the Merger, each share of CBTC Common Stock
outstanding immediately prior to the Effective Date (other than shares held
directly or indirectly by FTNC or any subsidiary of FTNC, except in a fiduciary
capacity or in satisfaction of a debt previously contracted, and
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<PAGE> 28
shares held in the treasury of CBTC, which shares shall be canceled, retired
and cease to exist by virtue of the Merger and without any payment made in
respect thereof) will be converted into the right to receive shares of FTNC
Common Stock. Each share of CBTC Common Stock issued and outstanding at the
Effective Date will become and be converted into the right to receive the
number of shares of FTNC Common Stock equal to the conversion number
("Conversion Number") determined as follows:
The Conversion Number shall be equal to the quotient of
$438.00 divided by the FTNC Common Stock Average Price;
provided, however, if such quotient would otherwise be less
than 10.5011, it shall be 10.5011 and if such quotient would
otherwise exceed 12.6957, it shall be 12.6957. "FTNC Common
Stock Average Price" means the average of the closing prices
of the FTNC Common Stock as reported on the National
Association of Securities Dealers Automated Quotation System,
National Market System ("NASDAQ/NMS") for the twenty (20)
business days (the "Calculation Period") immediately prior to
the day on which the Federal Reserve Board approves the Merger
(the "Calculation Date"). A business day shall be a day on
which the New York Stock Exchange is generally open for
trading.
If the Calculation Date had been December 29, 1993, the
Conversion Number would have been 11.6937 and the number of shares of FTNC
Common Stock exchanged for all outstanding shares of CBTC Common Stock would
have been 1,169,370.
Any shares of CBTC Common Stock held directly or indirectly by CBTC
other than in a fiduciary capacity or in satisfaction of a debt previously
contracted will be cancelled and retired and will cease to exist as of the
Effective Date of the Merger and no payment will be made with respect thereto.
No fractional shares of FTNC Common Stock will be issued in connection with the
Merger. In lieu of fractional shares, FTNC will make a cash payment equal to
the fractional interest which a CBTC shareholder would otherwise receive
multiplied by the average price of FTNC's Common Stock, calculated on the basis
of closing prices over the 10 business days immediately prior to the fifth
calendar day prior to the Effective Date. If prior to the Effective Date the
outstanding shares of FTNC Common Stock are increased, decreased, changed into
or exchanged for a different number or class of shares or securities through a
change in FTNC's capitalization, then the Conversion Number will be adjusted
accordingly.
Each share of Interim Bank common stock outstanding immediately prior
to the Merger shall by virtue of the Merger be converted into and exchanged for
one share of CBTC Common Stock, as the surviving corporation in the Merger.
From and after the Merger, each outstanding certificate theretofore
representing shares of Interim Bank common stock shall be deemed to evidence
ownership of and represent the number of shares of CBTC Common Stock into which
such shares of Interim Bank common stock shall have been converted. Promptly
after the Merger, CBTC shall issue FTNC a certificate or certificates
representing such shares of CBTC Common Stock in exchange for the certificates
which formerly represented shares of Interim Bank common stock, which shall be
cancelled.
EFFECTIVE DATE
The Effective Date of the Merger will be the date the certificate of
merger is filed in accordance with the TBA or on such later date as the
certificate may specify. Unless otherwise mutually agreed upon by FTNC and
CBTC, the Effective Date will occur on the last business day of the month
during which
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the expiration of all applicable waiting periods in connection with
governmental approvals occurs and all conditions to the consummation of the
Merger Agreement have been satisfied or waived.
SURRENDER OF CERTIFICATES
As promptly as practicable after the Effective Date, The First
National Bank of Boston, acting in the capacity of exchange agent for FTNC (the
"Exchange Agent"), will mail to each former holder of record of CBTC Common
Stock a form of letter of transmittal, together with instructions for the
exchange of such holder's certificates representing shares of CBTC Common Stock
for certificates representing shares of FTNC Common Stock.
HOLDERS OF CBTC COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE
EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates for
CBTC Common Stock together with a properly completed letter of transmittal and
any other required documents, there will be issued and mailed to the holder of
CBTC Common Stock surrendering such items a certificate or certificates
representing the number of shares of FTNC Common Stock to which such holder is
entitled and, where applicable, a check for the amount representing any
fractional share determined in the manner described above.
No dividend or other distribution payable after the Effective Date
with respect to FTNC Common Stock will be paid to the holder of any
unsurrendered CBTC certificate until the holder surrenders such certificate(s),
at which time the holder will be entitled to receive all previously withheld
dividends and distributions, without interest.
After the Effective Date, there will be no transfers on CBTC's stock
transfer books of shares of CBTC Common Stock issued and outstanding at the
Effective Date. If certificates representing shares of CBTC Common Stock are
presented for transfer after the Effective Date, they will be returned to the
presenter together with a form of letter of transmittal and exchange
instructions.
Neither FTNC nor CBTC nor any other person will be liable to any
former holder of CBTC Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for CBTC Common Stock has been lost, stolen or
destroyed, FTNC will issue the consideration properly payable in accordance
with the Merger Agreement upon receipt of appropriate evidence as to such loss,
theft or destruction, appropriate evidence as to the ownership of such
certificate by the claimant, and appropriate and customary indemnification,
including when appropriate the posting of a bond.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of FTNC and CBTC to effect the Merger are
subject to the satisfaction of the following conditions prior to the Effective
Date: (a) approval of the Merger Agreement and the transactions contemplated
thereby by the FTNC, Interim Bank and CBTC Boards of Directors, which approvals
have been obtained, and by the affirmative vote of the holders of two-thirds
(2/3) of the
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outstanding shares of CBTC Common Stock entitled to vote thereon and by FTNC as
sole shareholder of Interim Bank; (b) receipt of all regulatory consents and
approvals, or waiver thereof, necessary to consummate the transactions
contemplated by the Merger Agreement including the Federal Reserve Board, the
Tennessee Department of Financial Institutions, and the FDIC and the expiration
of any statutory waiting periods (provided, however, that no such consent or
approval referred to herein will be deemed to have been received if it includes
any conditions or requirements which would reduce the benefits of the
transactions contemplated by the Merger Agreement to such a degree that FTNC or
CBTC would not have entered into the Merger Agreement had such conditions or
requirements been known at the date thereof); (c) the satisfaction of all other
requirements prescribed by law necessary to the consummation of the
transactions contemplated by the Merger Agreement; (d) neither FTNC nor CBTC is
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger; (e) no
statute, rule, regulation, order, injunction, or decree has been enacted,
entered, promulgated or enforced by any governmental authority which prohibits,
restricts or makes illegal consummation of the Merger; (f) the Registration
Statement of which this Proxy Statement-Prospectus forms a part has become
effective and no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been initiated
or threatened by the Securities & Exchange Commission; and (g) receipt by each
party from counsel of a legal opinion to the effect that the Merger qualifies
as a tax-free reorganization under the provisions of Section 368(a) of the
Code.
The obligations of FTNC to effect the Merger are further subject to
the satisfaction (or waiver by FTNC) of the following conditions: (a) FTNC
will have received from CBTC's independent certified public accountants certain
customary letters with respect to certain financial information of CBTC; (b)
FTNC will have received a customary legal opinion, dated the date of closing,
from counsel to CBTC; (c) each of the representations, warranties and covenants
of CBTC set forth in the Merger Agreement will, in all material respects, be
true on, or complied with by, the Effective Date and FTNC will have received a
certificate signed by certain officers of CBTC to such effect [provided,
however, that any effect on CBTC as a result of any action taken by CBTC
pursuant to its obligations under the Merger Agreement to, consistent with
GAAP, modify and change its loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) (see
"Conduct of Business Pending the Merger") will be disregarded for purposes of
determining the truth or correctness of any representation or warranty of CBTC
and for purposes of determining whether any conditions are satisfied]; (d) FTNC
will have received all necessary state securities laws and "Blue Sky" permits;
(e) FTNC will have received a letter dated as of the Effective Date from its
independent certified public accountants to the effect that the Merger will
qualify for pooling-of-interests accounting treatment if closed and consummated
in accordance with the Merger Agreement; (f) no litigation or proceeding will
be pending against either FTNC or CBTC or any of their subsidiaries by any
governmental agency seeking to prevent consummation of the transactions
contemplated by the Merger Agreement nor is any litigation or proceeding
pending which in the reasonable judgment of the CEO of CBTC is likely to have a
material adverse effect on CBTC; (g) fewer than 10% of the outstanding shares
of CBTC Common Stock will have been voted against the Merger; and (h) each
director, executive officer and other affiliate of CBTC will have delivered to
FTNC a written agreement satisfactory to FTNC providing, among other matters,
that such person will not sell or otherwise dispose of any shares of FTNC
Common Stock received in the Merger except in compliance with applicable
securities laws and will not sell or otherwise dispose of any shares of CBTC
Common Stock during any period when such disposition would disqualify the
Merger for pooling-of-interests accounting treatment.
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The obligations of CBTC to effect the Merger are further subject to
the satisfaction (or waiver by CBTC) of the following conditions: (a) CBTC
will have received from FTNC's independent certified public accountants certain
customary letters with respect to certain financial information of FTNC; (b)
CBTC will have received a customary legal opinion, dated the date of closing,
from counsel to FTNC; (c) each of the representations, warranties and covenants
of FTNC set forth in the Merger Agreement will, in all material respects, be
true on, or complied with by, the Effective Date and CBTC will have received a
certificate signed by certain officers of FTNC to such effect; and (d) no
litigation or proceeding will be pending against either FTNC or CBTC or any of
their subsidiaries by any governmental agency seeking to prevent consummation
of the transactions contemplated by the Merger Agreement nor is any litigation
or proceeding pending which in the reasonable judgment of the CEO of FTNC is
likely to have a material adverse effect on FTNC.
No assurance can be provided as to when, if ever, the regulatory
consents and approvals necessary to consummate the Merger will be obtained (or,
if so obtained, that such consents and approvals will not contain conditions or
requirements which cause such approvals to fail to satisfy the conditions to
the Merger set forth in the Merger Agreement) or whether all of the other
conditions precedent to the Merger will be satisfied or waived by the party
permitted to do so. See "Regulatory Approvals." If the Merger is not effected
on or before July 23, 1994, the Merger Agreement may be terminated, and the
Merger abandoned, by a vote of a majority of the Board of Directors of either
FTNC or CBTC, unless the failure to effect the Merger by such date is due to
the breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board
under Section 3 of the Bank Holding Company Act of 1956, as amended (the
"BHCA"), which requires that the Federal Reserve Board take into consideration,
among other factors, the financial and managerial resources and future
prospects of the institutions and the convenience and needs of the communities
to be served. Application for such approval has been filed with the Federal
Reserve Board. The BHCA prohibits the Federal Reserve Board from approving the
Merger if it would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of banking
in any part of the United States, or if its effect in any section of the
country may be substantially to lessen competition or to tend to create a
monopoly, or if it would in any other manner be a restraint of trade, unless
the Federal Reserve Board finds that the anticompetitive effects of the Merger
are clearly outweighted in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Federal Reserve Board has the authority to deny an application if
it concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act of 1977. Under the BHCA, the Merger may not be
consummated until the 30th calendar day after the Federal Reserve Board's
approval, during which time the United States Department of Justice may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise.
The formation of Interim Bank and the Merger are also subject to
approval by the FDIC and the Tennessee Department of Financial Institutions.
Applications for such approvals have been filed.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "Conditions to Consummation of the Merger" and "Waiver and
Amendment; Termination."
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THERE CAN BE NO ASSURANCE THAT THE REGULATORY AUTHORITIES DESCRIBED
ABOVE WILL APPROVE THE MERGER, AND IF THE MERGER IS APPROVED, THERE CAN BE NO
ASSURANCE AS TO THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT
ANY SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES
SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF THE MERGER
SET FORTH IN THE MERGER AGREEMENT. THERE CAN LIKEWISE BE NO ASSURANCE THAT THE
DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE MERGER, OR IF SUCH A CHALLENGE IS
MADE, AS TO THE RESULT THEREOF.
CONDUCT OF BUSINESS PENDING MERGER
The Merger Agreement contains certain restrictions on the conduct of
CBTC's business pending consummation of the Merger. In particular, the Merger
Agreement provides that, without the prior written consent of FTNC, CBTC may
not, among other things, (a) make, declare or pay any dividend on the CBTC
Common Stock other than a third quarter 1993 dividend in an aggregate amount
not to exceed $300,000, and in the event, but only in such event, the Merger
has not been consummated by the record date for FTNC's fourth quarter 1993
dividend, a fourth quarter 1993 dividend in an aggregate amount not to exceed
$400,000 or declare or make any distribution on, or directly or indirectly
combine, redeem, reclassify or purchase or otherwise acquire any shares of its
capital stock (other than in a fiduciary capacity or in respect of a debt
previously contracted in good faith) or authorize the creation or issuance of
or issue or sell or permit any subsidiary to issue or sell any additional
shares of CBTC Common Stock or the capital stock of any significant subsidiary
of CBTC, or any options, calls or commitments relating to such stock; (b) pay
any bonus to, or increase the rate of compensation of, any of its directors,
officers or employees except in the ordinary course of business consistent with
past practice; (c) enter into or modify or permit any subsidiary to enter into
or modify (except as may be required by law and except for renewal of any
existing plan in the ordinary course of business consistent with past practice)
any employee benefit plan covering any of CBTC's directors, officers or other
employees; (d) except as may be required to, consistent with GAAP, modify and
change its loan, litigation and real estate valuation policies and practices so
as to be applied consistently on a mutually satisfactory basis with those of
FTNC, substantially modify the manner in which it has conducted its business,
taken as a whole, or amend its Articles of Incorporation or Bylaws; (e) merge
or consolidate or permit any significant subsidiary to merge or consolidate
with any other entity or engage in any similar transactions; (f) except for
disposition of loans and cash equivalent assets in the ordinary course of
banking business, sell, dispose of or discontinue or permit any subsidiary to
sell, dispose or discontinue any of its business assets (including investment
securities) or property; (g) except for the acquisition of loans, investment
securities and cash equivalent assets in the ordinary course of its banking
business, acquire any assets or business or permit any subsidiary to acquire
any assets or business that is material to such party; (h) take any other
action or permit any subsidiary to take any action not in ordinary course of
business; or (i) directly or indirectly agree to take any of the foregoing
actions.
NO SOLICITATION
CBTC has agreed with FTNC and FTNC has agreed with CBTC in the Merger
Agreement that neither it nor any of its subsidiaries will solicit or encourage
inquiries or proposals with respect to, or, subject to the fiduciary duties of
its directors, furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
material portion of its assets (whether owned by it directly or owned by any of
its subsidiaries), or of a substantial equity interest in, it or any business
combination with it or any of its subsidiaries other than, in the case of FTNC,
a business combination in which FTNC is as a practical matter the surviving
corporation. CBTC will notify FTNC immediately if any such inquiries or
proposals are received by, any such information
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<PAGE> 33
is requested from, or any such negotiations or discussions are sought to be
initiated with, it or any of its subsidiaries; and it has instructed its
officers, directors, agents, advisers and affiliates to comply with the same
restrictions.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Date, any provision of the Merger Agreement may
be waived by the party benefitted by the provision or amended or modified
(including the structure of the transaction) by an agreement in writing
approved by the FTNC and CBTC Boards (to the extent allowed by law), provided
that after the vote of the shareholders of CBTC, Article I(B) of the Merger
Agreement, which concerns conversion of the CBTC Common Stock and the
Conversion Number, may not be amended or revised.
The Merger Agreement may be terminated at any time prior to the
Effective Date, either before or after its approval by the holders of CBTC
Common Stock, as follows: (a) by the mutual consent of FTNC and CBTC; (b) by
either FTNC or CBTC, if a majority of the members of its Board so determines,
in the event of a failure by the shareholders of CBTC to approve the Merger
Agreement; (c) by the non-breaching party in the event a material breach of the
Merger Agreement is not cured or curable within 60 days after written notice of
such breach is given to the breaching party; (d) by CBTC if FTNC's Common Stock
Average Price is lessthan $34.50 per share, adjusted accordingly for stock
splits, stock dividends, and other changes in FTNC's capitalization; (e) by
either FTNC or CBTC in the event that the Merger has not been consummated by
July 23, 1994, unless the failure to consummate the Merger is due to the breach
of the Merger Agreement by the party seeking to terminate the Merger Agreement;
and (f) be either FTNC or CBTC within 40 days after execution of the Merger
Agreement in the event that it makes a discovery pursuant to its due diligence
investigation of the other party that materially and adversely affects an
economic basis of the transaction, subject to certain limitations as provided
in the Merger Agreement.
Except as set forth below, in the event of the termination of the
Merger Agreement by either FTNC or CBTC, as provided above, the Merger
Agreement will become void, and there will be no liability on the part of
either FTNC or CBTC or their respective officers or directors, except that such
termination will be without prejudice to the rights of any party arising out of
a willful breach by any other party of any covenant or a willful
misrepresentation contained in the Merger Agreement. Under certain
circumstances, FTNC may have certain rights with respect to CBTC Common Stock
pursuant to the Stock Optioin Agreement. See "Stock Option Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of CBTC's management and the CBTC Board have certain
interests in the Merger that are in addition to their interests as shareholders
of CBTC generally. The CBTC Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Indemnification. Pursuant to the Merger Agreement, FTNC has agreed,
among other things, to (a) indemnify any person who is, has been or becomes,
prior to the Effective Date, a director, officer, employee, fiduciary or agent
of CBTC or any of its subsidiaries against any claims, based upon or arising
out of or pertaining to the Merger Agreement or any of the transactions
contemplated thereby, whether asserted or threatened; and (b) maintain the
indemnification with respect to matters occurring before the
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<PAGE> 34
Effective Date for such persons provided by CBTC's Articles of Incorporation
and Bylaws for a period of not less than 3 years following the Effective Date.
STOCK OPTION AGREEMENT
At FTNC's insistence and as a condition to entering into the Merger
Agreement, FTNC and CBTC also entered into a Stock Option Agreement pursuant to
which FTNC has the right, upon the occurrence of certain events (none of which
has occurred to the best of FTNC's and CBTC's knowledge), to purchase up to
19,900 shares of CBTC Common Stock (representing 19.9% of the outstanding
shares)(the "Option"), subject to adjustment in certain circumstances and
subject to termination within certain periods (less the number of shares of
CBTC Common Stock owned by FTNC for its own account), at an exercise price of
$222.04 per share. The exercise price of the Option was determined by
reference to the book value of the shares of CBTC Common Stock on July 23,
1993, the day of the signing of the Merger Agreement.
The Option may be exercised, in whole or part, only upon the
occurrence of both an Initial Triggering Event (as defined below) and a
Subsequent Triggering Event (as defined below) and prior to the earliest to
occur of (a) the Effective Date, (b) the termination of the Merger Agreement,
if such termination occurs prior to the occurrence of an Initial Triggering
Event, or (c) the passage of 18 months after termination of the Merger
Agreement, if such termination follows the occurrence of an Initial Triggering
Event. A copy of the Stock Option Agreement is set forth in Annex 1 to the
Merger Agreement, a copy of which is attached to this Proxy
Statement-Prospectus as Appendix "A."
As defined in the Stock Option Agreement, "Initial Triggering Event"
means any of the following events or transactions occurring after July 23,
1993:
(a) CBTC or any subsidiary of CBTC shall have entered into an
agreement to engage in an Acquisition Transaction (as hereinafter defined) with
any person (other than FTNC), or the CBTC Board shall have recommended that the
shareholders of CBTC approve or accept any Acquisition Transaction (other than
that contemplated by the Merger Agreement). The term "Acquisition Transaction"
shall mean (x) a merger or consolidation, or any similar transaction, involving
CBTC, (y) a purchase, lease or other acquisition of all or any substantial part
of the assets of CBTC, or (z) a purchase or other acquisition of securities
representing 10% or more of the voting power of CBTC;
(b) Any person (other than FTNC) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more of the
outstanding shares of CBTC Common Stock;
(c) Any person (other than FTNC) shall have made a bona fide proposal
to CBTC or its shareholders by public announcement or written communication
that is or becomes the subject of public disclosure to engage in an Acquisition
Transaction;
(d) After a proposal, which has not yet become subject to public
disclosure, is made by any person (other than FTNC) to CBTC or its shareholders
to engage in an Acquisition Transaction, CBTC shall have breached any covenant
or obligation contained in the Merger Agreement and such breach would entitle
FTNC to terminate the Merger Agreement (without regard to the cure periods) and
such breach shall not have been cured prior to the date the holder of the
Option gave written notice to CBTC specifying the total number of shares it
will purchase; or
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<PAGE> 35
(e) Any person (other than FTNC) shall have filed an application or
notice with the Federal Reserve Board or other federal or state bank or thrift
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
As defined in the Stock Option Agreement, "Subsequent Triggering
Event" means any of the following events or transactions occurring after July
23, 1993:
(a) The acquisition by any person of beneficial ownership of 25% or
more of the then outstanding CBTC Common Stock; or
(b) The occurrence of the Initial Triggering Event described in
clause (a) of the definition of Initial Triggering Event above, except that the
percentage referenced in clause (z) of such clause (a) shall be 25%.
Under certain circumstances in the event of CBTC's entering into
certain types of transactions with a third party as described in the Stock
Option Agreement, the Option will become converted into, or exchanged for, an
option with respect to the common stock of such third party or a person related
to such third party, on terms as similar as possible to, and in no event less
advantageous than, the Option.
In the event that any additional shares of CBTC Common Stock are
issued or otherwise become outstanding, including by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type and number of shares of CBTC Common
Stock purchasable upon exercise of the Option will be appropriately adjusted so
that the number of shares of CBTC Common Stock subject to the Option will equal
19.9% of the number of shares of CBTC Common Stock then issued and outstanding
less the number of shares of CBTC Common Stock owned by FTNC for its own
account. In such event, the exercise price will be adjusted accordingly.
The shares issuable upon exercise of the Option represent 19.9% of the
CBTC Common Stock outstanding on the date of the granting of the Option. FTNC
may not, however, acquire more than 5% of the CBTC Common Stock without prior
approval of the Federal Reserve Board.
In the event that CBTC's shareholders fail to approve the Merger
Agreement, either CBTC or FTNC may terminate the Merger Agreement in accordance
with its terms. See "Waiver and Amendment; Termination." If no Initial
Triggering Event occurs prior to such termination, the Stock Option Agreement
will automatically terminate at such time. If an Initial Triggering Event does
occur prior to the termination of the Merger Agreement, then FTNC will be
entitled to exercise its rights, under the Stock Option Agreement, including
the right to require CBTC to repurchase the Option if a Subsequent Triggering
Event occurs within 18 months after such termination.
The Stock Option Agreement may discourage competing offers to the
Merger and is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement. In
the event that preemptive rights may be exercised by CBTC shareholders, such
exercise would further discourage competing offers.
SHAREHOLDERS' DISSENTERS' RIGHTS
Shareholders of CBTC who follow the procedures specified in Section
42-2-1309 of the TBA ("Section 1309") will be entitled to receive the value of
their shares of CBTC Common Stock in cash.
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THE PROCEDURES SET FORTH IN SECTION 1309 MUST BE STRICTLY COMPLIED WITH.
FAILURE TO FOLLOW ANY OF THE PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER
OF DISSENTERS' RIGHTS UNDER SECTION 1309
The following discussion of the provisions of Section 1309 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 "C" to this Proxy Statement-Prospectus.
Under Section 1309, a shareholder of CBTC electing to exercise
dissenters' rights must both:
(i) vote against the Merger and
(ii) within 30 days after the Effective Date, deliver to CBTC
a written demand for the value of his shares of CBTC Common
Stock in cash accompanied by the surrender of the stock
certificates for such shares. Such written demand should be
delivered either in person or by mail (certified mail, return
receipt requested, being the recommended form of transmittal)
to CBTC, 775 Raider Drive, N.W., Cleveland, Tennessee 37312,
Attention: Secretary.
A written demand must be made by or for the holder of record of the
CBTC Common Stock. Accordingly, such demand should be executed by or for such
shareholder of record, fully and correctly, as such shareholder's name appears
on his stock certificates. If the stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian, or custodian, execution of the demand
should be made in such capacity and if the stock is owned of record by more
than one person as in a joint tenancy or tenancy in common, such demand should
be executed by or for all joint owners. An authorized agent, including one of
two or more joint owners, may execute the demand for appraisal for a
shareholder of record. However, the agent must identify the record owner or
owners and expressly disclose the fact that in executing the demand he is
acting as agent for the record owner.
A record owner, such as a broker, who holds CBTC stock as nominee for
others may exercise his right of appraisal with respect to the shares held for
all or less than all of the others. In such case the written demand should set
forth the number of shares covered by it. Where no number of shares is
expressly mentioned, the demand will be presumed to cover all shares standing
in the name of such record owner.
The value of the shares as to which written demand has been made will
be determined, as of the date of the Special Meeting by three appraisers, one
to be selected by the owners of two-thirds of the shares involved, one to be
selected by the CBTC Board, as the Board of Directors of the resulting bank
following the Merger, and one to be selected by the two appraisers previously
selected. The valuation agreed upon by any two of the appraisers is
determinative of the value of the shares. In the event that the appraisal is
not completed within 90 days after the Merger, the Tennessee Commissioner shall
cause an appraisal to be made. Expenses of the appraisal will be paid by CBTC.
CBTC is permitted to fix an amount that it considers to be not more
than the fair market value of the shares of CBTC Common Stock at the time of
the Special Meeting, which it will pay dissenting shareholders. The amount due
under such accepted offer or under the appraisal constitutes a debt of CBTC.
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Although CBTC believes that the price per share to be paid in the
Merger is fair, CBTC cannot make any representation as to the outcome of any
appraisal required under Section 1309, and shareholders should recognize that
such an appraisal could result in a determination of a lower, higher or
equivalent value.
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 CBTC Common Stock pursuant to the
exercise of employee stock options or rights or otherwise as compensation.
CBTC 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 CBTC as a result of the Merger, (b) no gain or loss will be
recognized by the CBTC shareholders upon the receipt of FTNC Common Stock in
exchange for CBTC 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 CBTC shareholders in connection with the Merger will be the
same as the basis in the CBTC Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest in which cash
is received); and (d) the holding period of the FTNC Common Stock to be
received by the CBTC shareholders in connection with the Merger will include
the holding period of the CBTC Common Stock surrendered in exchange therefor,
provided that the CBTC Common Stock is held as a capital asset at the Effective
Date. Consummation of the Merger is dependent upon, among other conditions,
receipt by FTNC and CBTC of an opinion of counsel, dated as of the Effective
Date, substantially to this effect.
Consequences of Receipt of Cash in Lieu of Fractional Shares. An CBTC
shareholder who is entitled to receive cash in lieu of a fractional share
interest of FTNC Common Stock in connection with the Merger will recognize, as
of the Effective Date, gain (or loss) equal to the difference between such cash
amount and the shareholder's basis in the fractional share interest. Any gain
(or loss) recognized will be capital gain (or loss) if the CBTC Common Stock is
held by such shareholder as a capital asset at the Effective Date.
Cash Received by CBTC Shareholders Who Dissent. A shareholder of CBTC
who perfects his dissenter's rights under the laws of the State of Tennessee
and who receives a payment in cash of the fair value of his shares of CBTC
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 CBTC 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 CBTC will depend on his individual circumstances. Each CBTC
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 dividend income.
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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 consummated
in accordance with the terms of the Merger Agreement. Under the
pooling-of-interests method of accounting, the historical basis of the assets
and liabilities of FTNC and CBTC will be combined at the Effective Date and
carried forward at their previously recorded amounts and the shareholders'
equity accounts of CBTC and FTNC will be combined on FTNC's consolidated
balance sheet. Income and other financial statements of FTNC issued after
consummation of the Merger will not be restated retroactively to
reflect the consolidated operations of FTNC and CBTC as if the Merger had taken
place prior to the periods covered by such financial statements because the
transaction is not material to FTNC.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding shares of CBTC
Common Stock must be exchanged for FTNC Common Stock. CBTC has agreed to use
its best efforts to cause the Merger to qualify for pooling-of-interests
treatment. See "Resale of FTNC Common Stock."
The unaudited pro forma financial information contained in this Proxy
Statement--Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Merger. See "Summary -- Equivalent and
Pro Forma Share Data," "--Selected Financial Data and Ratios" and "Index to Pro
Forma Financial Information."
EXPENSES
The Merger Agreement provides, in general, that FTNC and CBTC will
each pay its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby, including fees and expenses of financial or
other consultants, investment bankers, accountants and counsel, except that
FTNC and CBTC will divide equally the costs of printing this Proxy Statement-
Prospectus and any other documents required in connection with the Merger. See
"Waiver and Amendment; Termination."
RESALE OF FTNC COMMON STOCK
The shares of FTNC Common Stock issued pursuant to the Merger
Agreement will be freely transferable under the Securities Act except for
shares issued to any shareholder who may be deemed to be an "affiliate" of CBTC
for purposes of Rule 145 under the Securities Act as of the date of the Special
Meeting. Affiliates may not sell their shares of CBTC 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 CBTC generally include individuals or entities that
control, are controlled by or are under common control with CBTC and may
include certain officers and directors of CBTC as well as principal
shareholders of CBTC.
CBTC has agreed in the Merger Agreement to use its best efforts to
cause each director, executive officer and other person who is an affiliate of
CBTC to enter into and deliver to FTNC an agreement satisfactory to FTNC
providing that such person will not, directly or indirectly, sell, pledge,
transfer or otherwise dispose of shares of CBTC Common Stock owned by such
person or FTNC
- 34 -
<PAGE> 39
Common Stock to be received by such person in the Merger (a) in the case of
shares of FTNC Common Stock only, except in compliance with the applicable
provisions of the Securities Act and rules and regulations thereunder, and (b)
during the periods when any such sale, pledge, transfer or other disposition
would, under GAAP or the rules, regulations or interpretations of the SEC,
disqualify the Merger for pooling-of-interests accounting treatment. Such
periods in general encompass the period commencing 30 days prior to the Merger
and ending at the time of the publication of financial results covering at
least 30 days of combined operations of FTNC and CBTC.
NASDAQ/NMS
FTNC Common Stock is included for quotation on the NASDAQ/NMS. The
FTNC Common Stock issued to the shareholders of CBTC pursuant to the Merger
Agreement will be included for quotation on the NASDAQ/NMS.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, FTNC is subject to regulation by the
Federal Reserve Board under the BHCA and its examination and reporting
requirements. Under the BHCA, bank holding companies may not directly or
indirectly acquire the ownership or control of more than 5% of the voting
shares or substantially all of the assets of any company, including a bank,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
The earnings of FTNC's subsidiaries, and therefore the earnings of
FTNC, are affected by general economic conditions, management policies,
legislative actions and governmental actions of various regulatory authorities,
including the Federal Reserve Board and the Comptroller. In addition, there
are numerous government requirements and regulations which affect the
activities of FTNC and its subsidiaries.
PAYMENT OF DIVIDENDS
FTNC is a legal entity separate and distinct from its banking and
other subsidiaries. Most of the revenues of FTNC result from dividends paid to
FTNC by its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks as well as by FTNC
to its shareholders.
Each national banking association is required by federal law to obtain
the prior approval of the Comptroller for the payment of dividends if the total
of all dividends declared by the board of directors of such bank in any year
will exceed the total of (a) such bank's net profits (as defined and
interpreted by regulation) for that year plus (b) the retained net profits (as
defined and interpreted by regulation) for the preceding 2 years, less any
required transfers to surplus. In addition, national banks can only pay
dividends to the extent that retained net profits (including the portion
transferred to surplus) exceed bad debts (as defined by regulation).
In 1990, the Comptroller issued a regulation that redefines certain of
the terms and methods of calculation used in these two dividend restrictions.
The rule, among other things, changes the
- 35 -
<PAGE> 40
methodology of calculating net profits to be more consistent with GAAP with the
result that provisions for possible credit losses cannot be added back to net
income and charge offs cannot be deducted from net income in calculating the
level of net profits available for the payable of dividends. FTNC does not
believe that the regulation will have a material effect on the ability of its
subsidiary national banks to pay dividends.
Under the foregoing dividend restrictions, at September 30, 1993,
FTNC's subsidiary banks, without obtaining governmental approvals, could
declare aggregate dividends of approximately $91.9 million from retained net
profits of the preceding 2 years, plus an amount approximately equal to the net
profits earned less dividends paid (approximately $59.4 million) for the period
from January 1, 1993 through September 30, 1993. In order to comply with
risk-based capital guidelines and to maintain strong capital positions,
dividend payments are restricted by management to lesser amounts. During 1992,
FTNC's subsidiary banks paid $32.4 million in dividends.
The payment of dividends by FTNC and its bank subsidiaries may also be
affected or limited by other factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion
of the applicable regulatory authority, a bank under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such
bank cease and desist from such practice. The Comptroller has indicated that
paying dividends that deplete a national bank's capital base to an inadequate
level would be an unsafe and unsound banking practice. The Federal Reserve
Board, the Comptroller and FDIC have issued policy statements which provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
CERTAIN TRANSACTIONS BY FTNC WITH ITS AFFILIATES
There are also various legal restrictions on the extent to which FTNC
and its nonbank subsidiaries can borrow or otherwise obtain credit from FTNC's
bank subsidiaries. An insured bank and its subsidiaries are limited in
engaging in "covered transactions" with its nonbank affiliates to the following
amounts: (a) in the case of any such affiliate, the aggregate amount of covered
transactions of the insured bank and its subsidiaries will not exceed 10% of
the capital stock and surplus of the insured bank; and (b) in the case of all
affiliates, the aggregate amount of covered transactions of the insured bank
and its subsidiaries will not exceed 20% of the capital stock and surplus of
the bank. "Covered transactions" are defined by statute to include a loan or
extension of credit, as well as a purchase of securities issued by an
affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board), the acceptance of securities issued by the affiliate as
collateral for a loan and the issuance of a guarantee, acceptance, or letter of
credit on behalf of an affiliate. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
CAPITAL
The Federal Reserve Board has adopted final risk based capital
guidelines for bank holding companies, which were fully phased in at the end of
1992. The minimum guidelines for the ratio of total capital ("Total Capital")
to risk weighted assets (including certain off balance sheet activities, such
as standby letters of credit) is 8%. At least half of the Total Capital is to
be composed of common stockholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited
- 36 -
<PAGE> 41
amount of perpetual preferred stock, less goodwill ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock and a limited
amount of loan loss reserves. At September 30, 1993, FTNC's Tier 1 Capital and
Total Capital ratios were 10.50% and 13.17%, respectively.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum Tier 1 Capital leverage ratio (Tier 1 Capital-to-total assets,
less goodwill) of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating. All other bank
holding companies will generally be required to maintain a leverage ratio of 3%
plus an additional cushion of 100 to 200 basis points. FTNC's Tier 1 Capital
leverage ratio at September 30, 1993, was 7.02%. The guidelines also provide
that bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activities. The
Federal Reserve Board has not advised FTNC of any specific minimum tangible
Tier 1 Capital leverage ratio applicable to it. At September 30, 1993, FTNC's
ratios exceeded the regulatory minimums.
FTNC's subsidiary banks are subject to similar capital requirements
adopted by the Comptroller and the FDIC. FTB, FTNC's principal banking
subsidiary, had a Tier 1 Capital leverage ratio (Tier 1 Capital-to-total
assets, less goodwill less premium on purchased deposits and assets) of 6.50%
at September 30, 1993. Regulations of the Comptroller provide for a minimum
Tier 1 Capital leverage ratio of 3.0%.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC and a prohibition on the taking of brokered deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, the management of FTNC is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
FTNC SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, FTNC is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required
at times when, absent such Federal Reserve Board policy, FTNC may not be
inclined to provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989 in connection with (a) the default of a commonly
controlled FDIC insured depository institution or (b) any assistance provided
by the FDIC to any commonly controlled FDIC insured depository institution "in
danger of default." "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance.
- 37 -
<PAGE> 42
Under the National Bank Act, if the capital stock of a national bank
is impaired by losses or otherwise, the Comptroller is authorized to require
payment of the deficiency by assessment upon the bank's shareholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
shareholder after 3 months' notice, to sell the stock of such shareholder to
make good the deficiency.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
FDIC INSURANCE ASSESSMENTS
Prior to 1993, FTNC's subsidiary banks were subject to FDIC deposit
insurance assessments at an assessment rate for the BIF of .23% and FTNC's
subsidiary federal savings bank was subject to FDIC deposit insurance
assessments at an assessment rate for SAIF of .23%. Effective November 2,
1992, the FDIC's risk-based assessment system imposed an assessment rate for an
insured depository institution which varies according to the level of risk
incurred in its activities. An institution's risk category depends upon
whether the institution is well capitalized, adequately capitalized or less
than adequately capitalized. Each insured depository institution is also
assigned to one of three "supervisory subgroups": Subgroup A institutions are
financially sound institutions with few minor weaknesses; Subgroup B
institutions demonstrate weaknesses which, if not corrected, could result in
significant deterioration; and Subgroup C institutions pose a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Effective
January 1, 1993, based on their capital and supervisory subgroups, each BIF and
SAIF member institution has been assigned an annual FDIC assessment rate
varying between .23% and .31%. All of FTNC's subsidiary banks presently are
assessed at a rate of .23%. A certain proportion of deposits attributable to
FTNC's former savings bank subsidiary remain insured by SAIF.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), enacted in December 1991, substantially revised the bank regulatory
and funding provisions of the Federal Deposit Insurance Act 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
depository institutions that do not meet minimum capital requirements. FTNC's
bank subsidiaries have capital levels well above the minimum requirements.
In addition, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market and also may not be able
to "pass through" insurance coverage for certain employee benefit accounts.
FDICIA also requires the holding company of any undercapitalized depository
institution to guarantee, in part, certain aspects of such institution's
capital plan for such plan to be acceptable.
FDICIA contains numerous other provisions, including new accounting,
audit and reporting requirements, beginning in 1995 termination of the "too big
to fail" doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, new regulatory standards in such areas
- 38 -
<PAGE> 43
as asset quality, earnings and compensation and revised regulatory standards
for, among other things, powers of state banks, real estate lending and capital
adequacy.
FIDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches.
INFORMATION CONCERNING CBTC
DESCRIPTION OF BUSINESS
General. CBTC was chartered on January 9, 1906, as a state bank under
the laws of the State of Tennessee for the purpose of carrying on a general
banking business and providing fiduciary services through its trust department.
It operates through six branches in Bradley County, Tennessee. The activities
of CBTC are subject to the supervision and regulation of the FDIC and the
Tennessee Department of Financial Institutions.
Competitive Conditions. CBTC does business in Bradley County,
Tennessee. Six other commercial banks and savings and loan associations are
doing business in the county. CBTC is subject to substantial competition in
all aspects of its business. Intense competition for loans and deposits comes
from other financial institutions in the market area. In certain aspects of
its business, CBTC also competes with credit unions, small loan companies,
insurance companies, mortgage companies, finance companies, brokerage houses
and other financial institutions, some of which are not subject to the same
degree of regulation and restriction as CBTC and some of which have financial
resources greater than those of CBTC. CBTC currently employs approximately 120
persons.
Supervision and Regulation. CBTC is subject to applicable provisions
of Tennessee law, insofar as they do not conflict with or are not preempted by
federal law, including laws related to usury, various consumer and commercial
loans and the operation of branch banks.
Property. CBTC has six locations in Bradley County, Tennessee. All
branches are located in the city of Cleveland.
Directors and Executive Officers. The members of the Board of
Directors of CBTC 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 age, his current principal occupation
(which has continued for five years unless otherwise indicated), the name and
principal business of the organization in which his occupation is carried on
(which organization is not an affiliate of CBTC unless indicated), any
directorships in publicly held companies, and the year in he was first elected
to his position with CBTC are as follows:
James A. Breaux, 59, is President and General Manager of Bowaters,
Inc., Southern Division, Calhoun, Tennessee. He was elected to the CBTC Board
in 1992.
Charles W. Brown, 54, is President of Tech 2000, Cleveland, Tennessee.
Previously he was an executive with the Olin Chemicals Group. He was elected
to the CBTC Board in 1981.
- 39 -
<PAGE> 44
Michael E. Callaway, 54, is an attorney and partner in the law firm of
Bell & Associates, Cleveland, Tennessee. He was elected to the CBTC Board in
1988.
Robert G. Card, Jr., 45, is President and CEO of Easy Auto Credit,
Inc., Cleveland, Tennessee. Previously he was President of Bob Card Ford in
Cleveland. He was elected to the CBTC Board in 1992.
Donald N. Ervin, 62, is Executive Vice President of CBTC, a position
he has held since 1982.
R. Arch Fitzgerald, 70, is Vice-Chairman of CBTC, a position he has
held since 1981.
M. Hayne Hamilton, 61, manages the interests of the S. K. Johnston,
Jr. family, Chattanooga, Tennessee. He was elected to the CBTC Board in 1992.
C. M. Hardwick, Jr., 67, was Executive Vice-President of Hardwick
Clotheres, Inc., Cleveland, Tennessee and is now retired from that position.
He was elected to the CBTC Board in 1966.
W. Sam McReynolds, 56, was elected CEO of CBTC in 1982 and Chairman of
the Board in 1990. He served as President of CBTC from 1982 until 1991.
Mary Elizabeth Neil, 75, is owner of Blythewood Farms, Cleveland,
Tennessee. She was elected to the CBTC Board in 1983.
James O. Williams, 49, is President and Chief Operating Officer of the
CBTC, a position to which he was elected in 1991.
The Executive Officers of CBTC consist of Messrs. McReynolds, Ervin,
Fitzgerald, and Williams and the following individuals:
J. Max Everhart, 51, is Senior Vice President of CBTC.
Charles L. Malone, Jr., 50, is Executive Vice President and Cashier of
CBTC.
Robert H. Robbins, 53, is Senior Vice President and Trust Officer of
CBTC.
No family relationships exist among the individuals listed above.
SELECTED STATISTICAL DATA
<TABLE>
<CAPTION>
LOANS BY TYPE
-------------
(In Thousands)
Description 9/30/93* 12/31/92 9/30/92 12/31/91
----------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
Real Estate $ 94,354 $ 96,269 $ 93,790 $ 90,625
Commercial 32,163 1,804 1,706 1,874
Consumer 13,481 36,219 34,817 35,310
Other 1,486 1,798 1,638 1,779
-------- -------- -------- --------
141,484 136,090 131,951 129,588
Unearned interest and fees (1,060) (1,108) (1,146) (1,258)
Allowance for loan losses (2,693) (2,282) (2,317) (1,716)
-------- -------- -------- --------
Loans, net $137,731 $132,700 $128,488 $126,614
======== ======== ======== ========
</TABLE>
*9/30/93 amounts reflect certain reclassifications made by management
to reflect the actual collateral for each individual loan. Comparable data for
prior periods is unavailable.
- 40 -
<PAGE> 45
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(In Thousands)
<TABLE>
<CAPTION>
9/30/93 9/30/92 12/31/92 12/31/91
---------------------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Accruing loans contractually past
due 90 days or more as to interest or
principal payments $ 549 $ 435 $ 388 $ 647
Nonaccrual loans 189 375 356 328
Restructured loans 981 - 2,739 72
------ ----- ------ ------
Total nonperforming loans $1,719 $ 810 $3,483 $1,047
====== ===== ====== ======
</TABLE>
Analysis of Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ending
December 31,
------------------
1992 1991
---- ----
<S> <C> <C>
Balance, beginning of period $1,716 $1,314
Amounts charged off:
Real estate 271 304
Commercial 115 431
Consumer 146 188
------ ------
Total charged off 532 923
Recoveries on amounts charged off:
Real estate 99 22
Commercial 43 16
Consumer 56 52
------ ------
Total recoveries 198 90
------ ------
Net charge-offs 334 833
Provision for loan losses 900 1,235
------ ------
$2,282 $1,716
====== ======
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.25% 0.65%
====== ======
<CAPTION>
Nine Months Ending September 30,
--------------------------------
1993 1992
---- ----
<S> <C> <C>
Balance, beginning of period $2,282 $1,716
Amounts charged off:
Real estate 17 75
Commercial 52 85
Consumer 55 99
------ ------
Total charged off 124 259
Recoveries on amounts charged off:
Real estate 40 95
Commercial 12 41
Consumer 33 49
------ ------
Total recoveries 85 185
------ ------
Net charge-offs 39 74
Provision for loan losses 450 675
------ ------
$2,693 $2,317
====== ======
Ratio of net charge-offs
during the period to average loans
outstanding during the period 0.03% 0.06%
====== ======
</TABLE>
Allocation for Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
December 31,
------------
1992 1991
---- ----
<S> <C> <C>
Real estate $1,689 $1,202
Commercial 114 51
Consumer 456 446
Other 23 17
------ ------
Total $2,282 $1,716
====== ======
September 30,
-------------
1993 1992
---- ----
Real estate $1,939 $1,668
Commercial 485 116
Consumer 242 510
Other 27 23
------ ------
Total $2,693 $2,317
====== ======
</TABLE>
- 41 -
<PAGE> 46
Percentage Distribution of Allowance for Loan Losses and Categories of Loans as
Percent of Gross Loans at December 31
<TABLE>
<CAPTION>
1992 1991
------------------------------------------- -------------------------------------------
Allowance Loans Allowance Loans
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Real estate 74.00% 71.00% 70.00% 70.00%
Commercial 5.00% 1.50% 3.00% 1.60%
Consumer 20.00% 25.50% 26.00% 27.00%
Other 1.00% 2.00% 1.00% 1.40%
------- ------- ------- -------
100.00% 100.00% 100.00% 100.00%
======= ======= ======= =======
</TABLE>
Percentage Distribution of Allowance for Loan Losses and Categories of Loans as
Percent of Gross Loans at September 30
<TABLE>
<CAPTION>
1993 1992
----------------------------------------- --------------------------------------------
Allowance Loans Allowance Loans
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Real estate 72.00% 67.20% 72.00% 71.00%
Commercial 18.00% 23.00% 5.00% 1.30%
Consumer 9.00% 8.80% 22.00% 26.00%
Other 1.00% 1.00% 1.00% 1.70%
------- ------- ------- -------
100.00% 100.00% 100.00% 100.00%
======= ======= ======= =======
</TABLE>
Average Deposit Distribution and Average Interest Rates
(Dollars in Thousands)
YEAR ENDED
<TABLE>
<CAPTION>
December 31, 1992 December 31, 1991
----------------------------- --------------------------------
Average Interest Average Average Interest Average
Balance Expense Rate Balance Expense Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing accounts $ 20,692 $ - 0.00% $ 17,812 $ - 0.00%
NOW accounts 18,194 447 2.46% 15,180 674 4.45%
Money Market accounts 28,677 980 3.42% 25,945 1,395 5.38%
Savings accounts 29,550 1,104 3.74% 18,844 1,017 5.40%
Certificates of deposit 86,150 4,464 5.18% 95,531 6,654 6.97%
$100,000 and greater 18,931 927 4.90% 19,284 1,427 7.40%
Less than $100,000 67,219 3,537 5.26% 76,247 5,227 6.86%
-------- ------ ----- -------- ------ -----
Total $183,263 $6,995 3.82% $173,312 $9,740 5.62%
======== ====== ===== ======== ====== =====
<CAPTION>
NINE MONTHS ENDED September 30, 1993 September 30, 1992
------------------------------ ------------------------------
Average Interest Average Average Interest Average
Balance Expense Rate Balance Expense Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing accounts $ 22,578 $ - 0.00% $ 21,848 $ - 0.00%
NOW accounts 23,975 351 1.95% 16,459 334 2.71%
Money Market accounts 27,984 536 2.55% 27,926 766 3.66%
Savings Accounts 33,452 792 3.16% 27,992 842 4.01%
Certificates of deposit 91,069 2,722 3.99% 86,433 3,484 5.37%
$100,000 and greater 19,958 592 3.95% 18,644 714 5.11%
Less than $100,000 71,111 2,130 3.99% 67,789 2,770 5.45%
-------- ------ ----- -------- ------ -----
Total $199,058 $4,401 2.95% $180,658 $5,426 4.00%
======== ====== ===== ======== ====== =====
</TABLE>
Maturity Distribution of Certificates of Deposit of $100,000 and Over at
September 30, 1993
(In Thousands)
<TABLE>
<S> <C>
Less than three months $10,724
Three to six months 3,541
Six to twelve months 3,636
More than twelve months 3,230
-------
Total $21,131
=======
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
The following discussion provides certain information concerning
CBTC'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 CBTC and related notes thereto presented elsewhere in
this Proxy Statement-Prospectus.
- 42 -
<PAGE> 47
RESULTS OF OPERATIONS SEPTEMBER 30, 1993 COMPARED WITH SEPTEMBER 30, 1992
Net income for the nine months ended September 30, 1993, was
$2,426,000 as compared to $2,000,000 for the nine months ended September 30,
1992. Net income is largely dependent upon net interest income, which is the
difference or spread, between the income received on the loan portfolio and
other investments and the cost of money, consisting primarily of interest paid
on interest bearing deposit accounts. Net interest income is affected by the
average yield on interest-earning assets, the average rate paid on
interest-bearing liabilities and the average outstanding balance of
interest-earning assets and interest-bearing liabilities. A nine basis point
increase in net interest margin resulted in the increased year-to-date
earnings. As a result of decreased interest rates, loan interest income
decreased by $363,000 and deposit interest expense decreased by $1,025,000 for
an improvement in the net interest income of $806,000. The increase in
year-to-date earnings was due to both an increase in net interest margin along
with an increase in average interest-earning assets.
Two key measures of profitability in the banking industry are return
on equity (ROE) and return on assets (ROA). ROE is the ratio of income earned
to average stockholders' equity, and ROA measures how effectively a corporation
uses its assets to produce earnings. ROE was 14.81% at September 30, 1993, as
compared to 13.52% at September 30, 1992. ROA rose to 1.44% on September 30,
1993, from 1.30% on September 30, 1992.
CBTC maintains a reserve for potential loan losses, that, in
management's evaluation, is adequate to cover future losses on outstanding
loans based on available information at the end of each evaluation period.
Management's judgment as to the amount of the reserve is based upon the loan
portfolio size and diversity, historical loan loss experience, the level of
nonperforming assets, and an evaluation of economic conditions.
The provision for loan losses was $450,000 during the nine-month
period ended September 30, 1993 as compared to $675,000 for the same period
during 1992. The decrease in provision is primarily due to decrease in total
nonperforming loans, specifically, a decrease in restructured loans from
$2,739,000 at December 31, 1992 to $981,000 at September 30, 1993.
Noninterest income held fairly constant during the nine-month period
ended September 30, 1993 by decreasing 2.58% or $30,000 as compared to the same
period during 1992.
Noninterest expense was $5,294,000 for the nine-months ended September
30, 1993 or 7.60% higher than the same period in 1992. In April 1993, CBTC
converted its computer systems. As a result, CBTC experienced increased costs
related to the conversion, including contract labor, additional personnel
costs, printing and supplies and depreciation. Additionally, merger cost of
approximately $100,000 were also incurred in 1993.
On January 1, 1993, CBTC adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109), which requires a
change from the deferred method to the asset and liability method of accounting
for income taxes. There was no cumulative effect on prior years of this change
in accounting principal. The effect of this change on operating results for
the nine-months ended September 30, 1993 was not significant.
- 43 -
<PAGE> 48
FINANCIAL CONDITION SEPTEMBER 30, 1993 COMPARED WITH SEPTEMBER 30, 1992
Total assets increased from the first nine months of 1992 to the first
nine months of 1993 by $9,020,000, an annualized increase of 4.1%. Deposit
growth was $7,407,000, or 3.9%, during this period.
Liquidity is the ability of a financial institution to maintain
sufficient cash to support loan growth, deposits, withdrawals, and other
financial obligations, even at times of stress in financial markets. Liquidity
is achieved through the continual maturing of interest-earning assets, as well
as by investing in short term marketable securities. Liquidity is also
available through deposit growth, borrowing capacity, and repayments of
principal on loans and securities. High levels of liquidity are normally
obtained at a net interest cost due to lower yields on short term, liquid
earning assets and higher interest expense usually associated with the
extension of deposit maturities. The trade-off of the level of desired
liquidity versus its cost is evaluated in determining the appropriate amount of
liquidity at any one time. The ability of CBTC to maintain liquidity is
enhanced by adequate earnings power and adequate capital.
Equity capital on September 30, 1993 was $22,760,000, an increase of
$2,092,000 since September 30, 1992, or 10.12%. The capital to assets ratio on
September 30, 1993 was 10.13%.
A summary of the changes in the allowance for loan losses for each of
the past three years, including loan loss experience by major category, is
presented in the Analysis of Allowance for Loan Losses Table included above in
the Selected Statistical Data section.
The allowance for loan losses is established through a provision for
loan losses charged to expenses. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. The adequacy of the allowance for loan
losses is determined on an ongoing basis by the historical loan loss experience
of CBTC, loan delinquency trends and the economic conditions within the trade
area. Also, allocations are made to the allowance based on specifically
identified potential loss situations. These potential loss situations are
identified by an internal loan review function reporting directly to CBTC's
Board of Directors, as well as by the account officers' evaluation of their
portfolios.
The loan loss reserve was $2,693,000 for the nine months ended
September 30, 1993 or 1.92% of loans outstanding, compared to $2,317,000 for
the nine months ended September 30, 1992, or 1.84% of loans outstanding.
The Allocation of Allowance Table included in the Selected Statistical
Data section sets forth an allocation of the allowance for loan losses
according to the categories of loans indicated and a percentage distribution of
the allowance allocation. In making the allocation, consideration was given to
such factors as management's evaluation of risk in each category, current
economic conditions and charge-off experience. The allocation does not
indicate the unavailability of any portion of the allowance for loan losses to
absorb losses in any loan category.
It is the policy of CBTC to place loans greater than 90 days past due
on nonaccrual status, unless there is sufficient evidence supporting probable
collection within the near future. At the discretion of management, some loans
past due less than 90 days may be placed on nonaccrual.
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<PAGE> 49
As of September 30, 1993 and 1992, there was approximately $189,000
and $375,000, respectively, in nonaccrual loans and $549,000 and $435,000,
respectively, in accruing loans contractually past due 90 days or more as to
principal or interest payments.
CBTC has no foreign loans, no loans outstanding to borrowers engaged
in highly leveraged transactions, and no concentrations of credit to borrowers
in any one industry. A concentration generally exists when more than 10% of
total loans are outstanding to borrowers in the same industry.
RESULTS OF OPERATIONS 1992 COMPARED TO 1991
Net income for 1992 was $2,629,000 or $26.29 per share as compared to
net income of $1,321,000 or $13.21 per share. Net interest income was
$9,622,000 in 1992 as compared to $8,104,000 in 1991.
Interest income for 1992 was $16,725,000 as compared to $18,012,000 in
1991. The decrease in 1992 is attributable to a 108 basis point decrease in
the average yield on interest-earning assets partially offset by an increase of
$9,365,000 in average interest-earning assets.
Interest expense for 1992 was $6,995,000 as compared to $9,740,000 in
1991. The decrease in 1992 is primarily due to a 180 basis point decline in
the average yield on deposits partially offset by an increase of $7,071,000 in
average interest bearing deposits.
The provision for loan losses was $900,000 in 1992 as compared to
$1,235,000 in 1991. The provision for 1991 was significantly higher than that
of 1992 primarily due to management's review of changing conditions surrounding
certain real estate loans for which new weaknesses were identified and due to a
general overall weak economy. Difficulties were experienced by certain real
estate borrowers which historically had performed according to the terms of
their loans. During 1992, management continued to monitor these real estate
loans and noted a slight improvement in the borrowers' financial condition and
an overall improvement in the general economy.
Noninterest income was $1,547,000 as compared to $972,000. In April
1991, management determined that $649,000 of investments in municipal bonds
collateralized by guaranteed insurance contracts were permanently impaired. As
a result, management recorded a valuation allowance of $484,000 or 75% of its
original cost. The investment portfolio at December 31, 1992 still contained
these investments in municipal bonds.
Noninterest expense was $6,771,000 in 1992 as compared to $6,147,000
in 1991. The increase is primarily due to increased bonuses paid to all
personnel along with an increased contribution by CBTC to its profit sharing
plan.
The income tax provision was $869,000 for the year ended December 31,
1992 as compared to $373,000 in 1991. The increase in the effective income tax
rate from 22.0% in 1991 to 24.8% in 1992 is due primarily to a decreased tax
exempt interest income in 1992.
FINANCIAL CONDITION 1992 COMPARED TO 1991
Total assets at December 31, 1992 increased $22,014,000 or 11% from
$200,835,000 at December 31, 1991.
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<PAGE> 50
The allowance for loan losses was increased by $566,000 during 1992 to
$2,282,000, or 1.67% of gross loans outstanding. At December 31, 1991, the
loan loss reserve ratio was 1.37%.
As of December 31, 1992 and 1991, there was approximately $356,000 and
$328,000, respectively, in nonaccrual loans and $388,000 and $647,000,
respectively, in accruing loans contractually past due 90 days or more as to
principal or interest payments.
Total deposits increased $20,976,000 or 11.8% during 1992 to
$198,617,000 primarily due to published financial troubles of a local financial
institution.
As rates paid on deposits have continued to decline during 1992,
customers have continued to shift their funds to shorter-term time deposits
and transaction accounts in order to allow for shorter reinvestment time
should rates begin to rise again. Management feels CBTC maintains competitive
deposit rates while exercising prudent strategies in competing with local
institutions. Overall rates paid on deposits have continued to decline during
the past year. Average rates paid during 1992 were 3.82% as compared to 5.62%
during 1991.
At December 31, 1992, CBTC's financial condition continues to reflect
strong equity and liquidity, with an equity to assets ratio of 9.33%. CBTC's
loan to deposit ratio was 67.86% at December 31, 1992.
RESULTS OF OPERATIONS 1991 COMPARED TO 1990
Income in 1991 totaled $1,321,000 as compared with 1990 income of
$1,959,000. Net interest income was $7,546,000 in 1990 as compared to
$8,104,000 in 1991. The decrease in net income from 1990 to 1991 is
attributable to a loss of $484,000 represented by the writedown of securities
collateralized by guaranteed insurance contracts issued by an insurance
company. An additional $700,000 was added to the provision for loan losses
during 1991 due to management's review of changing conditions surrounding
certain real estate loans for which new weaknesses were identified and due to a
general overall weak economy.
FINANCIAL CONDITION 1991 COMPARED TO 1990
Assets increased by $10,682,000 or 5.6%, primarily due to the RTC
acquiring another local financial institution. Deposits increased in 1991 to
$177,641,000 compared to 1990 of $167,032,000. The increase in deposits was
used primarily to fund the increased loan demand of 1991. The loan to deposit
ratio for 1991 was 72.15% compared to 70.98% in 1990. Cash and due from banks
and investment securities totaled $61,539,000 in 1991 compared to $59,708,000
in 1990.
OWNERSHIP OF CBTC COMMON STOCK AND DIVIDENDS
Ownership of Principal Shareholders. As of September 30, 1993, there
were 100,000 shares of CBTC Common Stock, its only class of voting securities,
outstanding and approximately 303 shareholders of record of such shares. The
following table provides information concerning the number of shares of CBTC
Common Stock beneficially owned, directly or indirectly, by more than 5%
shareholders of CBTC Common Stock as of September 30, 1993, and the number of
shares of FTNC Common Stock to be owned by such persons on the Effective Date
of the Merger. Except as set forth below, no person is known by CBTC to be the
beneficial owner of more than 5% of the outstanding CBTC Common Shares.
- 46 -
<PAGE> 51
The number and percentage of shares of FTNC Common Stock beneficially owned on
the Effective Date of the Merger in the tables in this section are based upon a
conversion ratio of 11.6937 FTNC Common Shares for each CBTC Common Share and
assuming 28,174,184 First Tennessee Common Shares will be outstanding
immediately prior to the Merger. Unless otherwise noted, the named person
has sole votingand investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
Number of FTNC Percent of Total
Common Shares to FTNC Common
Number of Percent of be Beneficially Shares to be
CBTC Common Total CBTC Shares Owned Outstanding on
Beneficial Owner Shares Owned Shares Outstanding on Effective Date Effective Date
---------------- ------------ ------------------ -------------------- ----------------
<S> <C> <C> <C>
S. K. Johnson, Jr. 9,846 9.8% 115,136 0.39%
W. Sam McReynolds 8,476 8.5% 101,366(1) 0.35%
</TABLE>
(1) Includes 2,250 shares of FTNC Common Stock presently beneficially owned as
trustee for others.
Ownership by Directors and Executive Officers of CBTC. The following
information pertains to CBTC Common Shares beneficially owned, directly or
indirectly, by each director, by each executive officer, and by all directors
and executive officers as a group, as of September 30, 1993, and to the number
of FTNC Common Shares to be owned by such persons on the Effective Date of the
Merger. Unless otherwise noted, the named persons have sole voting and
investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
Number of FTNC Percent of Total
Common Shares to FTNC Common
Number of Percent of be Beneficially Shares to be
CBTC Common Total CBTC Shares Owned Outstanding on
Beneficial Owner Shares Owned Shares Outstanding on Effective Date Effective Date
---------------- ------------ --------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
James A. Breaux 75 less than 0.1% 877 (2)
Charles W. Brown 110 0.1 1,286 (2)
Michael E. Callaway 100 0.1 1,169 (2)
Robert G. Card, Jr. 100 0.1 1,169 (2)
Donald N. Ervin 2,575 2.6 30,111 0.1%
J. Max Everhart 1,004 1.0 11,740 (2)
R. Arch Fitzgerald 2,491 2.5 29,129 0.1%
M. Hayne Hamilton 10 less than 0.1 116 (2)
C. M. Hardwick, Jr. 2,264 2.3 26,474 (2)
Charles L. Malone, Jr. 625 0.6 7,308 (2)
W. S. McReynolds 8,476 8.5 101,366(1) 0.35%
Mary Elizabeth Neil 2,251 2.3 26,323 (2)
Robert H. Robbins 108 0.1 1,263 (2)
James O. Williams 360 0.4 4,210 (2)
All directors and executive officers as
a group (14 persons, including those
named above) 20,549 20.5 242,543 0.83%
</TABLE>
(1) Includes 2,250 shares of FTNC Common Stock presently beneficially owned as
trustee for others.
(2) Less than 0.1%
Dividends. The shareholders of CBTC Common Stock are entitled to such
dividends as may be declared from time to time by the CBTC Board. Cash
dividends generally are declared quarterly and have been declared as stated in
the following table.
<TABLE>
<CAPTION>
Dividends Declared by Quarter
-----------------------------
1993 1992 1991
- ---------------------------------- ------------------------------------- ----------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$4.00 $3.00 $1.50 $1.50 $4.80 $1.50 $ .60 $ .60 $3.70 $ .60 $ .60 $ .60
</TABLE>
The Merger Agreement restricts the ability of CBTC to declare and pay
dividends. See "The Merger -- Conduct of Business Pending Merger." CBTC's
ability to pay dividends also is dependent upon the earnings and financial
condition of CBTC. Dividend payments by CBTC are subject to certain regulatory
restrictions. As of September 30, 1993, $4,476,000 was available for
distribution to CBTC's shareholders as dividends without prior regulatory
approval.
47
<PAGE> 52
DESCRIPTION OF FTNC CAPITAL STOCK
The following summaries of certain provisions of the Restated Charter,
as amended (the "Charter"), and Bylaws, as amended, of FTNC, the Rights Plan
(defined below) and the Indenture (defined below) do not purport to be
complete, are qualified in their entirety by reference to such instruments,
each of which is an exhibit to the Registration Statement of which this Proxy
Statement-Prospectus is a part, and are subject, in all respects, to
applicable Tennessee law.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of FTNC currently consists of 5,000,000
shares of Preferred Stock, without par value ("Preferred Stock"), which may be
issued from time to time by resolution of the FTNC Board and 50,000,000 shares
of FTNC Common Stock. As of December 29, 1993, there were 28,174,184 shares of
FTNC Common Stock and no shares of Preferred Stock outstanding. Also,
approximately 3.3 million shares of FTNC Common Stock are reserved for issuance
under various employee stock plans and FTNC's dividend reinvestment plan,
approximately 2.4 million shares are reserved for issuance in connection with
other pending acquisitions (See page PF-1 herein), and 281,741 shares of
Preferred Stock are reserved for issuance under the Rights Plan.
PREFERRED STOCK
The FTNC Board is authorized, without further action by the
shareholders, to provide for the issuance of up to 5,000,000 shares of
Preferred Stock, without par value, from time to time in one or more series
and, with respect to each such series, has the authority to fix the powers
(including voting power), designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof. Currently, no shares of Preferred Stock
are outstanding.
FTNC COMMON STOCK
The FTNC Board is authorized to issue a maximum of 50,000,000 shares
of Common Stock, $2.50 par value per share. The holders of the FTNC Common
Stock are entitled to receive such dividends as may be declared by the FTNC
Board from funds legally available therefor. The holders of the outstanding
shares of FTNC Common Stock are entitled to one vote for each such share on all
matters presented to shareholders and are not entitled to cumulate votes for
the election of directors. Upon any dissolution, liquidation or winding up of
FTNC resulting in a distribution of assets to the shareholders, the holders of
FTNC Common Stock are entitled to receive such assets ratably according to
their respective holdings after payment of all liabilities and obligations and
satisfaction of the liquidation preferences of any shares of Preferred Stock at
the time outstanding. The shares of FTNC Common Stock have no preemptive,
redemption, subscription or conversion rights. The shares of FTNC Common Stock
will be, when issued in accordance with the Merger Agreement, fully paid and
nonassessable. Under FTNC's Charter, the FTNC Board is authorized to issue
authorized shares of FTNC Common Stock without further action by FTNC's
shareholders. However, the FTNC Common Stock is traded in the over-the-counter
market and is quoted on the NASDAQ/NMS, which requires shareholder approval of
the issuance of additional shares of FTNC Common Stock in certain situations.
The Transfer Agent for the Common Stock is The First National Bank of Boston.
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
- 48 -
<PAGE> 53
the FTNC Board the authority to fix the number of directors on the FTNC Board
and to remove directors from and fill vacancies on the FTNC Board, other than
removal for cause and the filling of vacancies created thereby which are
reserved to shareholders exercising at least a majority of the voting power of
all outstanding voting stock of FTNC. To change these provisions of the
Bylaws, other than by action of the FTNC Board, and to amend these provisions
of the Charter or to adopt any provision of the Charter inconsistent with such
Bylaw provisions, would require approval by the holders of at least 80% of the
voting power of all outstanding voting stock. Such classification of the FTNC
Board and such other provisions of the Charter and the Bylaws may have a
significant effect on the ability of the shareholders of FTNC to change the
composition of an incumbent FTNC Board or to benefit from certain transactions
which are opposed by the FTNC Board.
SHAREHOLDER PROTECTION RIGHTS PLAN
Each share of FTNC Common Stock has, and each share of the FTNC Common
Stock issued in the Merger will have, attached to it one right (a "Right")
issued pursuant to a Shareholder Protection Rights Agreement dated as of
September 7, 1989 (the "Rights Plan"). Each Right entitles its holder to
purchase 1/100th of a share of Participating Preferred Stock, without par
value, for $76.67 (the "Exercise Price"), subject to adjustment, upon the
business day following the earlier of (i) the 10th day after commencement of a
tender or exchange offer which, if consummated, would result in a person's
becoming the beneficial owner of 10% or more of the outstanding shares of FTNC
Common Stock (an "Acquiring Person") and (ii) the first date (the "Flip-in
Date") of public announcement that a person has become an Acquiring Person.
The Rights will expire on the earliest of (i) the Exchange Time
(defined below), (ii) September 18, 1999 and (iii) the date on which the Rights
are redeemed as described below. The FTNC Board may, at its option, at any
time prior to the Flip-in Date, redeem all the Rights at a price of $.01 per
Right.
If a Flip-in Date occurs, each Right (other than Rights beneficially
owned by the Acquiring Person or its affiliates, associates or transferees,
which Rights will become void), to the extent permitted by applicable law, will
constitute the right to purchase shares of FTNC Common Stock or Participating
Preferred Stock having an aggregate market price equal to twice the Exercise
Price for an amount in cash equal to the then-current Exercise Price. In
addition, the FTNC Board may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the beneficial owner of
more than 50% of the outstanding shares of FTNC Common Stock, elect to exchange
the Rights (other than Rights beneficially owned by the Acquiring Person) for
shares of FTNC Common Stock at an exchange ratio of one share of FTNC Common
Stock per Right (the "Exchange Time").
FTNC may not agree to be acquired by an Acquiring Person without
providing that each Right, upon such acquisition, will constitute the right to
purchase common stock of the Acquiring Person having an aggregate market price
equal to twice the Exercise Price for an amount in cash equal to the
then-current Exercise Price.
The Rights will not prevent a takeover of FTNC. The Rights, however,
may have certain anti-takeover effects. The Rights may cause substantial
dilution to a person or group that acquires 10% or more of the outstanding FTNC
Common Stock unless the Rights are first redeemed by the FTNC Board.
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<PAGE> 54
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 (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 MERGER ON RIGHTS OF SHAREHOLDERS
FTNC is a Tennessee corporation subject to the provisions of the TBCA.
CBTC is a Tennessee state bank subject to the provisions of the TBA as well as
certain of the provisions of the TBCA. Shareholders of CBTC, whose rights are
governed by CBTC's Articles of Incorporation and Bylaws and by the TBA, 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 CBTC and is qualified in its entirety by reference to
the governing law and the Articles of Incorporation or Charter and Bylaws of
each of FTNC and CBTC. Certain topics discussed below are also subject to
federal law and the regulations promulgated thereunder. See "Certain
Regulatory Considerations."
RESIDENCY REQUIREMENT FOR AND REMOVAL OF DIRECTORS
The TBA provides that at least 3/4 of the directors of CBTC must be
United States citizens, 2/3 must reside within the state or within 25 miles of
the main office of CBTC, and a majority must reside within 100 miles of the
main office of CBTC. No similar requirements apply to FTNC directors.
The TBA provides that a director may be removed by the stockholders at
a meeting without cause, or in the event of a disqualification due to failure
to comply with the residency requirement, by the CBTC Board or the Tennessee
Commissioner.
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
CBTC's Bylaws authorize the CBTC Board or any three or more
shareholders owning, in the aggregate, not less than 25% 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 one-tenth (1/10) of the outstanding shares
- 50 -
<PAGE> 55
entitled to vote to call a special meeting of shareholders for any purpose.
Such a call shall state the purpose or purposes of the proposed meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The TBA provides that the approval of two-thirds of the outstanding
shares of CBTC entitled to vote thereon is required to effect a merger or
consolidation.
The TBCA provides that the approval of the FTNC Board and of a
majority of the outstanding shares of FTNC entitled to vote thereon would also
generally be required to approve a merger or to sell, lease, exchange or
otherwise dispose of substantially all of the FTNC's assets. In accordance
with the TBCA, submission by the FTNC Board of any such action may be
conditioned on any basis, including without limitation, conditions regarding a
super-majority voting requirement or that no more than a certain number of
shares indicate that they will seek dissenters' rights.
With respect to a merger, no vote of the shareholders of FTNC would be
required if FTNC were the surviving corporation and (i) FTNC's Charter would
remain unchanged after the merger, subject to certain exceptions, (ii) each
shareholder of FTNC immediately before the merger would hold an identical
number of shares, with identical rights and preferences, after the merger,
(iii) the number of voting shares outstanding immediately after the merger plus
the number of voting shares issuable as a result of the merger (either by
conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by more
than 20% the number of voting shares of the surviving corporation outstanding
immediately before the merger; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger (either by conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger) will not exceed by more than 20% the total number of
participating shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of FTNC, no vote of the shareholders of FTNC would
be required if such transfer were conducted in the regular course of business
or if such transfer were made to a wholly-owned subsidiary of FTNC.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Pursuant to CBTC's Bylaws, nominations for election to the CBTC Board
may be made by the CBTC Board or by any stockholder. Nominations other than
those made by or on behalf of CBTC's existing management shall be made in
writing and shall be delivered or mailed to the President of CBTC not less than
14 days nor more than 50 days prior to any meeting of stockholders called for
the election of directors; provided, however, that if less than 21 days' notice
is given, such nomination shall be mailed or delivered to the President not
later than the close of business on the seventh day following the day on which
the notice of the meeting was mailed.
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
- 51 -
<PAGE> 56
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 TBA does not expressly provide for action by written consent by
the shareholders of CBTC without a meeting.
The TBCA provides that action may be taken without a shareholder
meeting and vote if all shareholders entitled to vote on the action consent to
taking such action without a meeting. Action by written consent of the FTNC
shareholders is impracticable given the number of holders of FTNC Common Stock.
PREEMPTIVE RIGHTS
Shares of CBTC Common Stock have preemptive rights (the right of a
shareholder to acquire proportional 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.
AMENDMENT OF ARTICLES OF INCORPORATION OR CHARTER AND BYLAWS
The TBA provides that CBTC must apply to the Tennessee Commissioner to
amend its Charter and that such application must be authorized by the vote of a
majority of the outstanding voting shares, except for an amendment changing the
authorized capital or number and par value of shares or to acquire or abandon
trust powers, which must be authorized by the vote of two-thirds of the
outstanding voting shares. The Bylaws of CBTC provide that a majority of the
entire CBTC Board at any regular meeting may amend, alter or repeal the Bylaws,
except the provisions relating to the duties, term of office and
indemnification of directors. The TBA permits amendment of the Bylaws by a
majority vote of the outstanding voting shares.
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 percent 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
person, if at least 80 percent of the voting power of all outstanding voting
stock approves the amendment. The Charter also provides that at least 80
percent of the voting power of all outstanding voting stock must approve an
amendment to the Charter and Bylaws and to change the classification the FTNC's
Board or the 80 percent voting requirement for an amendment of the Bylaws.
LOANS SECURED BY AND ACQUISITIONS OF ISSUER'S STOCK
Under the TBA, CBTC may not make any loan on the security of CBTC
Common Stock or purchase or hold any such shares unless such security or
purchase is necessary to prevent loss upon a debt
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<PAGE> 57
previously contracted in good faith. Stock so purchased or acquired must be
disposed of within six months of purchase at a public or private sale.
Under the TBCA, FTNC 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 must obtain the approval of the Federal Reserve Board to redeem 10% or
more of its shares during any 12 month period. FTNC is not restricted in
making loans secured by its stock.
VOLUNTARY DISSOLUTION
The TBA provides that CBTC may be dissolved, with the approval of the
Tennessee Commissioner, upon approval by the vote of two-thirds of the
outstanding voting stock.
The TBCA provides that FTNC may be dissolved if the FTNC Board
proposes dissolution and a majority of the shares of FTNC entitled to vote
thereon approves 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.
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 CBTC.
DIVIDENDS AND OTHER DISTRIBUTIONS
CBTC may declare dividends only from its undivided profits and only if
the reserve against deposits is not thereby impaired.
The TBCA provides that FTNC generally may make dividends or other
distributions to its shareholders unless after the distribution either (i) FTNC
would not be able to pay its debts as they become due in the usual course of
business or (ii) FTNC's assets would be less than the sum of its liabilities
plus the amount that would be needed to satisfy the preferential dissolution
rights of its preferred stock. There are no shares of FTNC preferred stock
outstanding.
- 53 -
<PAGE> 58
DISSENTERS' RIGHTS
The TBA provides dissenters' rights for certain mergers and
conversions, including the Merger to be voted on at the Special Meeting. See
"The Merger -- Shareholders' Dissenters' Rights."
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-order sales), and certain
amendments to the charter that materially and adversely affect rights in
respect of a dissenter's shares. Under TBCA, however, dissenters' rights are
not available as to any shares which are listed on an exchange registered under
Section 6 of the Exchange Act or are "National Market System" securities as
defined in rules promulgated pursuant to the Exchange Act (such as FTNC Common
Stock).
RIGHTS OF HOLDERS OF CAPITAL NOTES
On June 10, 1987, FTNC issued Capital Notes due in 1999. At maturity,
the Capital Notes will be exchanged for Capital Securities having a market
value equal to the principal amount of the notes. See "Description of FTNC
Capital Stock--Subordinated Capital Notes due 1999."
SHAREHOLDER RIGHTS PLAN
For a discussion of the FTNC Shareholder Rights Plan, see "Description
of FTNC Capital Stock--Shareholder Rights Plan." The CBTC Board has not adopted
a shareholder right plan.
TENNESSEE INCOME TAX
Under Tennessee's Hall Income Tax law, cash dividends paid by CBTC to
Tennessee residents are exempt from state income taxation. Cash dividends paid
by FTNC to Tennessee residents are subject to Tennessee income tax at a current
rate of six percent.
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 Merger
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 9,200
shares of FTNC Common Stock.
Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, a
Professional Corporation, has rendered an opinion, summarized above in the
section entitled "--Certain Federal Income Tax Consequences." Attorneys in the
firm beneficially own approximately 25,000 shares of FTNC Common Stock.
- 54 -
<PAGE> 59
EXPERTS
The consolidated financial statements of FTNC and its subsidiaries
incorporated by reference in FTNC's Annual Report on Form 10-K for the year
ended December 31, 1992 have been audited by Arthur Andersen & Co., independent
public accountants, as set forth in their report thereon dated January 19,
1993, included therein and incorporated herein by reference. The financial
statements of CBTC as of December 31, 1992, and 1991 and for each of the three
years in the period ended December 31, 1992, included in this Proxy
Statement-Prospectus have also been audited by Arthur Andersen & Co., as set
forth in their report dated March 31, 1993, included herein. These
consolidated financial statements are included herein or incorporated herein by
reference in reliance on such reports given upon the authority of Arthur
Andersen & Co. as experts in accounting and auditing.
Representatives of Arthur Andersen & Co. 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 and 1990 financial statements of Home
Financial Corporation, a company acquired by FTNC during 1992 in a transaction
accounted for as a pooling-of-interests, Arthur Andersen & Co. relied upon the
report of Baylor and Backus, independent accountants, whose report dated
February 21, 1992, except with respect to the information discussed in Note 27,
as to which the date is October 21, 1992, was incorporated by reference in
FTNC's Form 10-K for 1992 and is incorporated herein by reference.
- 55 -
<PAGE> 60
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
-----
<S> <C>
FTNC Pro Forma Combined Condensed Statement of Condition as of September 30, 1993 . . . . . . . . . . . . . . . . . . . . PF - 2
FTNC Pro Forma Combined Condensed Statements of Income for the Nine Months Ended
September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 3
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended
December 31, 1992 (Based on two months results of operations of SNMC) . . . . . . . . . . . . . . . . . . . . . PF - 4
FTNC Pro Forma Combined Condensed Statements of Income for the Year Ended
December 31, 1992 (Based on two months results of operations of SNMC
and ten months of its predecessor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PF - 5
</TABLE>
INDEX TO CBTC FINANCIAL INFORMATION
As of and for the Years Ended December 1992, 1991, and 1990 and As of and for
the Nine Months ended September 30, 1993 and 1992 (Unaudited)
<TABLE>
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets as of December 31, 1992 and 1991
and September 30, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Income for Each of the Years in the Three Year Period
Ended December 31, 1992 and for the Nine Months Ended September 30, 1993 and 1992 . . . . . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity for Each of the Years in the Three Year Period
Ended December 31, 1992 and for the Nine Months Ended September 30, 1993 . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for Each of the Years in the Three Year Period
Ended December 31, 1992 and for the Nine Months Ended September 30, 1993 and 1992 . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
</TABLE>
- 56 -
<PAGE> 61
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined statement of condition and
statements of income reflect (i) the consolidated condensed historical
statements of condition of FTNC, Maryland National Mortgage Corporation
("MNMC"), and SNMC Management Corporation ("SNMC"), the parent of Sunbelt
National Mortgage Corporation, as of September 30, 1993, (ii) the pro forma
combined condensed statement of condition of FTNC as of September 30, 1993,
(iii) the consolidated condensed historical statements of income of FTNC, MNMC,
and SNMC, (iv) the pro forma combined condensed statements of income of FTNC,
for the nine months ended September 30, 1993, and for the year ended December
31, 1992, based on SNMC two month historical results of operations, giving
effect to the Merger on a pooling of interests accounting basis for SNMC and a
purchase accounting basis for MNMC, and (v) the pro forma combined condensed
statements of income of FTNC, for the nine months ended September 30, 1993, and
for the year ended December 31, 1992, based on SNMC two months historical
results of operations and ten months of the predecessor's historical results of
operations, giving effect to the merger on a pooling of interests accounting
basis for SNMC and a purchase accounting basis for MNMC. On October 1, 1993,
FTNC acquired all the stock of MNMC for approximately $114 million in cash.
Not included in the consolidated condensed historical statements or
the pro forma combined condensed statements, due to immateriality, are the
future acquisitions of CBTC, New South Bancorp ("NSB") and Highland Capital
Management Corp. ("Highland").
FTNC has entered into an agreement with SNMC pursuant to which a
wholly-owned subsidiary of FTNC will be merged with and into SNMC, with SNMC
surviving the merger. Immediately prior to the merger, FTNC will direct that
all shares of SNMC common stock be issued directly to FTB. Under the terms of
the agreement with SNMC all of SNMC's capital instruments will be converted
into 1,717,461 shares of FTNC Common Stock, based on a purchase price before
any closing adjustments of $66.98 million and a FTNC stock price of $39.
FTNC's stock price used in the conversion may actually vary within the range of
$36 to $42. The exact ratio is dependent upon the average price of FTNC common
stock at the time of the merger. The merger is subject to regulatory and SNMC
shareholder approvals. At September 30, 1993, SNMC had approximately $417
million in assets and a servicing portfolio of approximately $5.6 billion.
This transaction closed on January 4, 1994, at a purchase price of $68.1
million, paid in FTNC Common Stock.
FTNC has entered into an agreement with NSB pursuant to which a
wholly-owned subsidiary of FTNC, First Tennessee Bank National Association
Mississippi ("FTB Mississippi") will be merged with and absorb NSB. Under the
terms of the agreement with NSB each of its 128,580 shares of common stock will
be converted into the right to receive and become, shares of FTNC common stock,
based on an exchange ratio of 1.177 shares of FTNC common stock for each share
of NSB common stock, based on a constant for NSB common stock of $43.55 per
share and $37 for FTNC common stock. The merger is subject to regulatory
approvals. NSB shareholders approved the merger agreement on November 8, 1993.
At September 30, 1993, NSB had approximately $35 million in assets and $3
million in capital. This transaction closed on December 31, 1993, at a
purchase price of $4.8 million, paid in FTNC Common Stock.
FTNC has entered into an agreement with Highland, a registered
investment adviser under the Investment Advisers Act of 1940, pursuant to which
Highland will merge into a wholly-owned subsidiary of FTNC, First Tennessee
Investment Management, Inc. The merger is subject to shareholder and
regulatory approvals. The transaction is expected to close in the first quarter
of 1994.
PF - 1
<PAGE> 62
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION AS OF SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FTNC MNMC SNMC Adjustment Pro Forma
----------- ------------ --------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 640,621 $ 6,676 $ 10,257 $ 65,958[a] $ 723,512
Investment in bank time deposits 4,435 2,971 7,406
Trading account securities 224,885 224,885
Assets held for sale 202,290 457,924 330,935 109,223[b] 1,100,372
Investment securities 2,678,797 7 100 (885,408)[b][c] 1,793,496
Net loans 4,796,755 16,132 4,812,887
Premises and equipment, net 114,717 4,453 2,149 (400)[b] 120,919
Real estate acquired by foreclosure 17,022 12,477 150 29,649
Mortgage servicing rights 6,106 7,594 51,162 34,159[b] 99,021
Other identifiable intangible assets 29,315 29,315
Goodwill 19,852 3,151 31,859[b] 54,862
Customers' acceptances 2,948 2,948
Other assets 720,977 26,194 22,023 5,259[b] 774,453
--------- ------- ------- -------- ---------
Total assets $9,458,720 $537,579 $416,776 $(639,350) $9,773,725
========= ======= ======= ======== =========
LIABILITIES
Deposits $6,679,130 $ $ $ 180,000[a] $6,859,130
Federal funds purchased and securities sold
under agreements to repurchase 1,187,614 1,187,614
Other borrowings 424,137 408,184 328,580 (736,764)[c] 424,137
Long term debt 90,788 5,000 37,921 (37,921)[c] 95,788
Acceptances outstanding 2,948 2,948
Other liabilities 417,652 68,738 53,873 10,992[b][d] 551,255
--------- ------- ------- -------- ---------
Total liabilities 8,802,269 481,922 420,374 (583,693) 9,120,872
SHAREHOLDERS' EQUITY
Common stock 70,417 100 1 4,193[e] 74,711
Surplus 84,035 18,454 5,433 (22,747)[e] 85,175
Retained earnings 504,829 37,103 (9,032) (37,103)[e] 495,797
Deferred compensation on restricted stock
incentive plan (2,830) (2,830)
--------- ------- ------- -------- ---------
Total shareholders' equity 656,451 55,657 (3,598) (55,657) 652,853
--------- ------- ------- -------- ---------
Total liabilities and shareholders'
equity $9,458,720 $537,579 $416,776 $(639,350) $9,773,725
========= ======= ======= ======== =========
</TABLE>
_________________
[a] To reflect cash received from the MNMC and SNMC acquisitions in the
form of mortgage loan custodial accounts reduced by the purchase price
paid for MNMC of $114,042,000.
[b] To reflect the revaluation under purchase accounting of the acquired
assets and liabilities related to the MNMC acquisition. The purchase
price was allocated based upon preliminary estimates of value and is
subject to change. Also reflected in this adjustment is the
reclassification of certain SNMC amounts to conform with FTNC
presentation.
[c] To reflect the replacement of investment securities with the warehouse
loans of MNMC and SNMC and the retirement of debt instruments of MNMC
and SNMC which will be replaced with core deposits of FTB.
[d] To reflect the accrual of one-time expenses related to the MNMC
acquisition.
[e] To reflect the elimination of MNMC capital in purchase accounting and
the conversion of all SNMC capital instruments into 1,717,461 shares
of FTNC common stock with a par value of $2.50 (based on a purchase
price before any closing adjustments of $66,980,982 and a FTNC stock
price of $39). The FTNC stock price used in SNMC's conversion may
actually vary within the range of $36 to $42.
PF - 2
<PAGE> 63
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FTNC MNMC[f] SNMC Adjustment Pro Forma
----------- --------- --------- ------------- ------------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 289,056 $ 19,582 $ 15,189 $ $ 323,827
Interest on investment securities 136,263 1 (12,023)[a] 124,241
Interest on trading account securities 6,708 6,708
Interest on other earning assets 2,792 321 (659)[b] 2,454
----------- -------- -------- -------- -----------
Total interest income 434,819 19,904 15,189 (12,682) 457,230
----------- -------- -------- -------- -----------
Interest expense:
Interest on deposits 144,189 144,189
Interest on short-term borrowings 28,142 9,520 10,565 (9,520)[a] 38,707
Interest on long-term debt 6,965 237 3,149 10,351
----------- -------- -------- -------- -----------
Total interest expense 179,296 9,757 13,714 (9,520) 193,247
----------- -------- -------- -------- -----------
Net interest income 255,523 10,147 1,475 (3,162) 263,983
Provision for loan losses 27,065 27,065
----------- -------- -------- -------- -----------
Net interest income after
provision for loan losses 228,458 10,147 1,475 (3,162) 236,918
----------- -------- -------- -------- -----------
Noninterest income:
Bond division 69,243 69,243
Service charges on deposit accounts 41,324 41,324
Bank card 19,098 19,098
Trust service 15,079 15,079
Securities gains (losses) 1,494 1,494
Mortgage loan origination fees 2,152 17,831 7,007 26,990
Mortgage serving 4,172 7,796 17,501 29,469
Profits from sale of mortgage loans and
servicing 1,203 20,669 13,332 35,204
Other 33,557 5,672 5,686 44,915
----------- -------- -------- -------- -----------
Total noninterest income 187,322 51,968 43,526 282,816
----------- -------- -------- -------- -----------
Noninterest expense:
Salaries and employee benefits 153,374 35,643 26,852 215,869
Operations services 19,495 483 1,490 21,468
Occupancy 15,320 2,532 2,535 20,387
Communications and courier 13,541 1,498 15,039
Equipment rentals, depreciation, and
maintenance 11,889 1,648 13,537
Deposit insurance premium 11,562 11,562
Amortization of intangible assets 5,971 1,145 11,487 4,912[c] 23,515
Other 47,865 15,612 9,624 73,101
----------- -------- -------- -------- -----------
Total noninterest expense 279,017 58,561 51,988 4,912 394,478
----------- -------- -------- -------- -----------
Income before income taxes 136,763 3,554 (6,987) (8,074) 125,256
Applicable income taxes 46,726 3,466 (5,502)[d][f] 44,690
----------- -------- -------- -------- -----------
Net income (loss) $ 90,037 $ 88 $ (6,987) $ (2,572) $ 80,566
=========== ======== ======== ======== ===========
Net income (loss) per common share $ 3.20 $ .88 $ (77.63) $ 2.69
Weighted average shares outstanding 28,177,968 100,000 90,000 29,895,429[e]
</TABLE>
_________________
[a] To reflect the loss of interest earned on investment
securities which would be replaced with the warehouse loans
of MNMC. Also reflected is the resulting reduction in interest
expense on short-term borrowings which would be replaced with core
deposits of FTB.
[b] To reflect the loss of interest earned on funds that would have been
used for the MNMC acquisition net of custodial deposits received.
[c] To reflect the incremental amortization resulting from the MNMC
acquisition intangibles.
[d] To reflect the tax effect of the interest and amortization adjustments
related to the MNMC acquisition. Also reflected is an adjustment
related to the effect of the acquisition on SNMC's net operating loss
carryforward.
[e] Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the 1,717,461
shares of FTNC common stock that would be issued based on a purchase
price for SNMC of $66,980,982 and a FTNC stock price of $39. The
actual stock price used in SNMC's conversion may actually vary within
the range of $36 to $42, and the actual purchase price is subject to
closing adjustments (none of which are expected to be material).
[f] Reflects an adjustment of $5 million to conform loss reserves of MNMC
to the valuation and other accounting policies and practices applied
consistently on a mutually satisfactory basis with those of FTNC.
This adjustment was not tax effected by MNMC. The tax effect has been
included in the adjustment column under Applicable income taxes.
PF - 3
<PAGE> 64
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1992
(Based on two months results of operations of SNMC)[f]
<TABLE>
<CAPTION>
FTNC MNMC SNMC[f] Adjustment Pro Forma
----------- ----------- ------- ----------- ------------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 395,710 $ 37,452 $ 2,685 $ $ 435,847
Interest on investment securities 184,394 2 (21,503)[a] 162,893
Interest on trading account securities 10,285 10,285
Interest on other earning assets 8,848 452 (1,028)[b] 8,272
----------- -------- ------- --------- -----------
Total interest income 599,237 37,906 2,685 (22,531) 617,297
----------- -------- ------- --------- -----------
Interest expense:
Interest on deposits 234,753 234,753
Interest on short-term borrowings 30,789 20,022 1,876 (20,022)[a] 32,665
Interest on long-term debt 10,761 319 629 11,709
----------- -------- ------- --------- -----------
Total interest expense 276,303 20,341 2,505 (20,022) 279,127
----------- -------- ------- --------- -----------
Non interest income 322,934 17,565 180 (2,509) 338,170
Provision for loan losses 43,171 43,171
----------- -------- ------- --------- -----------
Net interest income after 279,763 17,565 180 (2,509) 294,999
provision for loan losses ----------- -------- ------- --------- -----------
Noninterest income:
Bond division 80,275 80,275
Service charges on deposit accounts 51,679 51,679
Bank card 24,177 24,177
Trust service 20,103 20,103
Securities gains (losses) (1,678) (1,678)
Mortgage loan origination fees 2,397 25,928 553 28,878
Mortgage servicing 6,043 10,415 3,782 20,240
Profits from sale of mortgage loans and
servicing 939 33,282 1,002 35,223
Other 41,074 8,658 460 50,192
----------- -------- ------- --------- -----------
Total noninterest income 225,009 78,283 5,797 309,089
----------- -------- ------- --------- -----------
Noninterest expense:
Salaries and employee benefits 187,569 45,631 3,861 237,061
Operations services 23,585 616 534 24,735
Occupancy 20,705 3,198 540 24,443
Communications and courier 16,977 2,121 19,098
Equipment rentals, depreciation, and 16,157 1,994 18,151
maintenance
Deposit insurance premium 15,194 15,194
Amortization of intangible assets 12,148 1,324 1,518 7,730[c] 22,720
Other 68,141 14,410 1,569 84,120
----------- -------- ------- --------- -----------
Total noninterest expense 360,476 69,294 8,022 7,730 445,522
----------- -------- ------- --------- -----------
Income before income taxes 144,296 26,554 (2,045) (10,239) 158,566
Applicable income taxes 55,131 10,356 (4,482)[d] 61,005
----------- -------- ------- --------- -----------
Net income (loss) $ 89,165 $ 16,198 $(2,045) $ (5,757) $ 97,561
=========== ======== ======== ========= ===========
Net income (loss) per common share $ 3.19 $ 161.98 $(22.72) $ 3.29
Weighted average shares outstanding 27,971,865 100,000 90,000 29,689,326[e]
</TABLE>
_________________
[a] To reflect the loss of interest earned on investment securities which
would be replaced with the warehouse loans of MNMC. Also reflected is
the resulting reduction in interest expense on short-term borrowings
which would be replaced with core deposits of FTB.
[b] To reflect the loss of interest earned on funds that would have been
used for MNMC acquisition net of custodial deposits received.
[c] To reflect the incremental amortization resulting from the MNMC
acquisition intangibles.
[d] To reflect the tax effect of the interest and amortization adjustments
related to the MNMC acquisition. Also reflected is an adjustment
related to the effect of the acquisition on SNMC's net operating loss
carryforward.
[e] Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the 1,717,461
shares of FTNC common stock that would be issued based on a purchase
price for SNMC of $66,980,982 and a FTNC stock price of $39. The
actual stock price used in SNMC's conversion may actually vary within
the range of $36 to $42, and the actual purchase price is subject to
closing adjustments (none of which are expected to be material).
[f] Represents the results of operations for the period from November 4,
1992 through December 31, 1992 which represents the company being
acquired. The results of operations data for the ten months ended
October 31, 1992 are not directly comparable to subsequent period
primarily due to the substantial difference in the basis of
capitalized servicing rights, as well as the difference in the capital
structure of SNMC in the pre- and post-acquisition periods.
PF - 4
<PAGE> 65
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1992
(Based on two months results of operations of SNMC and ten months of its
predecessor.)[f]
<TABLE>
<CAPTION>
FTNC MNMC SNMC[f] Adjustment Pro Forma
----------- ----------- ------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $395,710 $ 37,452 $12,346 $ $445,508
Interest on investment securities 184,394 2 (21,503)[a] 162,893
Interest on trading account securities 10,285 10,285
Interest on other earning assets 8,848 452 (1,028)[b] 8,272
-------- -------- ------- --------- --------
Total interest income 599,237 37,906 12,346 (22,531) 626,958
-------- -------- ------- --------- --------
Interest expense:
Interest on deposits 234,753 234,753
Interest on short-term borrowings 30,789 20,022 7,313 (20,022)[a] 38,102
Interest on long-term debt 10,761 319 629 11,709
-------- -------- ------- --------- --------
Total interest expense 276,303 20,341 7,942 (20,022) 284,564
-------- -------- ------- --------- --------
Non interest income 322,934 17,565 4,404 (2,509) 342,394
Provision for loan losses 43,171 43,171
-------- -------- ------- --------- --------
Net interest income after 279,763 17,565 4,404 (2,509) 299,223
provision for loan losses -------- -------- ------- --------- --------
Noninterest income:
Bond division 80,275 80,275
Service charges on deposit accounts 51,679 51,679
Bank card 24,177 24,177
Trust service 20,103 20,103
Securities gains (losses) (1,678) (1,678)
Mortgage loan origination fees 2,397 25,928 5,251 33,576
Mortgage servicing 6,043 10,415 23,336 39,794
Profits from sale of mortgage loans and
servicing 939 33,282 8,512 42,733
Other 41,074 8,658 2,942 52,674
-------- -------- ------- --------- --------
Total noninterest income 225,009 78,283 40,041 343,333
-------- -------- ------- --------- --------
Noninterest expense:
Salaries and employee benefits 187,569 45,631 21,265 254,465
Operations services 23,585 616 2,131 26,332
Occupancy 20,705 3,198 2,201 26,104
Communications and courier 16,977 2,121 19,098
Equipment rentals, depreciation, and
maintenance 16,157 1,994 18,151
Deposit insurance premium 15,194 15,194
Amortization of intangible assets 12,148 1,324 7,758 9,055[c] 30,285
Other 68,141 14,410 11,219 93,770
-------- -------- ------- --------- --------
Total noninterest expense 360,476 69,294 44,574 9,055 483,399
-------- -------- ------- --------- --------
Income before income taxes 144,296 26,554 (129) (11,564) 159,157
Applicable income taxes 55,131 10,356 $ (4,668)[d] 60,819
-------- -------- ------- --------- --------
Net income (loss) $ 89,165 $ 16,198 $ (129) $ (6,896) $ 98,338
======== ======== ======= ========= ========
Net income (loss) per common share $ 3.19 $ 161.98 $ (0.03) $ 3.31
Weighted average shares outstanding 27,971,865 100,000 4,098,000 28,689,326[e]
</TABLE>
_________________
[a] To reflect the loss of interest earned on investment securities which
would be replaced with the warehouse loans of MNMC. Also reflected is
the resulting reduction in interest expense on short-term borrowings
which would be replaced with core deposits of FTB.
[b] To reflect the loss of interest earned on funds that would have been
used for MNMC acquisition net of custodial deposits received.
[c] To reflect the incremental amortization resulting from the MNMC
acquisition intangibles and from pushing back to January 1, 1992, the
amortization of the new basis established when SNMC purchased the
mortgage company.
[d] To reflect the tax effect of the interest and amortization adjustments
related to the MNMC acquisition. Also reflected is an adjustment
related to the effect of the acquisition on SNMC's net operating loss
carryforward.
[e] Pro forma weighted average shares outstanding have been calculated by
increasing FTNC's current weighted average shares by the 1,717,461
shares of FTNC common stock that would be issued based on a purchase
price for SNMC of $66,980,982 and a FTNC stock price of $39. The
actual stock price used in SNMC's conversion may actually vary within
the range of $36 to $42, and the actual purchase price is subject to
closing adjustments (none of which are expected to be material).
[f] Reflects the ten month results of operations of the predecessor and
the two month results of operations of the company being acquired
combined. These combined results do not necessarily reflect the
results of operations as they would have been if the acquisition had
been consummated at the beginning of the period presented.
PF - 5
<PAGE> 66
CLEVELAND BANK AND TRUST COMPANY
FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
DECEMBER 31, 1992, 1991 AND 1990
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cleveland Bank and Trust Company:
We have audited the accompanying balance sheets of CLEVELAND BANK AND TRUST
COMPANY (a Tennessee corporation) as of December 31, 1992 and 1991, and the
related statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cleveland Bank and Trust
Company as of December 31, 1992 and 1991, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1992, in conformity with generally accepted accounting principles.
Arthur Andersen & Co.
Chattanooga, Tennessee,
March 31, 1993
F-1
<PAGE> 68
CLEVELAND BANK AND TRUST COMPANY
BALANCE SHEETS -- SEPTEMBER 30, 1993 AND 1992 AND DECEMBER 31, 1992 AND 1991
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
---------------------- ----------------------
1993 1992 1992 1991
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks (Note 10) $ 6,174 $ 8,061 $ 8,578 $ 8,684
Federal funds sold 500 9,700 9,300 4,000
-------- -------- -------- --------
Total cash and cash
equivalents (Note 1) 6,674 17,761 17,878 12,684
Investment securities, market value of
approximately $73,900 and $63,078
at September 30, 1993 and 1992,
respectively and approximately $65,236
and $55,432, at December 31, 1992
and 1991, respectively (Notes 1 and 2) 70,284 60,448 63,067 52,855
Loans, net (Notes 1, 4 and 8) 137,731 128,488 132,700 126,614
Premises and equipment, net
(Notes 1 and 3) 6,677 5,754 6,170 5,716
Accrued interest receivable 1,993 1,958 1,815 2,058
Other assets (Note 1) 1,299 1,229 1,219 908
-------- -------- -------- --------
Total assets $224,658 $215,638 $222,849 $200,835
======== ======== ======== ========
LIABILITIES:
Deposits (Note 1):
Interest-bearing $175,789 $169,185 $174,074 $155,692
Noninterest-bearing 22,768 21,965 24,543 21,949
-------- -------- -------- --------
Total deposits 198,557 191,150 198,617 177,641
Long-term debt (Notes 1 and 6) 2,167 2,513 2,426 2,772
Other liabilities 1,174 1,307 1,023 1,657
-------- -------- -------- --------
Total liabilities 201,898 194,970 202,066 182,070
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Notes 1 and 10):
Common stock, $10 par value,
120,000 shares authorized, 100,000
shares issued and outstanding 1,000 1,000 1,000 1,000
Surplus 1,000 1,000 1,000 1,000
Retained earnings 20,760 18,668 18,783 16,765
-------- -------- -------- --------
Total stockholders' equity 22,760 20,668 20,783 18,765
-------- -------- -------- --------
Total liabilities and
stockholders' equity $224,658 $215,638 $222,849 $200,835
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE> 69
CLEVELAND BANK AND TRUST COMPANY
STATEMENTS OF INCOME
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1993 AND 1992, AND
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
---------------------- -----------------------------------
1993 1992 1992 1991 1990
-------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 1) $ 8,914 $ 9,277 $12,231 $13,084 $13,145
Interest and dividends on investment
securities (Note 1)-
Taxable interest 2,278 2,304 3,065 3,381 3,969
Tax-exempt interest 1,067 821 1,160 1,032 968
Dividends 44 47 62 83 102
Interest on federal funds sold and
deposits in other banks 70 151 207 432 327
------- ------- ------- ------- -------
Total interest income 12,373 12,600 16,725 18,012 18,511
------- ------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 4,401 5,426 6,995 9,740 10,744
Interest on long-term debt (Note 6) 76 84 108 168 221
------- ------- ------- ------- -------
Total interest expense 4,477 5,510 7,103 9,908 10,965
------- ------- ------- ------- -------
NET INTEREST INCOME 7,896 7,090 9,622 8,104 7,546
PROVISION FOR LOAN LOSSES (Notes 1 and 4) 450 675 900 1,235 535
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,446 6,415 8,722 6,869 7,011
------- ------- ------- ------- -------
NONINTEREST INCOME:
Service charges, fees and commissions 803 830 1,110 1,032 920
Trust department income 248 239 319 325 317
Investment securities gains
(losses), net (Note 1) 30 1 7 (499) (20)
Other income 50 91 111 114 128
------- ------- ------- ------- -------
Total noninterest income 1,131 1,161 1,547 972 1,345
------- ------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and wages 2,259 2,196 3,048 2,752 2,508
Employee benefits (Note 5) 639 605 848 628 679
Net occupancy expense (Note 3) 469 481 632 619 662
Equipment rental, depreciation and
maintenance (Note 3) 596 507 681 722 750
FDIC insurance premiums 331 302 402 356 195
Other expense 1,000 829 1,160 1,070 984
------- ------- ------- ------- -------
Total noninterest expense 5,294 4,920 6,771 6,147 5,778
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 3,283 2,656 3,498 1,694 2,578
INCOME TAX PROVISION (Notes 1 and 7) 857 656 869 373 619
------- ------- ------- ------- -------
NET INCOME $ 2,426 $ 2,000 $ 2,629 $ 1,321 $ 1,959
======= ======= ======= ======= =======
EARNINGS PER SHARE (Note 1) $ 24.26 $ 20.00 $ 26.29 $ 13.21 $ 19.59
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 70
CLEVELAND BANK AND TRUST COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1993 AND
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Total
Stockholders' Common Retained
Equity Stock Surplus Earnings
------------- ------ ------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1989 $16,533 $1,000 $1,000 $14,533
Net income 1,959 - - 1,959
Cash dividends declared,
$5.50 per share (550) - - (550)
Valuation adjustment on
corporate preferred stocks (40) - - (40)
------- ------ ------ -------
BALANCE, December 31, 1990 17,902 1,000 1,000 15,902
Net income 1,321 - - 1,321
Cash dividends declared,
$5.50 per share (550) - - (550)
Valuation adjustment on
corporate preferred stocks 92 - - 92
------- ------ ------ -------
BALANCE, December 31, 1991 18,765 1,000 1,000 16,765
Net income 2,629 - - 2,629
Cash dividends declared,
$7.50 per share (750) - - (750)
Valuation adjustment on
corporate preferred stocks 139 - - 139
------- ------ ------ -------
BALANCE, December 31, 1992 20,783 1,000 1,000 18,783
Net income (unaudited) 2,426 - - 2,426
Cash dividends declared,
$6.00 per share (unaudited) (600) - - (600)
Valuation adjustment on
corporate preferred stocks
(unaudited) 151 - - 151
------- ------ ------ -------
BALANCE, September 30, 1993
(unaudited) $22,760 $1,000 $1,000 $20,760
======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 71
CLEVELAND BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1993 AND 1992, AND
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
---------------------- ----------------------------------
1993 1992 1992 1991 1990
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 2,426 $ 2,000 $ 2,629 $ 1,321 $ 1,959
-------- -------- -------- -------- --------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 435 317 423 488 511
Provision for loan losses 450 675 900 1,235 535
Loss on disposal of premises
and equipment 42 - - - -
Discount accretion on
investment securities (295) (189) (277) (243) (130)
Deferred income tax benefit (139) (275) (195) (90) (84)
Investment securities
(gains) losses, net (30) (1) (7) 499 20
(Increase) decrease in accrued
interest receivable (178) 100 243 24 (103)
(Increase) decrease in
other assets (295) 4 261 155 (189)
Increase (decrease) in
other liabilities 152 19 (264) (445) 78
-------- -------- -------- -------- --------
Total adjustments 142 650 1,084 1,623 638
-------- -------- -------- -------- --------
Net cash provided by
operating activities 2,568 2,650 3,713 2,944 2,597
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of interest-bearing
deposits in other banks - - - 1,050 1,230
Sales of investment securities - - - 299 956
Maturities of investment
securities 12,433 9,590 14,102 14,423 11,087
Purchases of investment
securities (19,216) (16,833) (23,916) (15,382) (7,439)
Net cash flows from loans
originated and principal
collected on loans (5,603) (2,767) (7,604) (11,365) (11,551)
Purchases of premises and
equipment (943) (341) (850) (186) (183)
Proceeds from sales of other
real estate 476 168 239 854 580
-------- -------- -------- -------- --------
Net cash used in
investing activities (12,853) (10,183) (18,029) (10,307) (5,320)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in customer
transaction accounts 18,165 19,139 25,618 15,355 (1,411)
Time deposits accepted and
repayments of deposits (18,225) (5,630) (4,642) (4,746) 5,331
Payments on long-term debt (259) (259) (346) (345) (346)
Dividends paid (600) (640) (1,120) (550) (500)
-------- -------- -------- -------- --------
Net cash provided by
financing activities (919) 12,610 19,510 9,714 3,074
-------- -------- -------- -------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (11,204) 5,077 5,194 2,351 351
CASH AND CASH EQUIVALENTS,
beginning of year 17,878 12,684 12,684 10,333 9,982
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
end of year $ 6,674 $ 17,761 $ 17,878 $ 12,684 $ 10,333
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 4,583 $ 5,857 $ 7,474 $ 10,198 $ 10,979
======== ======== ======== ======== ========
Income taxes $ 1,221 $ 976 $ 1,180 $ 667 $ 745
======== ======== ======== ======== ========
Noncash transfer from loans
to other assets $ 122 $ 218 $ 618 $ 1,107 $ 403
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 72
CLEVELAND BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992, AND
DECEMBER 31, 1992, 1991, AND 1990
l. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Securities
Investment securities are carried at cost, adjusted for amortization
of premium and accretion of discount which are recognized as
adjustments to interest income. Gains or losses on disposition are
computed by the specific identification method and recognized when
securities are sold. Securities classified as investment securities
are carried at amortized cost, and it is the intention of management
to hold these securities on a long-term basis.
Corporate preferred stocks are carried at the lower of cost or market
value. Market valuation adjustments are recorded through retained
earnings. Retained earnings at December 31, 1992 and 1991, included
market valuation adjustments of approximately $244,000 and $383,000,
respectively.
Fair value of investment securities is determined by reference
to quoted market prices, if available. If quoted market prices are
not available, fair value is estimated using quoted market prices for
similar securities.
Loans
Cleveland Bank and Trust Company (the Bank) follows the provisions of
Statement of Financial Accounting Standards No. 91 (SFAS 91) for
nonrefundable fees and costs associated with originating or acquiring
loans. SFAS 91 requires that income from loan origination fees, net
of direct loan origination costs, be deferred and amortized over the
life of the loan on a level yield basis.
Unearned interest, shown as a reduction of loans in the accompanying
financial statements, relates primarily to installment loans and is
recorded into income using the sum-of-the-months' digits method, which
approximates the results from the use of the level yield method.
Interest income on all other classifications of loans is accrued based
upon the outstanding principal balance.
For certain homogeneous categories of loans, fair value is estimated
using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics. The fair value of
other types of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
F-6
<PAGE> 73
Reserve for Loan Losses
The reserve for loan losses is established through a provision for
loan losses charged to expense. The reserve represents an amount
which, in management's judgment, will be adequate to absorb probable
losses on existing loans that may become uncollectible. Management's
judgment in determining the adequacy of the reserve is based on
evaluations of the collectibility of loans and takes into
consideration such factors as changes in the nature and volume of the
loan portfolio, current economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality and review of
specific problem loans. Periodic revisions are made to the reserve
when circumstances which necessitate such revisions become known.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Effective January 1, 1992, the Bank adopted the
straight-line method of depreciation for financial reporting purposes
for premises and equipment placed in service after that date.
Premises and equipment acquired before the date of change continue to
be depreciated primarily using accelerated methods for financial
statement and income tax purposes. The change to the straight-line
method of depreciation was made to conform to predominant industry
practice. The change had no cumulative effect on prior years'
earnings and the effect on 1992 net income was immaterial.
Depreciation is charged to noninterest expense over the estimated
useful lives of assets using the following lives for principal items:
premises and leasehold improvements, 10 to 40 years; furniture,
fixtures and equipment, three to 10 years.
Renewals and betterments are capitalized and depreciated over their
estimated useful lives. Repairs, maintenance and minor improvements
are charged to noninterest expense as incurred. When property is
replaced or otherwise disposed of, the cost of such assets and related
accumulated depreciation are removed from the respective accounts.
Profit or loss, if any, is included in the statements of income.
Other Real Estate
Other real estate includes properties acquired through foreclosure or
acceptance of deeds in lieu of foreclosure. These properties are
recorded at the date acquired at the lower of the loan balance or fair
value. Upon recording these properties, any resulting loss is charged
to the allowance for loan losses. Other real estate is included in
other assets in the accompanying balance sheets and totaled
approximately $451,000 and $196,000 at December 31, 1992 and 1991,
respectively.
Income Taxes
Deferred income taxes are provided for the effects of timing
differences between financial and taxable income.
F-7
<PAGE> 74
Deposits
The estimated fair value of deposits at December 31, 1992, was
$199,190,000. A reasonable estimate of fair value of demand deposits,
savings accounts, certain money market deposits and variable rate
certificates of deposit is the amount reported in the accompanying
financial statements. The fair value of fixed rate certificates of
deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
Long-term Debt
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
At December 31, 1992, carrying value of long-term debt approximated
fair value.
Disclosures About Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," (SFAS No. 107). SFAS No.
107 extends the fair value disclosure practices for some instruments
by requiring all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized
in the balance sheet, for which it is practicable to estimate fair
value. The Bank has adopted the provisions of SFAS No. 107 for its
fiscal year ended December 31, 1992.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Earnings Per Share
Earnings per share are based on the weighted average number of common
shares outstanding during the period.
Reclassifications
Certain reclassifications have been made in the 1991 and 1990
financial statements to conform with the 1992 presentation.
Unaudited Interim Financial Statements
The accompanying consolidated balance sheet as of September 30, 1993,
and the related consolidated statements of income, stockholders'
equity and cash flows for the nine-month periods ended September 30,
1993 and 1992, are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of
items that are of a normal recurring nature. The results of
operations for the nine-month period ended September 30, 1993, are
not necessarily indicative of results which may be expected for the
entire year.
F-8
<PAGE> 75
2. INVESTMENT SECURITIES
The carrying value and estimated fair value of investment securities
at December 31, 1992 and 1991, are as follows:
<TABLE>
<CAPTION>
1992
---------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government securities
and obligations of U.S.
government agencies $35,142 $1,127 $ (43) $36,226
Obligations of states and
political subdivisions 23,449 1,113 (193) 24,369
Corporate preferred stocks 763 - - 763
Mortgage-backed securities 3,713 165 - 3,878
------- ------ ----- -------
$63,067 $2,405 $(236) $65,236
======= ====== ===== =======
<CAPTION>
1991
--------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government securities
and obligations of U.S.
government agencies $29,944 $1,477 $ - $31,421
Obligations of states and
political subdivisions 16,462 929 (4) 17,387
Corporate preferred stocks 889 - - 889
Mortgage-backed securities 5,560 224 (49) 5,735
------- ------ ---- -------
$52,855 $2,630 $(53) $55,432
======= ====== ==== =======
</TABLE>
The carrying value and estimated fair value of investment securities
at December 31, 1992, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations without call
or prepayment penalties.
Estimated
Carrying Fair
Value Value
-------- ---------
(In Thousands)
Due in one year or less $ 5,327 $ 5,471
Due after one year through
five years 24,866 25,850
Due after five years through
ten years 20,261 21,089
Due after ten years 8,137 8,185
Corporate preferred stocks 763 763
Mortgage-backed securities 3,713 3,878
------- -------
$63,067 $65,236
======= =======
F-9
<PAGE> 76
Mortgage-backed securities mature periodically through the year 2020.
Proceeds from sales of investment securities during 1991 and 1990 were
$299,000 and $956,000, respectively. There were no sales of
investment securities during 1992. In 1991 and 1990, gross gains of
$0 and $1,000, respectively, and gross losses of $1,000 and $ 0,
respectively, were realized on those sales. Also included in
investment securities losses in 1991 is a loss of $484,000 represented
by the write-down of securities collateralized by guaranteed insurance
contracts issued by an insurance company.
Investment securities with a carrying value of approximately
$16,407,000 and $13,171,000 at December 31, 1992 and 1991,
respectively, were pledged to secure various customer deposits.
3. PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1992 and 1991,
is as follows:
1992 1991
-------- --------
(In Thousands)
Land $ 1,178 $ 1,178
Premises and leasehold
improvements 5,040 5,029
Furniture, fixtures and equipment 4,475 4,133
------- -------
10,693 10,340
Accumulated depreciation and
amortization (4,523) (4,624)
------- -------
$ 6,170 $ 5,716
======= =======
The charge to noninterest expense for depreciation was approximately
$396,000, $470,000 and $509,000 in 1992, 1991 and 1990, respectively.
4. LOANS AND RESERVE FOR LOAN LOSSES
At December 31, 1992 and 1991, the Bank's loans consisted of the
following:
1992 1991
--------- ---------
(In Thousands)
Commercial, financial and
agricultural $ 3,032 $ 3,211
Consumer 27,288 26,574
Real estate:
Commercial 46,344 41,864
Mortgage 45,143 41,904
Construction 7,221 8,297
Other 7,062 7,738
-------- --------
Total loans 136,090 129,588
Less- Unearned interest (1,011) (1,157)
Unearned fees (97) (101)
Reserve for loan losses (2,282) (1,716)
-------- --------
Net loans $132,700 $126,614
======== ========
Loans, net, had an estimated fair value of approximately $134,960,000
at December 31, 1992. Total nonaccrual and restructured loans at
December 31, 1992 were $3,095,000.
F-10
<PAGE> 77
A summary of transactions in the reserve for loan losses for the years
ended December 31, 1992, 1991 and 1990, and for the nine-month periods
ending September 30, 1993 and 1992, is as follows (in thousands):
<TABLE>
<CAPTION>
Nine-month Period
Ended Years Ended December 3l,
September 30, --------------------------------
1993 1992 1992 1991 1990
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning
of period $2,282 $1,716 $1,716 $1,314 $1,135
Provision charged
to operations 450 675 900 1,235 535
Recoveries of
loans charged off 85 185 198 90 88
Loans charged off (124) (259) (532) (923) (444)
------ ------ ------ ------ ------
Balance, end of period $2,693 $2,317 $2,282 $1,716 $1,314
====== ====== ====== ====== ======
</TABLE>
5. PROFIT-SHARING PLAN
The Bank maintains a profit-sharing plan (the Plan) covering
substantially all full-time employees. Under the Plan, the Bank's
contribution is based on employees' base wages. In addition,
employees may make voluntary contributions to the Plan up to certain
specified limits. Approximately $310,000, $172,000 and $233,000
was contributed to the Plan by the Bank during 1992, 1991 and 1990,
respectively.
6. LONG-TERM DEBT
Long-term debt consists of Industrial Development Revenue Bonds issued
by the Industrial Development Board of the City of Cleveland,
Tennessee, at an interest rate of 65% of prime (3.90% at December 31,
1992), due in monthly installments of approximately $29,000 through
December 1999.
Minimum maturities of long-term debt during the five years subsequent
to December 31, 1992, are approximately $346,000 each year.
7. INCOME TAXES
The income tax provision for the years ended December 31, 1992, 1991
and 1990, is comprised of the following:
1992 1991 1990
------- ----- -----
(In Thousands)
Current:
Federal $ 908 $383 $552
State 156 80 151
------ ---- ----
Total current 1,064 463 703
Deferred benefit (195) (90) (84)
------ ---- ----
Income tax provision $ 869 $373 $619
====== ==== ====
Deferred income taxes relate principally to the depreciation of bank
premises and equipment and the provision for loan losses.
F-11
<PAGE> 78
The income tax provision as shown in the accompanying statements of
income for the years ended December 31, 1992, 1991 and 1990, varies
from the amount computed by multiplying income before income taxes by
the statutory federal income tax rate. A reconciliation of these
differences is as follows:
1992 1991 1990
------- ------ ------
(In Thousands)
Income taxes at statutory rate $1,189 $ 576 $ 876
Increase (decrease) resulting
from tax effect of:
Tax exempt interest (379) (336) (326)
State income taxes, net of
federal income tax benefit 103 53 99
Dividends exclusion (24) (30) (38)
Alternative minimum tax (credit) (25) 83 -
Other, net 5 27 8
------ ----- -----
Income tax provision $ 869 $ 373 $ 619
====== ===== =====
On January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109), which
requires a change from the deferred method to the asset and liability
method of accounting for income taxes. There was no cumulative effect
on prior years of this change in accounting principal. The effect of
this change on operating results for the nine months ended September
30, 1993, was not significant. Prior periods' financial statements
have not been restated to apply the provisions of SFAS 109.
The components of the net deferred tax asset at January 1, 1993, were
as follows (unaudited, in thousands):
Total deferred tax assets $ 758
Total deferred tax liabilities (213)
Valuation allowance -
-----
Net deferred tax assets $ 545
=====
The sources of the difference between the financial accounting and tax
basis of the Bank's assets and liabilities which give rise to the
deferred tax liabilities and deferred tax assets and the tax effects
of each as of January 1, 1993, were as follows (unaudited, in
thousands):
Deferred tax assets:
Difference in provision
for loan losses $ 597
Alternative minimum tax credit 59
Other 102
-----
$ 758
=====
Deferred tax liabilities:
Book over tax basis of
fixed assets $ 199
Other 14
-----
$ 213
=====
F-12
<PAGE> 79
8. RELATED PARTY TRANSACTIONS
The Bank has in its normal course of business granted loans to certain
of its executive officers and directors. These loans are made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with
unrelated persons. Direct and indirect loans to executive officers
and directors totaled approximately $2,500,000 and $1,144,000 at
December 31, 1992 and 1991, respectively.
The following table summarizes the changes to these amounts (in
thousands):
Balance, December 31, 1991 $1,144
Existing loans to new executive
officers and directors 499
Additions 1,104
Repayments (247)
------
Balance, December 31, 1992 $2,500
======
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the accompanying balance sheets.
The contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.
The Bank grants various types of loans and financial instruments to
customers within its respective market area (primarily Bradley County,
Tennessee). The Bank's exposure to credit loss in the event of
nonperformance by the counterparty to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Total commitments to extend credit at December 31,
1992, include $13,183,000 in floating rate loan commitments and
$2,307,000 in fixed rate loan commitments. Fixed rate commitments
were at rates ranging from 5% to 13% and expire on various dates
through October 8, 2007. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is
based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, residential real estate, and
income-producing commercial properties.
F-13
<PAGE> 80
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. The collateral varies but may include
accounts receivable, inventory, property, plant and equipment, and
residential real estate for those commitments for which collateral is
deemed necessary. The Bank had approximately $634,000 in irrevocable
standby letters of credit outstanding at December 31, 1992.
10. REGULATORY REQUIREMENTS
The Federal Reserve Board requires that member banks maintain reserves
based on their average deposits in the form of vault cash and average
deposit balances at the Federal Reserve Banks. For the year ended
December 31, 1992, the Bank's aggregate reserve requirement averaged
approximately $916,000.
Dividends that may be paid by the Bank are subject to certain
regulatory limitations. The limitation on dividends payable is equal
to net income in the current year combined with its retained net
income of the preceding two years. Under the applicable regulations,
at December 31, 1992, the Bank could have paid additional dividends of
$4,059,000 without regulatory approval. Additionally, the amount of
dividends that the Bank can pay in 1993 will depend primarily upon its
1993 net income.
Additionally, the Bank is subject to certain minimum regulatory
capital requirements. At December 31, 1992, the Bank's capital
exceeds all regulatory capital requirements.
F-14
<PAGE> 81
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 23RD DAY OF JULY, 1993
BY AND AMONG
FIRST TENNESSEE NATIONAL CORPORATION
AND
CLEVELAND BANK & TRUST COMPANY
<PAGE> 82
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
I. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(A) The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(B) Conversion of CBTC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
(C) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
(D) Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
II. ACTIONS PENDING MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
(A) CBTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6
IV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
V. CONDITIONS TO CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
VI. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
VII. EFFECTIVE DATE AND EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
VIII. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
Annex 1 - Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
</TABLE>
i
<PAGE> 83
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 23rd day of
July, 1993, by and among FIRST TENNESSEE NATIONAL CORPORATION ("FTNC"), a
Tennessee corporation, and CLEVELAND BANK & TRUST COMPANY ("CBTC"), a Tennessee
banking corporation.
RECITALS
(A) FTNC. FTNC has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Tennessee, with its
principal executive offices located in Memphis, Tennessee. As of the date
hereof, FTNC has 50,000,000 authorized shares of common stock, par value $2.50
per share ("FTNC Common Stock"), of which 28,236,383 shares are outstanding as
of April 30, 1993, and 5,000,000 authorized shares of preferred stock, no par
value, none of which are outstanding (no other class of capital stock being
authorized).
(B) INTERIM BANK. Prior to consummation of the Merger
(herein defined), FTNC shall cause First Tennessee Interim Bank ("Interim
Bank") to be formed as a wholly owned subsidiary of FTNC. Interim Bank shall
be duly organized and on the Effective Date (as hereafter defined in Article
VII) will be a bank in good standing under the laws of the State of Tennessee.
(C) CBTC. CBTC has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Tennessee, with its
principal executive offices located in Cleveland, Tennessee. As of the date
hereof, CBTC has 120,000 authorized shares of common stock, par value $10.00
per share ("CBTC Common Stock"), of which 100,000 shares are outstanding as of
June 30, 1993 (no other class of capital stock being authorized).
(D) RIGHTS, ETC. Neither FTNC, Interim Bank nor CBTC has any
shares of its capital stock reserved for issuance, any outstanding option, call
or commitment relating to shares of its capital stock or any outstanding
securities, obligations or agreements convertible into or exchangeable for, or
giving any person any right (including, without limitation, preemptive rights)
to subscribe for or acquire from it, any shares of its capital stock
(collectively, "Rights"), except (i) in the case of CBTC, pursuant to a Stock
Option Agreement (the "Option Agreement"), in the form of Annex 1 hereto, to be
executed and delivered immediately after and as a condition of the execution of
this Agreement, (ii) in the case of FTNC, pursuant to a Shareholder Protection
Rights Agreement, dated as of September 7, 1989, between FTNC and First
Tennessee Bank National Association, as Rights Agent (the "FTNC Rights
Agreement"), (iii) for securities issued as permitted under Section (I) of
Article IV and (iv) as set forth on Annex 2 hereto (as to FTNC) and Annex 3
hereto (as to CBTC).
(E) THE OPTION AGREEMENT. As an inducement to the
willingness of FTNC to enter into this Agreement, CBTC will enter into a Stock
Option Agreement with FTNC in the form set forth in Annex 1 (the "Option
Agreement"), pursuant to which CBTC will grant to FTNC an option to purchase
authorized but unissued shares of CBTC Common Stock equal to 19.9% of the
outstanding CBTC Common Stock upon the terms and conditions therein
contained.
A - 1
<PAGE> 84
(F) INTENTION OF THE PARTIES. It is the intention of the
parties to this Agreement that the Merger for federal income tax purposes shall
qualify as a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
(G) MATERIALITY. Unless the context otherwise requires, any
reference in this Agreement to materiality with respect to either party shall,
as to CBTC, be deemed to be with respect to CBTC and its subsidiaries, taken as
a whole and as to FTNC shall be deemed to be with respect to FTNC and its
subsidiaries, taken as a whole.
In consideration of their mutual promises and obligations
hereunder, and intending to be legally bound hereby, FTNC and CBTC adopt and
make this Agreement and prescribe the terms and conditions hereof and the
manner and basis of carrying it into effect, which shall be as follows:
I. THE MERGER
(A) THE MERGER. On the Effective Date (as defined in Article
VII), Interim Bank will merge (the "Merger") with and into CBTC, with CBTC
being the surviving corporation (the "Surviving Corporation"), pursuant to the
provisions of, and with the effects provided in, the Tennessee Code Annotated.
At the Effective Time, the charter and bylaws of CBTC (as the Surviving
Corporation) shall be the charter and bylaws of CBTC in effect immediately
prior to the Effective Time. At the Effective Time, the directors and officers
of CBTC shall be the directors and officers of the Surviving Corporation
without any prejudice to the rights of FTNC as the sole shareholder of the
Surviving Corporation. At the Effective Time, the name of CBTC as the
Surviving Corporation following the Merger shall continue to be "Cleveland Bank
& Trust Company."
(B) CONVERSION OF CBTC COMMON STOCK. By virtue of the
Merger, automatically and without any action on the part of the holder thereof,
at the Effective Date, all of the CBTC Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares held directly or
indirectly by FTNC or any subsidiary of FTNC, except in a fiduciary capacity or
in satisfaction of a debt previously contracted and shares held in the treasury
of CBTC, which shares shall be canceled, retired and cease to exist by virtue
of the Merger and without any payment made in respect thereof) shall be
converted into the right to receive shares of FTNC Common Stock, as described
below.
(1) Each share of CBTC Common Stock issued
and outstanding at the Effective Time shall become and be
converted into the right to receive the number of shares of
FTNC Common Stock equal to the Conversion Number. The
"Conversion Number" shall be equal to the quotient of $438.00
divided by the FTNC Common Stock Average Price (as hereinafter
defined); provided, however, if such quotient would otherwise
be less than 10.5011 it shall be 10.5011 and if such quotient
would otherwise exceed 12.6957 it shall be 12.6957. The
Calculation Period shall consist of the twenty (20) business
days immediately prior to the day on which the Board of
Governors of the Federal Reserve System (the "Board of
Governors") approves the Merger. The FTNC Common Stock
Average Price shall be equal to the average of the closing
prices of the FTNC Common Stock as reported on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") on the twenty (20) business days included
A - 2
<PAGE> 85
in the Calculation Period. For purposes of this Section I.B,
a business day shall be a day on which the New York Stock
Exchange is generally open for trading;
(2) Each share of FTNC Common Stock issued
and outstanding at the Effective Time [other than (x) shares,
if any, held directly or indirectly by CBTC or any CBTC
subsidiary except in a fiduciary capacity or in satisfaction
of a debt previously contracted, and (y) shares, if any, held
as treasury stock by FTNC] shall remain outstanding and
unchanged after the Merger and, together with the shares of
FTNC Common Stock issuable in the Merger, shall constitute all
of the issued and outstanding shares of the common capital
stock of FTNC.
(3) Subsequent to the date of this Agreement
but prior to the Effective Date, if the outstanding shares of
FTNC Common Stock shall be increased, decreased, changed into
or exchanged for a different number or class of shares by
reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if a stock dividend
thereon shall be declared with a record date within such
period, or other like changes in FTNC's capitalization shall
have occurred, the terms and provisions of the first sentence
of subsection (1) of this Section (B) and of Section (D) of
Article VI shall be adjusted accordingly.
(4) Each share of Interim Bank common stock, par value $10.00
per share, ("Interim Bank 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 fully
paid and non-assessable share of common stock, without par
value, of the Surviving Corporation ("Surviving Corporation
Common Stock"). From and after the Effective Time, each
outstanding certificate theretofore representing shares of
Interim Bank Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of
Surviving Corporation Common Stock into which such shares of
Interim Bank Common Stock shall have been converted. Promptly
after the Effective Time, the Surviving Corporation shall
issue to 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 Bank Common Stock, which shall be cancelled.
(C) NO FRACTIONAL SHARES. Notwithstanding any other
provision hereof, no fractional shares of FTNC Common Stock and no certificates
or scrip therefor, or other evidence of ownership thereof, will be issued in
the Merger; instead, FTNC shall pay to each holder of CBTC Common Stock
exchanged pursuant to this Agreement who would otherwise be entitled to a
fractional share an amount in cash determined by multiplying such holder's
fractional interest by the "Average Price" of a share of FTNC Common Stock
(rounded up to the nearest cent). The "Average Price" of a share of FTNC
Common Stock shall be the average of the closing prices thereof as reported on
NASDAQ over the ten (10) business days immediately prior to the fifth (5th)
calendar day prior to the Effective Time.
(D) PROCEDURES. Certificates which represent shares of CBTC
Common Stock that are outstanding at the Effective Time (each, a "Certificate")
and are converted into the right to receive shares
A - 3
<PAGE> 86
of FTNC Common Stock pursuant to the Merger shall, after the Effective Time, be
exchangeable by the holders thereof in the manner provided in the transmittal
materials described below for new certificates representing the shares of FTNC
Common Stock into which such shares have been converted.
As promptly as practicable after the Effective Date, FTNC
shall send to each holder of record of shares of CBTC Common Stock outstanding
at the Effective Time transmittal materials for use in exchanging the
Certificates for such shares for certificates for shares of the FTNC Common
Stock into which such shares of the FTNC Common Stock have been converted
pursuant to the Merger. Upon surrender of a Certificate, together with a duly
executed letter of transmittal and any other required documents, the holder of
such Certificate 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 CBTC 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 CBTC of shares
of CBTC Common Stock which were issued and outstanding at the Effective Time
and converted pursuant to the provisions of the Merger into the right to
receive FTNC Common Stock. If after the Effective Time, Certificates are
presented for transfer to CBTC, they shall be cancelled and exchanged for the
shares of FTNC Common Stock deliverable in respect thereof as determined in
accordance with the provisions of Article I, Paragraph (B) and in accordance
with the procedures set forth in this Paragraph.
After the Effective Time, holders of CBTC Common Stock shall
cease to be, and shall have no rights as, stockholders of CBTC, other than to
receive shares of FTNC Common Stock into which such shares have been converted
or fractional share payments pursuant to this Agreement.
Notwithstanding the foregoing, neither FTNC nor CBTC nor any
other person shall be liable to any former holder of shares of CBTC 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, FTNC will issue in exchange for such
lost, stolen or destroyed certificate
A - 4
<PAGE> 87
shares of FTNC Stock, the fractional share payment, if any, deliverable in
respect thereof as determined in accordance with this Article I.
II. ACTIONS PENDING MERGER
(A) CBTC. Without the prior written consent of FTNC, CBTC
will not:
(1) make, declare or pay any dividend other than a third
quarter dividend on September 30, 1993 in an aggregate amount
not to exceed $300,000; and in the event, but only in such
event, the merger has not been consummated on or prior to the
record date for the fourth quarter 1993 dividend to be paid by
FTNC, a fourth quarter 1993 dividend in an aggregate amount
not to exceed $400,000 or declare or make any distribution on,
or directly or indirectly combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock
(other than in a fiduciary capacity or in respect of a debt
previously contracted in good faith) or authorize the creation
or issuance of or issue or sell or permit any subsidiary to
issue or sell any additional shares of CBTC's capital stock or
the capital stock of any Significant Subsidiary (as
hereinafter defined), or any options, calls or commitments
relating to its capital stock or the capital stock of any
Significant Subsidiary, or any securities, obligations or
agreements convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire, shares of its
capital stock or the capital stock of any Significant
Subsidiary, except pursuant to (i) the Option Agreement and
(ii) plans or agreements as existing on the date hereof and
set forth in Annex 3 attached hereto;
(2) except as expressly authorized by FTNC in writing, pay
any bonus to, or increase the rate of compensation of, any of
its directors, officers or employees, except in the ordinary
course of business consistent with past practice, or enter
into or permit any subsidiary to enter into any employment
contracts with any persons;
(3) enter into or modify or permit any subsidiary to enter
into or modify (except as may be required by applicable law
and except for the renewal of any existing plan or arrangement
in the ordinary course of business consistent with past
practice) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any of its
directors, officers or other employees;
(4) except as contemplated by Paragraph (M) of Article IV,
substantially modify the manner in which it and its
subsidiaries have heretofore conducted their business, taken
as a whole, or amend its articles of incorporation or by-laws;
(5) merge or consolidate or permit any Significant Subsidiary
to merge or consolidate with any other entity or engage in any
similar transaction;
A - 5
<PAGE> 88
(6) except for the disposition of loans and cash equivalent
assets in the ordinary course of banking business, sell,
dispose of or discontinue or permit any subsidiary to sell,
dispose or discontinue any of its business, assets (including
investment securities) or property,
(7) except for the acquisition of loans, investment
securities and cash equivalent assets in the ordinary course
of banking business, acquire any assets or business or permit
any subsidiary to acquire any assets or business that is
material to such party;
(8) take any other action or permit any subsidiary to take
any action not in the ordinary course of business of it and
its subsidiaries, taken as a whole; or
(9) directly or indirectly agree to take any of the foregoing
actions.
III. REPRESENTATIONS AND WARRANTIES
FTNC represents and warrants to CBTC, and CBTC represents and
warrants to FTNC, that, except as previously disclosed in a letter of FTNC or
CBTC, respectively, of even date herewith delivered to the other party:
(A) The facts set forth in the Recitals of this Agreement
with respect to it are true and correct;
(B) The outstanding shares of capital stock of it and its
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X) are duly
authorized, validly issued and outstanding, fully paid and (subject to 12
U.S.C. Section 55 in the case of a national bank subsidiary and comparable
state statutes, in the case of a state bank subsidiary) non-assessable, and
subject to no preemptive rights;
(C) Each of it and its Significant Subsidiaries (Annex 4
hereto in the case of FTNC sets forth a list of its Significant Subsidiaries
and Annex 5 hereto in the case of CBTC sets forth a list of its Significant
Subsidiaries) has the power and authority, and is duly qualified in all
jurisdictions (except for such qualifications the absence of which will not
have a Material Adverse Effect (as hereinafter defined)) where such
qualification is required, to carry on its business as it is now being
conducted and to own all its material properties and assets, and it has all
federal, state, local, and foreign governmental authorizations necessary for it
to own or lease its properties and assets and to carry on its business as it is
now being conducted, except for such powers and authorizations the absence of
which, either individually or in the aggregate, would not have a Material
Adverse Effect;
(D) The shares of capital stock of each of its Significant
Subsidiaries are, and in the case of FTNC, all of the shares of capital stock
of Interim Bank will be, owned by it (except for director's qualifying shares)
free and clear of all liens, claims, encumbrances and restrictions on transfer
and there are no Rights with respect to such capital stock;
A - 6
<PAGE> 89
(E) Subject, in the case of FTNC to approval of its board of
directors or its executive committee, and subject in the case of Interim Bank
to the receipt of approval of its board of directors and subject in the case of
CBTC and Interim Bank to any required shareholder approvals of this Agreement,
and, subject to receipt of required regulatory approvals, this Agreement is a
valid and binding agreement of it enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(F) The execution, delivery and performance of this Agreement
by it does not, and the consummation of the transactions contemplated hereby by
it will not, constitute (l) a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or its subsidiaries or to
which it or its subsidiaries (or any of their respective properties) is
subject, which breach, violation or default, individually or collectively, is
reasonably likely to have a Material Adverse Effect (as hereinafter defined),
or enable any person to enjoin any of the transactions contemplated hereby or
(2) a breach or violation of, or a default under, the certificate or articles
of incorporation or by-laws of it or any of its Significant Subsidiaries; and
the consummation of the transactions contemplated hereby will not require any
consent or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license or the consent or approval of any other
party to any such agreement, indenture or instrument, other than the required
approvals of applicable regulatory authorities referred to in Paragraphs (A)(3)
and (A)(4)of Article V and the approval of the respective board of directors of
FTNC, Interim Bank and CBTC and the shareholders of Interim Bank and CBTC
referred to in Paragraph (E) of Article III and any consents and approvals the
absence of which will not have a Material Adverse Effect;
(G) In the case of FTNC, as of their respective dates,
neither its Annual Report on Form 10-K for the fiscal year ended December 31,
1992, nor any other document filed subsequent to December 31, 1992 under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act") (including, without limitation, its
Quarterly Report on Form 10-Q for its most recent fiscal quarter ended at least
forty-five (45) days prior to the date of this Agreement), each in the form
(including exhibits) filed with the Securities and Exchange Commission (the
"SEC") contained and in the case of CBTC, neither its audited financial
statements for the fiscal year ended December 31, 1992 nor its unaudited
quarterly financial statement for the fiscal quarter ended June 30, 1993
(collectively the "Reports") contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. Each of the balance sheets in or incorporated
by reference into the Reports (including the related notes and schedules)
fairly presents the financial position of the entity or entities to which it
relates as of its date and each of the statements of operations and retained
earnings and of cash flow and changes in financial position or equivalent
statements in or incorporated by reference into its Reports (including any
related notes and schedules) fairly presents the results of operations,
retained earnings and cash flows and changes in financial position, as the case
may be, of the entity or entities to which it relates for the periods set forth
therein (subject, in the case of unaudited interim statements or reports, to
normal year- end audit adjustments that are not material in amount or effect),
in each case in accordance with generally accepted accounting principles
applicable to bank holding companies consistently applied during the periods
involved, except as may be noted therein. It has no material obligations or
liabilities (contingent or otherwise) except as
A - 7
<PAGE> 90
disclosed in the Reports, and its consolidated allowance for loan and lease
losses, as shown on its most recent balance sheet or statement of condition
contained in its Reports was adequate, as of the date thereof, within the
meaning of generally accepted accounting principles and safe and sound banking
practices;
(H) There has been no material adverse change in the
financial condition of it and its subsidiaries, taken as a whole, since
December 31, 1992;
(I) All material federal, state, local, and foreign tax
returns required to be filed by or on behalf of it or any of its subsidiaries
have been timely filed or requests for extensions have been timely filed and
any such extension shall have been granted and not have expired, and all such
returns filed are complete and accurate in all material respects. All taxes
shown on returns filed by it have been paid in full or adequate provision has
been made for any such taxes on its balance sheet (in accordance with generally
accepted accounting principles). As of the date of this Agreement, there is no
audit examination, deficiency, or refund litigation with respect to any taxes
of it and CBTC is not aware of any basis for the assertion of any claim for any
tax deficiency for which adequate provision has not been made on its balance
sheet that would result in a determination that would have a Material Adverse
Effect. All taxes, interest, additions, and penalties due with respect to
completed and settled examinations or concluded litigation relating to it have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with generally accepted accounting principles).
It has not executed an extension or waiver of any statute of limitations on the
assessment or collection of any material tax due that is currently in effect;
(J) (1) No material litigation, proceeding or controversy
before any court or governmental agency is pending, and there is no pending
claim, action or proceeding against it or any of its subsidiaries, which in the
reasonable judgment of its President is likely to have a Material Adverse
Effect or to prevent consummation of the transactions contemplated hereby, and,
to the best of its knowledge, no such litigation, proceeding, controversy,
claim or action has been threatened or is contemplated, and (2) neither it nor
any of its subsidiaries is subject to cease and desist order, written agreement
or memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental authorities
charged with the supervision or regulation of banks or bank holding companies
or engaged in the insurance of bank deposits ("Bank Regulators"), nor has it
been advised by any Bank Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking;
(K) Except as disclosed in Annex 6 hereto in the case of FTNC
and Annex 7 hereto in the case of CBTC and except for this Agreement, the
Option Agreement and arrangements made in the ordinary course of business, it
and its subsidiaries are not bound by any material contract (as defined in Item
601(b)(10)(i) and (ii) of Regulation S-K) to be performed after the date hereof
that has not been filed with or incorporated by reference in the Reports;
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(L) All "employee benefit plans", as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), that cover
any of its or its subsidiaries' employees, comply in all material respects with
all applicable requirements of ERISA, the Code and other applicable laws;
neither it nor any of its subsidiaries has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to any such plan which is likely to result in any material
penalties or taxes under Section 502(i) of ERISA or Section 4975 of the Code;
no material liability to the Pension Benefit Guaranty Corporation has been or
is expected by it or them to be incurred with respect to any such plan which is
subject to Title IV of ERISA ("Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) currently
or formerly maintained by it, them or any entity which is considered one
employer with it under Section 4001 of ERISA or Section 414 of the Code; no
Pension Plan had an "accumulated funding deficiency" [as defined in Section 302
of ERISA (whether or not waived)] as of the last day of the end of the most
recent plan year ending prior to the date hereof; the fair market value of the
assets of each Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such Pension
Plan as of the end of the most recent plan year with respect to the respective
Plan ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the most recent actuarial valuation for such Pension Plan
as of the date hereof; no notice of a "reportable event" (as defined in Section
4043 of ERISA) for which the 30-day reporting requirement has not been waived
has been required to be filed for any Pension Plan within the 12-month period
ending on the date hereof; neither it nor any of its subsidiaries has provided,
or is required to provide, security to any Pension Plan pursuant to Section
401(a)(29) of the Code; it and its subsidiaries have not contributed to a
"multiemployer plan" as defined in Section 3(37) of ERISA, on or after
September 26, 1980; and it and its subsidiaries do not have any obligations for
retiree health and life benefits under any benefit plan, contract or
arrangement.
(M) Each of it and its subsidiaries has good title to its
properties and assets (other than property as to which it is lessee) except for
such defects in title which would not, in the aggregate, have a Material
Adverse Effect;
(N) It knows of no reason why the regulatory approvals
referred to in Paragraphs (A)(3) and (A)(4) of Article V should not be obtained
without the imposition of any condition of the type referred to in the proviso
following such Paragraphs (A)(3) and (A)(4);
(O) As to CBTC, its reserve for possible loan losses as shown
in its financial statements and reports for the fiscal quarter ended June 30,
1993 was adequate in all material respects under generally accepted accounting
principles applicable to banks and bank holding companies;
(P) It and each of its subsidiaries have all permits,
licenses, certificates of authority, orders, and approvals of, and have made
all filings, applications, and registrations with, federal, state, local, and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted and the absence of
which would have a Material Adverse Effect; all such permits, licenses,
certificates of authority, orders, and approvals are in full force and effect,
and to the best knowledge of it no suspension or cancellation of any of them is
threatened;
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(Q) In the case of FTNC, the shares of capital stock to be
issued pursuant to this Agreement, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights;
(R) Neither it nor any of its subsidiaries is a party to, or
is bound by, any collective bargaining agreement, contract, or other agreement
or understanding with a labor union or labor organization, nor is it or any of
its subsidiaries the subject of a proceeding asserting that it or any such
subsidiary has committed an unfair labor practice or seeking to compel it or
such subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its subsidiaries pending or threatened;
(S) Other than for financial advisory services performed for
CBTC by Alex Sheshunoff & Co., neither it nor any of its subsidiaries, nor any
of their respective officers, directors, or employees, has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions, or finder's fees, and no broker or finder has acted directly
or indirectly for it or any of its subsidiaries, in connection with this
Agreement or the transactions contemplated hereby;
(T) The information to be supplied by it for inclusion in (1)
the Registration Statement on Form S-4 and/or such other form(s) as may be
appropriate to be filed under the Securities Act of 1933, as amended (the
"Securities Act"), with the SEC by FTNC for the purpose of, among other things,
registering the FTNC Common Stock to be issued to the shareholders of CBTC in
the Merger (the "Registration Statement"), or (2) the proxy statement to be
distributed in connection with CBTC's meeting of its shareholders to vote upon
this Agreement (as amended or supplemented from time to time, the "Proxy
Statement", and together with the prospectus included in the Registration
Statement, as amended or supplemented from time to time, the "Proxy
Statement/Prospectus") will not at the time such Registration Statement becomes
effective, and in the case of the Proxy Statement/Prospectus at the time it is
mailed and at the time of the meeting of 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;
(U) For purposes of this section, the following terms shall
have the indicated meaning:
"Environmental Law" means any federal, state
or local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (2) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation (1) the
Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq.,
the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, et seq., the Clean Air Act, as amended,
42 U.S.C. Section 7401, et seq., the Federal Water Pollution
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Control Act, as amended, 33 U.S.C. Section 1251, et seq., the
Toxic Substances Control Act, as amended, 15 U.S.C. Section
9601, et seq., the Emergency Planning and Community Right to
Know Act, 42 U.S.C. Section 11001, et seq., the Safe Drinking
Water Act, 42 U.S.C. Section 300f, et seq., all comparable
state and local laws, and (2) any common law (including
without limitation common law that may impose 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 Substance.
"Hazardous Substance" means any substance
presently 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 material containing any such substance
as a component. Hazardous Substances include without
limitation petroleum or any derivative or by-product thereof,
asbestos, radioactive material, and polychlorinated biphenyls.
"Loan Portfolio Properties and Other
Properties Owned" means those properties owned or operated by
FTNC or CBTC or any of their subsidiaries including properties
owned or operated in a fiduciary capacity.
(1) To the best knowledge of it and its subsidiaries, neither
it nor any of its subsidiaries has been or is in violation of
or liable under any Environmental Law, except any such
violations or liabilities which would not reasonably be
expected to singly or in the aggregate have a Material Adverse
Effect;
(2) To the best knowledge of it and its subsidiaries, none of
the Loan Portfolio Properties and Other Properties Owned by it
or its subsidiaries has been or is in violation of or liable
under any Environmental Law, except any such violations or
liabilities which singly or in the aggregate will not have a
Material Adverse Effect; and
(3) To the best knowledge of it and its subsidiaries, there
are no actions, suits, demands, notices, claims,
investigations or proceedings pending or threatened relating
to the liability of the Loan Portfolio Properties and Other
Properties Owned by it or its subsidiaries under any
Environmental Law, including without limitation any notices,
demand letters or requests for information from any federal or
state environmental agency relating to any such liabilities
under or violations of Environmental Law, except such which
will not have, result in or relate to a Material Adverse
Effect.
IV. COVENANTS
FTNC hereby covenants to CBTC, and CBTC hereby covenants to
FTNC, that:
(A) It shall use its best efforts in good faith to take or
cause to be taken all action necessary or desirable under this
Agreement on its part or, as to FTNC, on the part of Interim
Bank as promptly as practicable so as to permit the
consummation of the
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transactions contemplated by this Agreement at the earliest
possible date and cooperate fully with the other party hereto
to that end;
(B) In the case of CBTC, it shall (1) take all steps
necessary to duly call, give notice of, convene and hold a
meeting of its shareholders for the purpose of approving this
Agreement as soon as is reasonably practicable; (2) recommend
to its shareholders that they approve this Agreement and use
its best efforts to obtain such approval; (3) distribute to
its shareholders the Proxy Statement/Prospectus in accordance
with applicable federal and state law (except, in the case of
FTNC, for state securities laws and "Blue Sky" permits which
are covered by paragraph (E) of this Article IV) and with its
certificates of incorporation or charter, as the case may be,
and bylaws; and (4) cooperate and consult with FTNC with
respect to each of the foregoing matters.
(C) It will cooperate in the preparation and filing of the
Proxy Statement/Prospectus and Registration Statement in order
to consummate the transactions contemplated by this Agreement
as soon as is reasonably practicable;
(D) In the case of FTNC, it will advise CBTC, promptly after
FTNC receives notice thereof, of the time when the
Registration Statement has become effective or any supplement
or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of the shares of FTNC
Common Stock issuable pursuant to this Agreement for offering
or sale in any jurisdiction, of the initiation or threat of
any proceeding for any such purpose or of any request by the
SEC for the amendment or supplement of the Registration
Statement or for additional information;
(E) In the case of FTNC, it shall use its best efforts to
obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky"
permits and approvals required to carry out the transactions
contemplated by this Agreement;
(F) Subject to its disclosure obligations imposed by law,
unless approved by the other party hereto in advance, it will
not issue any press release or written statement for general
circulation relating to the transactions contemplated hereby;
(G) It shall promptly furnish the other party with copies of
written communications received by it, or any of its
respective subsidiaries, Affiliates or Associates (as such
terms are defined in Rule 12b-2 under the Securities Exchange
Act as in effect on the date hereof), from, or delivered by
any of the foregoing to, any governmental body or agency in
connection with or material to the transactions contemplated
hereby;
(H) (1) Upon reasonable notice, it shall (and shall cause
each of its subsidiaries to) afford the other party hereto,
and its officers, employees, counsel, accountants and other
authorized representatives (collectively, such party's
"Representatives") access, during normal business hours, to
all of its and its subsidiaries' properties, books, contracts,
tax returns, commitments and records; it shall enable the
other party's Representatives to discuss its business affairs,
condition (financial and otherwise), assets and liabilities
with
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such third persons, including, without limitation, its
directors, officers, employees, accountants, counsel and
creditors, as the other party considers necessary or
appropriate; and it shall (and it shall cause each of its
Significant Subsidiaries to) furnish promptly to the other
party hereto (a) a copy of each report, schedule and other
document filed by it pursuant to the requirements of federal
or state securities or banking laws since December 31, 1991,
and (b) all other information concerning its business,
properties and personnel as the other party hereto may
reasonably request, provided that no investigation pursuant to
this Paragraph (H) shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the
obligations to consummate this Agreement of, the other party
hereto; (2) it will, upon request, furnish the other party
with all information concerning it, its subsidiaries,
directors, officers, partners and stockholders and such other
matters as may be reasonably necessary or advisable in
connection with the Proxy Statement/Prospectus, the
Registration Statement or any other statement or application
made by or on behalf of FTNC, Interim Bank, CBTC or any of
their respective subsidiaries to any governmental body or
agency in connection with or material to the Merger and the
other transactions contemplated by this Agreement; and (3) it
will not use any information obtained pursuant to this
Paragraph (H) for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement and, if this
Agreement is not consummated, it will hold all information and
documents obtained pursuant to this Paragraph (H) in
confidence unless and until such time as such information or
documents otherwise become publicly available or as it is
advised by counsel that any such information or document is
required by law to be disclosed, and in the event of the
termination of this Agreement, it will deliver to the other
party hereto all documents so obtained by it and any copies
thereof;
(I) Neither it nor any of its subsidiaries shall solicit or
encourage inquiries or proposals with respect to, or, subject
to the fiduciary duties of its directors, furnish any
information relating to or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or
a material portion of its assets (whether owned by it directly
or owned by any of its subsidiaries), or of a substantial
equity interest in, it or any business combination with it or
any of its subsidiaries other than as contemplated by this
Agreement and other than in the case of FTNC, a business
combination in which it is as a practical matter the surviving
corporation; and, in the case of CBTC, it shall notify FTNC
immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with,
it or any of its subsidiaries; and it shall instruct its
officers, directors, agents, advisors and affiliates to comply
with the above;
(J) It shall notify the other party hereto as promptly as
practicable of (1) any material breach of any of its
representations, warranties or agreements contained herein and
(2) any change in its condition (financial or otherwise),
properties, business, results of operations or prospects that
could have a Material Adverse Effect;
(K) It shall cooperate and use its best efforts to promptly
prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other
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documents, and to obtain all necessary permits, consents,
approvals and authorizations of all third parties and
governmental bodies or agencies, including, in the case of
FTNC, submission of applications for approval of this
Agreement and the transactions contemplated hereby to the
Board of Governors in accordance with the provisions of the
Bank Holding Company Act of 1956, as amended (the "BHC Act"),
and to such other regulatory agencies as required by law;
(L) It shall (1) permit the other to review in advance and,
to the extent practicable, will consult with the other party
on all characterizations of the information relating to the
other party and any of its respective subsidiaries, which
appear in any filing made with, or written materials submitted
to, any third party or any governmental body or agency in
connection with the transactions contemplated by this
Agreement; and (2) consult with the other with respect to
obtaining all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies or
agencies necessary or advisable to consummate the transactions
contemplated by this Agreement and will keep the other party
apprised of the status of matters relating to completion of
the transactions contemplated herein;
(M) Prior to the Closing, CBTC shall, consistent with
generally accepted accounting principles, modify and change
its and each of its subsidiaries' loan, litigation and real
estate valuation policies and practices (including loan
classifications and levels of reserves) so as to be applied
consistently on a mutually satisfactory basis with those of
FTNC; provided, however, that CBTC shall not be obligated to
take any such action pursuant to this Paragraph (M) unless and
until FTNC acknowledges that all conditions to its obligation
to consummate the Merger have been satisfied;
(N) (1) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil or
administrative, including, without limitation, any such claim,
action, suit, proceeding or investigation in which any person
who is now, or has been at any time prior to the date hereof,
or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of CBTC or any of its
subsidiaries (the "Indemnified Parties") is, or is threatened
to be, made a party based in whole or in part on, or arising
in whole or in part out of, or pertaining to, this Agreement,
or any of the transactions contemplated hereby or thereby,
whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use
their best efforts to defend against and respond thereto. It
is understood and agreed that FTNC shall indemnify and hold
harmless, as and to the fullest extent permitted by applicable
law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable
attorneys' fees and expenses), judgments, fines and amounts
paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), (i) FTNC shall pay
expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to
the fullest extent permitted by law upon receipt of any
undertaking required by applicable law, (ii) the
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Indemnified Parties may retain one firm of counsel
satisfactory to them, and FTNC shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided,
however, that in the event that the defendants in, or targets
of, any such threatened or actual claim, action, suit,
proceeding or investigation include more than one Indemnified
Party, and any Indemnified Party shall have reasonably
concluded based on the opinion of its own counsel, that there
may be one or more legal defenses available to it or to
another Indemnified Party which are in conflict with those
available to FTNC, CBTC or any other Indemnified Party, then
such Indemnified Party may employ separate counsel to
represent or defend it or any other person entitled to
indemnification and reimbursement hereunder with respect to
any such claim, action, suit, proceeding or investigation in
which it or such other person may become involved or is named
as defendant and FTNC shall pay the reasonable fees and
expenses of such counsel and (iii) FTNC will use its best
efforts to assist in the vigorous defense of any such matter,
provided that FTNC shall not be liable for any settlement
effected without its prior written consent (which consent
shall not be unreasonably withheld), and provided further that
FTNC shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become
final and non-appealable, that indemnification of such
Indemnified Party in the manner contemplated hereby is
prohibited by applicable law. Any Indemnified Party wishing
to claim indemnification under this Paragraph (N) of Article
IV hereof upon learning of any such claim, action, suit,
proceeding or investigation, shall notify FTNC thereof,
provided that the failure to so notify shall not affect the
obligations of FTNC under this Paragraph (N) of Article IV
hereof except to the extent such failure to notify materially
prejudices FTNC. Notwithstanding the foregoing, no
indemnification shall be provided the Indemnified Parties
hereunder if the claim, action, suit, proceeding or
investigation arises, in whole or in part, out of any material
misrepresentation contained in this Agreement or material
breach of covenants, representations, warranties or agreements
contained in this Agreement by CBTC or any Indemnified Party;
(2) FTNC and CBTC agree that all rights to indemnification
and all limitations of liability existing in favor of the
Indemnified Parties as provided in CBTC's articles of
incorporation or by-laws, or similar governing documents of
any of its subsidiaries as in effect as of the date hereof
with respect to matters occurring prior to the Effective Time
shall survive the Merger and shall continue in full force and
effect, without any amendment thereto, for a period of not
less than three (3) years from the Effective Time, provided,
however, that all rights to indemnification in respect of any
claim (a "claim") asserted or made within such period shall
continue until the final disposition of such Claim;
(3) This Paragraph (N) of Article IV is intended to benefit
the Indemnified Parties and shall be binding on all successors
and assigns of FTNC;
(4) In the event FTNC or any of its successors or assigns (i)
consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity
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of such consolidation or merger, or (ii) transfers or conveys
all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be
made so that the successors and assigns of FTNC assume the
obligations set forth in this Paragraph (N) of Article IV.
(O) CBTC will use its best efforts to cause the Merger to
qualify for pooling-of-interests accounting treatment;
(P) In the case of CBTC, it shall use its best efforts to
cause each person who is at the Effective Time or was, at the
time of CBTC's stockholders' meeting referred to in Section
(B) of this Article IV, an "affiliate" of CBTC (as that term
is defined in Section (B)(7) of Article V hereof) to execute
and deliver to FTNC the written undertakings in the form
satisfactory to FTNC.
V. CONDITIONS TO CONSUMMATION
(A) The respective obligations of FTNC and CBTC to effect the
Merger shall be subject to the satisfaction prior to the Effective Time of the
following conditions:
(1) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite votes of (i) the
boards of directors or the executive committees upon delegated
authority of the respective boards of directors of FTNC,
Interim Bank and CBTC, and (ii) the shareholders of CBTC and
by FTNC as the sole shareholder of Interim Bank in accordance
with applicable law;
(2) Prior to the date of approval of this Agreement by its
executive committee, CBTC shall have received a letter from
Alex Sheshunoff & Co. to the effect that in the opinion of
such firm, the terms of the transaction are fair to the
shareholders of CBTC from a financial point of view;
(3) The procurement by FTNC of approval of this Agreement and
the transactions contemplated hereby by the Board of
Governors, the Department of Financial Institutions of the
State of Tennessee, the Federal Deposit Insurance Corporation
and the expiration of any statutory waiting periods;
(4) Procurement of all other regulatory consents and
approvals (including, without limitation, any required
consents or approvals from state banking authorities) which
are necessary to the consummation of the transactions
contemplated by this Agreement; provided, however, that no
approval or consent in Paragraphs (A)(3) and (A)(4) of this
Article V shall be deemed to have been received if it shall
include any conditions or requirements which would reduce the
benefits of the transactions contemplated hereby to such a
degree that FTNC or CBTC would not have entered into this
Agreement had such conditions or requirements been known at
the date hereof;
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(5) The satisfaction of all other requirements prescribed by
law which are necessary to the consummation of the
transactions contemplated by this Agreement;
(6) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger;
(7) No statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by
any governmental authority which prohibits, restricts or makes
illegal consummation of the Merger;
(8) The Registration Statement shall have become effective
and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or
threatened by the SEC; and
(9) Heiskell, Donelson, Bearman, Adams, Williams and Caldwell
shall have delivered its opinion dated as of the Effective
Date, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that, accordingly: (i) no gain or loss
will be recognized by FTNC or CBTC as a result of the Merger,
(ii) no gain or loss will be recognized by the shareholders of
CBTC who exchange their shares of CBTC 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 CBTC Common Stock solely for
shares of FTNC Common Stock in the Merger will be the same as
the tax basis of the shares of CBTC 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 CBTC Common Stock surrendered in exchange
therefor were held, provided such shares of CBTC Common Stock
were held as capital assets at the Effective Time. In
rendering such opinion, counsel may require and rely upon
representations contained in certificates of officers of CBTC,
FTNC, Interim Bank and others.
(B) The obligation of FTNC to effect the Merger shall be
subject to the satisfaction prior to the Effective Time of the following
additional conditions:
(1) FTNC and its directors and officers who sign the
Registration Statement shall have received from CBTC's
independent certified public accountants "cold comfort"
letters, dated (i) the date of the mailing of the Proxy
Statement/Prospectus to CBTC's shareholders and (ii) shortly
prior to the Effective Date, with respect to certain financial
information regarding CBTC in the form customarily issued by
such accountants at such time in transactions of this type;
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(2) FTNC shall have received an opinion, dated the Effective
Date, of CBTC's counsel in the form and to the effect
customarily received in transactions of this type;
(3) Each of the representations, warranties and covenants
contained herein of CBTC shall, in all material respects, be
true on, or complied with by, the Effective Date as if made on
such date (or on the date when made in the case of any
representation or warranty which specifically relates to an
earlier date) and FTNC shall have received a certificate
signed by the President and the Treasurer of CBTC, dated the
Effective Date, to such effect;
(4) FTNC shall have received all state securities laws and
"Blue Sky" permits and other authorizations necessary to
consummate the transactions contemplated hereby;
(5) FTNC shall have received a letter dated as of the
Effective Date from its independent certified public
accountants to the effect that the Merger will qualify for
pooling-of-interests accounting treatment if closed and
consummated in accordance with this Agreement;
(6) No litigation or proceeding is pending which (i) has been
brought against FTNC or CBTC or any of their subsidiaries by
any governmental agency seeking to prevent consummation of the
transactions contemplated hereby or (ii) in the reasonable
judgement of the Chief Executive Officer of CBTC is likely to
have a Material Adverse Effect on CBTC; and
(7) Fewer than 10% of the outstanding shares of CBTC Common
Stock shall have been voted against the Merger.
Any effect on CBTC as a result of action taken by CBTC pursuant to Paragraph
(M) of Article IV shall be disregarded for purposes of determining the truth or
correctness of any representation or warranty of CBTC and for purposes of
determining whether any conditions are satisfied.
(8) Each director, executive officer and other person who is
an "affiliate" (for purposes of Rule 145 under the Securities
Act and for purposes of qualifying for "pooling-of-interests"
treatment as described below) of CBTC shall have delivered to
FTNC a written agreement satisfactory to FTNC providing, among
other matters, that such person will not sell, pledge,
transfer or otherwise dispose of any shares of CBTC Common
Stock held by such "affiliate" or the shares of FTNC Common
Stock to be received by such "affiliate" in the Merger (1) in
the case of shares of FTNC Common Stock only, except in
compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder, and (2) during
the periods during which any such sale, pledge, transfer or
other disposition would, under generally accepted accounting
principles or the rules, regulations or interpretations of the
SEC, disqualify the Merger for pooling-of-interests accounting
treatment. The parties understand that such periods in
general encompass the period commencing 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
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<PAGE> 101
of FTNC and CBTC within the meaning of Section 201-01 of the
SEC's Codification of Financial Reporting Policies.
(C) The obligation of CBTC to effect the Merger shall be
subject to the satisfaction prior to the Effective Time of the following
additional conditions:
(1) CBTC shall have received from FTNC's independent
certified public accountants "cold comfort" letters, dated (i)
the date of the mailing of the Proxy Statement/ Prospectus to
CBTC's shareholders, and (ii) shortly prior to the Effective
Date, with respect to certain financial information regarding
FTNC in the form customarily issued by such accountants at
such time in transactions of this type;
(2) CBTC shall have received an opinion, dated the Effective
Date, of FTNC's counsel in the form and to the effect
customarily received in transactions of this type;
(3) Each of the representations, warranties and covenants
contained herein of FTNC shall, in all material respects, be
true on, or complied with by, the Effective Date as if made on
such date (or on the date when made in the case of any
representation or warranty which specifically relates to an
earlier date) and CBTC shall have received a certificate
signed by the President and the Chief Financial Officer of
FTNC, dated the Effective Date, to such effect;
(4) No litigation or proceeding is pending which (i) has been
brought against FTNC or CBTC or any of their subsidiaries by
any governmental agency, seeking to prevent consummation of
the transactions contemplated hereby or (ii) in the reasonable
judgment of the President of FTNC is likely to have a Material
Adverse Effect on FTNC;
VI. TERMINATION
This Agreement may be terminated prior to the Effective Date,
either before or after its approval by the stockholders of CBTC:
(A) By the mutual consent of FTNC and CBTC, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board;
(B) By FTNC or CBTC, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event of the
failure of the shareholders of CBTC to approve this Agreement by the requisite
vote at its meeting called to consider such approval, or a material breach by
the other party hereto of any representation, warranty or agreement contained
herein which is not cured or not curable within 60 days after written notice of
such breach is given to the party committing such breach by the other party
hereto;
(C) By FTNC or CBTC, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event that
the Merger is not consummated by one year from
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<PAGE> 102
date of Agreement unless the failure to so consummate by such time is due to
the breach of this Agreement by the party seeking to terminate; or
(D) By CBTC, if its Board of Directors so determines, if the
FTNC Common Stock Average Price is less than $34.50 by written notice to FTNC
delivered within fifteen (15) days after the last day of the Calculation
Period.
In the event of the termination of this Agreement by either
FTNC or CBTC, as provided above, this Agreement shall thereafter become void
and there shall be no liability on the part of any party hereto or their
respective officers or directors, except that any such termination shall be
without prejudice to the rights of any party hereto arising out of the willful
breach by any other party of any covenant or willful misrepresentation
contained in this Agreement.
VII. EFFECTIVE DATE AND EFFECTIVE TIME
On the last business day of the month during which the
expiration of all applicable waiting periods in connection with governmental
approvals occurs and all conditions to the consummation of this Agreement are
satisfied or waived, or on such earlier or later date as may be agreed by the
parties, a certificate of merger shall be executed in accordance with all
appropriate legal requirements and shall be filed as required by law, and the
Merger provided for herein shall become effective upon such filing or on such
date as may be specified in such certificate of merger. The date of such
filing or such later effective date is herein called the "Effective Date". The
"Effective Time" of the Merger shall be 4:01 P.M. in the State of Tennessee on
the Effective Date (or such other time on the Effective Date as may be agreed
by the parties).
VIII. OTHER MATTERS
(A) Certain Definitions. As used in this Agreement, the
following terms shall have the meanings indicated:
(1) "Material Adverse Effect," with respect to a person,
means any condition, event, change or occurrence that,
individually or collectively, is reasonably likely to have a
material adverse effect upon (x) the condition, financial or
otherwise, properties, business, results of operations or
prospects of such person and its subsidiaries, taken as a
whole, or (y) the ability of such person to perform its
obligations under, and to consummate the transactions
contemplated by, this Agreement and, in the case of CBTC, the
Option Agreement; provided, however, that as to the
representations and warranties made by CBTC in Article III,
Section (U)(1), (2) and (3), a Material Adverse Change shall
have occurred if the reasonably projected costs of remediation
and/or the cost of all fines, penalties, costs or expenses to
which CBTC is or may be subject under Environmental Laws as a
result of any one or more breaches of such representations and
warranties exceed $500,000 in the aggregate.
(2) "Person" includes an individual, corporation,
partnership, association, trust or unincorporated
organization.
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<PAGE> 103
(B) Survival. The agreements and covenants of the parties
which by their terms apply in whole or in part after the Effective Time shall
survive the Effective Date. All other representations, warranties, agreements
and covenants shall be deemed to be conditions of this Agreement and shall not
survive the Effective Date. If this Agreement shall be terminated, the
agreements of the parties in Paragraph (H)(3) of Article IV, in the last
unlettered paragraph of Article VI and Paragraphs (F) and (G) of this Article
shall survive such termination.
(C) Amendment; Modification; Waiver. Prior to the Effective
Date, any provision of this Agreement may be (i) waived by the party benefitted
by the provision or by both parties or (ii) amended or modified at any time
(including the structure of the transaction) by an agreement in writing between
the parties hereto approved by their respective Boards of Directors (to the
extent allowed by law), except that, after the vote by the shareholders of
CBTC, Paragraph (B) of Article I shall not be amended or revised.
(D) Counterparts. This Agreement may be executed in
counterparts each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
(E) Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Tennessee.
(F) Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby, except printing expenses which shall be shared equally.
(G) Disclosure. Each of the parties and its respective
agents, attorneys and accountants will maintain the confidentiality of all
information provided in connection herewith which has not been publicly
disclosed unless it is advised by counsel that any such information is required
by law to be disclosed.
(H) Notices. All notices, requests, acknowledgements and
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
<TABLE>
<S> <C>
IF TO CBTC, TO: Cleveland Bank & Trust Company
775 Raider Drive, N.W.
Cleveland, Tennessee 37312
ATTN: W. Sam McReynolds
With Copies to: Mike Callaway
Bell and Associates
P.O. Box 1169
Cleveland, Tennessee 37364-1169
</TABLE>
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<PAGE> 104
<TABLE>
<S> <C>
IF TO FTNC, TO: FIRST TENNESSEE NATIONAL
CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Elbert L. Thomas, Jr.
With Copies to: HEISKELL, DONELSON, BEARMAN,
ADAMS, WILLIAMS & CALDWELL
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
ATTN: Charles T. Tuggle, Jr.
FIRST TENNESSEE NATIONAL
CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
ATTN: Harry A. Johnson, III
</TABLE>
(I) No Third Party Beneficiaries. All terms and provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Except as
expressly provided for herein, nothing in this Agreement is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
(J) Due Diligence. Notwithstanding anything to the contrary
herein, it is understood and agreed that at the date of execution of this
Agreement, neither party has had an opportunity to make an investigation or
analysis of the branches, deposits, loans and other assets, contracts and
records of the other party and FTNC has not had the opportunity to compile
Schedule 1 hereto. No later than thirty (30) days after the execution of this
Agreement, each party shall have provided the other party with all documents
and disclosures constituting Annexes to be provided by such party. No later
than thirty (30) days after the date of execution of this Agreement, each party
shall have completed its investigation and analysis of the other party
(provided, that such time may be extended by each party if the other party's
records are not made available in a timely manner). Either party may terminate
this Agreement at any time prior to the fortieth (40th) day after the date of
execution of this Agreement without any liability in the event that it makes a
discovery with respect to the financial condition, business, properties or
prospects, assets, or results of operations of the other party which in the
reasonable good faith judgment of such party materially and adversely affects
one or more of the economic bases of the transactions contemplated hereby so as
to render inadvisable the consummation of the Merger [provided, however, that
the results of any investigation shall in no way modify the other party's
covenants under Section IV(H) of this Agreement]. Failure to terminate this
Agreement in accordance with the preceding sentence shall not affect the
ability of FTNC or CBTC to terminate this Agreement as provided in Article VI.
Prior to the Effective Time, each party will promptly amend its Annexes with
respect to any matter which if existing, occurring or known at the date hereof
would have been required to be set forth in such Annexes or which is necessary
to correct any information therein which has been rendered incorrect or
incomplete.
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<PAGE> 105
(K) Entire Agreement. This Agreement, together with the
Option Agreement, represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made.
(L) Assignment. This Agreement may not be assigned by any
party hereto without the written consent of the other parties.
(M) Directors' Shares. To the extent that directors'
qualifying shares shall exist with respect to CBTC, CBTC shall take such action
with respect to such shares as FTNC shall reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed in counterparts by their duly authorized officers as
of the day and year first above written.
FIRST TENNESSEE NATIONAL CORPORATION
By:/s/ Elbert L. Thomas, Jr.
------------------------------------
Title: Senior Vice President
------------------------------------
FTNC
CLEVELAND BANK & TRUST COMPANY
By: /s/ W. S. McReynolds
-----------------------------------
Title: Chairman
-----------------------------------
CBTC
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<PAGE> 106
ANNEX 1
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 23, 1993 (this
"Agreement"), by and between CLEVELAND BANK & TRUST COMPANY, a Tennessee
corporation ("Issuer"), and FIRST TENNESSEE NATIONAL CORPORATION, a Tennessee
corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger dated as of the date hereof (the "Merger Agreement"); and
WHEREAS, as a condition to Grantee's entry into the Merger
Agreement and in consideration for such entry, Issuer has agreed to grant
Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and their
mutual promises and obligations hereunder, and their promises and obligations
under the Merger Agreement, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an irrevocable option
(the "Option") to purchase, subject to the terms hereof, 19,900 fully paid
and nonassessable shares of common stock, par value $1.00 per share (the
"Common Stock"), of Issuer at a price (the "Option Price") equal to $222.04.
The number of shares of the Common Stock that may be received upon the exercise
of the Option and the Option Price are subject to adjustment as hereinafter set
forth; provided, however, that in no event shall the number of shares for which
the Option is exercisable exceed the sum of 19.9% of the Issuer's issued and
outstanding shares of Common Stock less the number of shares of Common Stock
owned by the Grantee for its own account ("Grantee Shares").
(b) In the event that any additional shares of the Common
Stock are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement), the number of shares of the
Common Stock subject to the Option shall be increased so that, after such
issuance, such number (plus any outstanding shares previously issued pursuant
to the Option) equals 19.9% of the number of shares of the Common Stock then
issued and outstanding. Nothing contained in this Section 1(b) or elsewhere in
this Agreement (including, without limitation, Sections 5, 8 and 9) shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (g) of this Section 2)
within 30 days following such Subsequent Triggering Event.
(b) The term "Holder" shall mean the holder or holders of the
Option as permitted or provided for in this Agreement.
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<PAGE> 107
(c) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any subsidiary of Issuer shall
have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (other
than Grantee or a subsidiary of Grantee), or the Board of
Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition
Transaction (other than that contemplated by the Merger
Agreement). The term "Acquisition Transaction" shall mean (x)
a merger or consolidation, or any similar transaction,
involving Issuer or any Significant Subsidiary (as hereinafter
defined) of Issuer, (y) a purchase, lease or other acquisition
of all or any substantial part of the assets of Issuer or any
Significant Subsidiary of Issuer or (z) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more
of the voting power of Issuer or any Significant Subsidiary of
Issuer. The term "person" for purposes of this Agreement
shall have the meaning assigned thereto in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations thereunder;
(ii) Any person (other than Grantee, a
subsidiary of Grantee or Grantee or any subsidiary acting
under any employee benefit plan for Grantee or any of its
subsidiaries) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the
outstanding shares of the Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder);
(iii) Any person (other than Grantee or a
subsidiary of Grantee) shall have made a bona fide proposal to
Issuer or its shareholders by public announcement or written
communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) After a proposal is made by any person
(other than Grantee or a subsidiary of Grantee) to Issuer or
its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach would
entitle Grantee to terminate the Merger Agreement (without
regard to the cure periods provided for therein) and such
breach shall not have been cured prior to the Notice Date (as
defined below); or
(v) Any person (other than Grantee or a
subsidiary of Grantee), shall have filed an application or
notice with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), or other federal or
state bank regulatory authority, which application or notice
has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(d) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
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<PAGE> 108
(i) The acquisition by any person of
beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial
Triggering Event described in clause (i) of subsection (c) of
this Section 2, except that the percentage referenced in
clause (z) shall be 25%.
(e) Each of the following shall be an Exercise Termination
Event: (i) the Effective Time of the Merger, (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event or (iii) the passage of
18 months after termination of the Merger Agreement if such termination follows
the occurrence of an Initial Triggering Event.
(f) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event and of any Subsequent Triggering
Event, provided that the giving of such notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(g) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise, and (ii) a place
and date for the closing of such purchase (the "Closing Date") that is not
earlier than three business days nor later than 30 business days from the
Notice Date; provided, however, that if any regulatory approval or regulatory
notice or waiting period is required, the written notice shall indicate that
the Closing Date shall be no later than the fifth business day after all
requisite regulatory approvals for such exercise have been received and all
notice or waiting periods have expired; provided, further, that the Holder
shall promptly file any required notice or application for approval and shall
expeditiously process the same. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(h) At the closing referred to in subsection (g) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of the Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(i) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (h) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of the Common Stock purchased by the Holder. If the
Option should be exercised in part only, the Holder shall retain the right
under this Agreement and the Option to purchase the balance of the shares
purchasable hereunder.
(j) Certificates for the Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended, a copy
of which agreement is on
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<PAGE> 109
file at the principal office of Issuer. A copy of such
agreement will be provided to the holder hereof without charge
upon receipt by Issuer of a written request."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the Securities and Exchange Commission, or an opinion of counsel,
in form and substance reasonably satisfactory to Issuer, to the effect that
such legend is not required for purposes of the Securities Act; and (ii) the
reference to the provisions to this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference.
(k) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option as provided in subsection (g) of this Section
2 and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees (i) that it shall at all times maintain,
free from preemptive or similar rights, sufficient authorized but unissued or
treasury shares of the Common Stock so that the Option may be exercised without
additional authorization of the Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase the
Common Stock, (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of
any of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time to time
be required (including (x) complying with all premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section
18a and regulations promulgated thereunder and (y) cooperating fully with the
Holder in preparing any applications or notices required under the Bank Holding
Company Act of 1956, as amended, or the Change in Bank Control Act of 1978, as
amended, or any state banking law) in order to permit the Holder to exercise
the Option and Issuer duly and effectively to issue shares of the Common Stock
pursuant hereto, and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options for different numbers of shares of Common
Stock, provided that all such Options entitle the holder thereof to purchase in
the aggregate the same number of shares of the Common Stock as are purchasable
hereunder. The terms "Agreement" and "Option" as used herein include any
Agreements and related Options for which this Agreement (and the option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if
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<PAGE> 110
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
the Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1(b) of this Agreement, the number of shares of the Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment from
time to time as provided in this Section 5.
(a) (i) In the event of any change in the Common Stock by
reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type and number of shares
of the Common Stock purchasable upon exercise hereof shall be
appropriately adjusted.
(ii) Issuer may make such increases in the
number of shares of the Common Stock purchasable upon exercise
hereof, in addition to those required under subsection (a)(i),
as shall be determined by its Board of Directors to be
advisable in order to avoid taxation so far as practicable of
any dividend of stock or stock rights or any event treated as
such for Federal income tax purposes to the recipients,
(b) Whenever the number of shares of the Common Stock
purchasable upon exercise hereof is adjusted as provided in this Section 5, the
Option Price shall be adjusted by multiplying the Option Price by a fraction,
the numerator of which is equal to the number of shares of the Common Stock
purchasable prior to the adjustment and the denominator of which is equal to
the number of shares of the Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 30 days after the date on which Grantee obtains
knowledge of such Subsequent Triggering Event (whether on its own behalf or on
the behalf of any subsequent holder of this Option (or part thereof) or any of
the shares of the Common Stock issued pursuant hereto), promptly prepare, file
and keep current a shelf registration statement under the Securities Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition
of this Option and any shares of the Common Stock issued upon total or partial
exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its best efforts to cause
such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective and to be in compliance with all
other applicable state and federal securities laws.
7. (a) Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, (i) at the request of the
Holder, delivered within 30 days of the Subsequent Triggering Event (or such
later period as may be provided pursuant to Section 10), Issuer shall
repurchase the Option from the Holder at a price (the "Option Repurchase
Price") equal to (x) the amount by which the market price (as defined below)
exceeds the Option Price, multiplied by (y) the number of
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<PAGE> 111
shares for which this Option may then be exercised and (ii) at the request of
the owner of Option Shares from time to time (the "Owner"), delivered within 30
days of a Subsequent Triggering Event (or such later period as may be provided
pursuant to Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option
Share Repurchase Price") equal to the market/offer price multiplied by the
number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made after the date hereof, (ii) the
price per share of Common Stock to be paid by any third party pursuant to an
agreement with Issuer, (iii) the highest price paid for shares of Common Stock
within the 30-day period immediately preceding the date the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the event
of a sale of all or substantially all of Issuer's assets, the sum of the price
paid in such sale for such assets and the current market value of the remaining
assets of Issuer as determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be, divided by the
number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking
firm selected by the Holder or Owner, as the case may be, whose determination
shall be conclusive and binding on all parties.
(b) The Holder or the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares,
as applicable, accompanied by a written notice or notices stating that the
Holder or the Owner, as the case may be, elects to require Issuer to repurchase
the Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited from so delivering under applicable
law and regulation or as a consequence of administrative policy.
(c) To the extent that Issuer is prohibited under applicable
law or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to Section 7(b) is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in full
(and Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder or Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case,
Issuer shall promptly (i) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer
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<PAGE> 112
is not prohibited from delivering and (ii) deliver, as appropriate, either (A)
to the Holder, a new Agreement evidencing the right of the Holder to purchase
that number of shares of Common Stock obtained by multiplying the number of
shares of Common Stock for which the surrendered Agreement was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option Repurchase
Price, or (B) to the Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
8. (a) In the event that, prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee, to merge into Issuer and Issuer shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of the Common Stock shall be changed into or exchanged
for stock or other securities of any other person or cash or any other property
or the then outstanding shares of the Common Stock shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
continuing or surviving company, (iii) to sell or otherwise transfer all or any
substantial part of its assets or the assets of its Subsidiaries (on a
consolidated basis) to any person (other than Grantee), or (iv) to enter into a
transaction with an economic effect similar to that described in clauses
(i)-(iii), then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as hereinafter defined), (y) any person that controls the
Acquiring Corporation, or (z) in the case of a merger described in clause
(a)(ii), Issuer.
(b) The Substitute Option shall have the same terms as the
Option; provided, however, that if the terms of the Substitute Option cannot,
for legal reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(c) The Substitute Option shall be exercisable for such
number of shares of the Substitute Common Stock (as is hereinafter defined) as
is equal to the Assigned Value (as is hereinafter defined) multiplied by the
number of shares of the Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute Common
Stock shall then be equal to the Option Price multiplied by a fraction in which
the numerator is the number of shares of the Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(d) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i)
the continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (ii) Issuer in
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<PAGE> 113
a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or any substantial
part of Issuer's assets (or the assets of its subsidiaries).
(ii) "Substitute Common Stock" shall mean
the common stock issued by the issuer of the Substitute Option
upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the
highest of (i) the price per share of the Common Stock at
which a tender offer or exchange offer therefor has been made
by any person (other than Grantee), (ii) the price per share
of the Common Stock to be paid by any person (other than
Grantee) pursuant to an agreement with Issuer, and (iii) the
highest price paid for shares of the Common Stock within the
six-month period immediately preceding the agreement;
provided, however, that in the event of a sale of less than
all of Issuer's assets, the Assigned Value shall be the sum of
the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined
by a nationally recognized investment banking firm selected by
the Holder (or by a majority in interest of the Holders if
there shall be more than one Holder (a "Holder Majority"),
divided by the number of shares of the Common Stock of Issuer
outstanding at the time of such sale. In the event that an
exchange offer is made for the Common Stock or an agreement is
entered into for a merger or consolidation involving
consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for the
Common Stock shall be determined by a nationally recognized
investment banking firm mutually selected by the Holder and
Issuer, provided that if a mutual selection cannot be made as
to such investment banking firm, it shall be selected by the
Holder (or a Holder Majority).
(iv) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for
the one year immediately preceding the consolidation, merger
or sale in question, but in no event higher than the closing
price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided,
however, that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a
share of common stock issued by Issuer, the person merging
into Issuer or by any company which controls or is controlled
by such merging person, as the Holder may elect.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the aggregate
of the shares of the Substitute Common Stock outstanding prior to exercise of
the Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the aggregate of the shares of Substitute
Common Stock but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option
after giving effect to the limitation in this clause (e). This difference in
value shall be determined by a nationally recognized investment banking firm
selected by the Holder (or a Holder Majority).
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in
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<PAGE> 114
writing all the obligations of Issuer hereunder and take all other actions that
may be necessary so that the provisions of this Section 8 are given full force
and effect (including, without limitation, any action that may be necessary so
that the shares of Substitute Common Stock are in no way distinguishable from
or have lesser economic value than other shares of common stock issued by the
issuer of the Substitute Option).
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of the Substitute
Common Stock for which the Substitute Option may then be exercised, and at the
request of the owner (the "Substitute Share Owner") of shares of the Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Issuer shall
repurchase the Substitute Shares at a price per share (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price. The term "Highest
Closing Price" shall mean the highest closing price for shares of the
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of
the Substitute Option or the Substitute Share owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) or certificates for Substitute Shares (as the case may be)
accompanied by a written notice or notices stating that the Substitute Option
Holder or the Substitute Share Owner (as the case may be) elects to require the
Substitute Option Issuer to repurchase the Substitute Option or the Substitute
Shares (as the case may be) in accordance with provisions of this Section 9.
As promptly as practicable, and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price or to the
Substitute Share Owner the Substitute Share Repurchase Price (as the case may
be) or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full (and the Substitute Option Issuer shall
use its best efforts to obtain all required regulatory and legal approvals and
concurrences and to file any required notices as promptly as practicable in
order to accomplish such repurchase), the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner (a "Substitute Limitation Notice") and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price that it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer delivers a Substitute Limitation
Notice, the Substitute Option Holder
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<PAGE> 115
or Substitute Share Owner may revoke its notice of repurchase of the Substitute
Option or the Substitute Shares, whereupon the Substitute Option Issuer shall
promptly return to the Substitute Option Holder the agreement for such
Substitute Option (or copy of this Agreement if delivered by the Substitute
Option Holder) or such certificates, as the case may be, and the Substitute
Option Issuer shall have no further obligation to purchase such Substitute
Option or Substitute Shares pursuant to the notice of repurchase that preceded
the Limitation Notice.
10. The 30-day period for exercise of certain rights under
Sections 2, 6 and 11 shall be extended in each such case: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights
and for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the Exchange Act by reason
of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer 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 and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the part
of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of the Common Stock equal to the maximum number of shares of the Common
Stock at any time and from time to time that are issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and not subject to any
preemptive rights.
12. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Assignment Option
created hereunder to any other person, without the express written consent of
the other party, except that in the event a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event, Grantee, subject to the
express provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 30 days following such Subsequent Triggering Event
(or such later period as permitted by Section 10); provided, however, that
until the date 30 days following the date on which the Federal Reserve Board
approves an application by Grantee under the Bank Holding Company Act to
acquire the shares of the Common Stock subject to the Option, Grantee may not
assign its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (iii) an assignment
to a single party (e.g., a broker or investment banker) for the purpose of
conducting a widely dispersed public distribution on Grantee's behalf, or (iv)
any other manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the
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<PAGE> 116
transactions contemplated by this Agreement, including without limitation
applying to the Federal Reserve Board under the Bank Holding Company Act for
approval to acquire the shares issuable hereunder.
14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
15. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or the
Substitute Option Issuer is not permitted to repurchase pursuant to Section 8,
the full number of shares of the Common Stock provided in Section 1(a) hereof
(as adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention
of Issuer to allow the Holder to acquire or to obligate the Issuer and the
Substitute Option Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
16. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
17. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
18. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
19. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
20. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
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<PAGE> 117
21. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement,
provided that references to "Significant Subsidiaries" of "Grantee" and
"Issuer" shall be deemed to refer to Significant Subsidiaries of Grantee and
Issuer, respectively.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
FIRST TENNESSEE NATIONAL CORPORATION
By:/s/ Elbert L. Thomas, Jr.
---------------------------------
Name: Elbert L. Thomas, Jr.
Title: Senior Vice President
CLEVELAND BANK & TRUST COMPANY
By:/s/ W. S. McReynolds
----------------------------------
Name: W. S. McReynolds
Title: Chairman
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<PAGE> 118
APPENDIX "B"
<PAGE> 119
APPENDIX "B"
ALEX SHESHUNOFF & CO. INVESTMENT BANKING
August 13, 1993
Board of Directors
Cleveland Bank and Trust Company
P. O. Box 4170
Cleveland, TN 37320-4170
Gentlemen:
You have requested our opinion, as an independent financial analyst, as to
whether the terms of the proposed merger of Cleveland Bank and Trust Company,
Cleveland, Tennessee ("Cleveland") into First Tennessee National Corporation,
Memphis, Tennessee ("FTNC") are fair, from a financial point of view, to the
Cleveland Common Stockholders. Pursuant to the terms of the Plan and Agreement
of Merger, each share of Cleveland Common Stock issued and outstanding shall
be converted into the right to receive the number of shares of FTNC Common
Stock equal to the Conversion Number. The "Conversion Number" shall be equal
to the quotient of $438.00 divided by the FTNC Common Stock Average Price;
provided, however, if such quotient would otherwise be less than 10.5011 it
shall be 10.5011 and if such quotient would otherwise exceed 12.6957 it shall
be 12.6957.
As part of its banking analysis business, Alex Sheshunoff & Co. is
continually engaged in the valuation of bank and bank holding company
securities in connection with mergers and acquisitions nationwide. Prior to
being retained for this assignment, Alex Sheshunoff & Co. has provided
professional services and products to Cleveland. The revenues derived from
such services and products are insignificant when compared to the firm's total
gross revenues.
In connection with this assignment, we (i) reviewed the Merger Agreement
between Cleveland and FTNC; (ii) reviewed the June 30, 1993 Report of Condition
and Income for each organization and the audited December 31, 1992 Balance
Sheet and Income Statements for each organization; (iii) reviewed each
organization's listing of marketable securities showing rate, maturity and
market value as compared to book value; (iv) reviewed each organization's
internal loan classification list; (v) reviewed a listing of other real estate
owned for each organization; (vi) reviewed the budget and long range operating
plan of each organization; (vii) reviewed the listing and description of
significant real properties for each organization; (viii) reviewed material
leases on real and personal property; and (ix) reviewed market conditions and
current trading levels of outstanding equity securities of both organizations.
<PAGE> 120
Board of Directors
Cleveland Bank and Trust Company
August 13, 1993
Page 2
We have also had discussions with the management of Cleveland and FTNC
regarding their respective financial results and have analyzed the most current
financial data available on Cleveland and FTNC. We also considered such other
information, financial studies, analyses and investigations, and economic and
market criteria which we deemed relevant. We have met with the management of
Cleveland and FTNC to discuss the foregoing information with them.
We have considered certain financial data of Cleveland and FTNC, and have
compared that data with similar data for other banks and bank holding companies
which have recently merged or been acquired; furthermore, we have considered
the financial terms of these business combinations involving said banks and
bank holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of Cleveland
or FTNC.
In reaching our opinion we took into consideration the financial benefits of
the proposed transaction to all Cleveland Common Stockholders. Based on all
factors that we deem relevant and assuming the accuracy and completeness of the
information and data provided to us by Cleveland and FTNC, it is our opinion as
of August 13, 1993, that the proposed transaction is fair and equitable to all
Cleveland Common Stockholders from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
By: Thomas R. Mecredy
---------------------
Thomas R. Mecredy
Senior Vice President
<PAGE> 121
APPENDIX "C"
Sections 45-2-1309 of the
Tennessee Code Annotated
45-2-1309. DISSENTING STOCKHOLDERS. --
(a) The owner of shares of a state bank, which were voted against
a merger to result in a state bank, or against the conversion of a state bank
into a national bank, shall be entitled to receive their value in cash, if and
when the merger or conversion becomes effective, upon written demand, made to
the resulting state or national bank at any time within thirty (30) days after
the effective date of the merger or conversion accompanied by the surrender of
the stock certificates. In the case of a merger of a bank in financial
difficulty with another bank as allowed by this part, the stockholders of the
continuing bank shall also be entitled to such dissenters' rights. The value
of such shares shall be determined, as of the date of the stockholders' meeting
approving the merger or conversion, by three (3) appraisers, one (1) to be
selected by the owners of two thirds (2/3) of the shares involved, one (1) by
the board of directors of the resulting state or national bank, and the third
by the two (2) so chosen. The valuation agreed upon by any two (2) appraisers
shall govern. If the appraisal is not completed within ninety (90) days after
the merger or conversion becomes effective, the commissioner shall cause an
appraisal to be made.
(b) The expenses of appraisal shall be paid by the resulting state
bank.
(c) The resulting state or national bank may fix an amount which
it considers to be not more than the fair market value of the shares of a
merging or the converting bank at the time of the stockholders' meeting
approving the merger or conversion, which it will pay dissenting shareholders
of that bank entitled to payment in cash. The amount due under such accepted
offer or under the appraisal shall constitute a debt of the resulting state or
national bank.
C-1
<PAGE> 122
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, incorporated by reference to Exhibit 3(a) to FTNC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
3(ii) Bylaws of FTNC, as amended.*
4(a) Form of common stock certificate, incorporated herein by
reference to Exhibit 3(B) to FTNC's registration
statement on Form S-4 (No. 33-51223), filed 11-30-93.
4(b) Shareholder Protection Rights Agreement, dated as of September 7, 1989, between FTNC and FTB as Rights
Agent, incorporated by reference to FTNC's Registration Statement on Form 8-A, filed September 8, 1989
4(c) Indenture, dated as of June 1, 1987, between FTNC and Security Pacific National Trust Company (New York),
Trustee incorporated by reference to FTNC's Annual Report on Form 10-K for the fiscal year ended December
31, 1991
4(d) FTNC and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 13 on
page 34 of FTNC's 1992 Annual Report to Shareholders. None of such debt exceeds 10% of the total assets of
FTNC and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of
holders of such debt are not required to be included as exhibits. FTNC agrees to furnish copies of such
instruments to the SEC upon request.
5 Opinion Regarding Legality
</TABLE>
II-1
<PAGE> 123
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
8 Opinion Regarding Tax Matters
23(a) Consent of Arthur Andersen & Co.*
23(b) Consent of Arthur Andersen & Co.*
23(c) Consent of Baylor and Backus*
23(d) Consent of Ernst & Young*
23(e) Consent of Alex Sheshunoff & Co.*
23(f) Consents of Heiskell, Donelson, Bearman, Adams, Williams & Caldwell included in Exhibit 8
23(g) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney*
99(a) Opinion of Alex Sheshunoff & Co. (included as Appendix "B" to the Proxy Statement-Prospectus)
99(b) Form of Proxy for Special Meeting of Shareholders of CBTC
(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 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;
II-2
<PAGE> 124
(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 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> 125
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee, on January 4, 1994.
FIRST TENNESSEE NATIONAL CORPORATION
By:James F. Keen
----------------------------------------
James F. Keen, Senior Vice President and
Controller
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and January 4, 1994
- ---------------------------------- Chief Executive Officer (principal
Ronald Terry executive officer)
* Executive Vice President and January 4, 1994
- ---------------------------------- Chief Financial Officer (principal
Susan Schmidt Bies financial officer)
* Senior Vice President and January 4, 1994
- ---------------------------------- Controller (principal
James F. Keen accounting officer)
* Director January 4, 1994
- ----------------------------------
Jack A. Belz
Director
- ----------------------------------
Robert C. Blattberg
* Director January 4, 1994
- ----------------------------------
John Hull Dobbs
* Director January 4, 1994
- ----------------------------------
Ralph Horn
* Director January 4, 1994
- ----------------------------------
J. R. Hyde, III
* Director January 4, 1994
- ----------------------------------
Joseph Orgill, III
* Director January 4, 1994
- ----------------------------------
Cameron E. Perry
</TABLE>
II-4
<PAGE> 126
<TABLE>
<S> <C> <C>
* Director January 4, 1994
- ----------------------------------
Richard E. Ray
Director
- ----------------------------------
Vicki G. Roman
Director
- ----------------------------------
Michael D. Rose
* Director January 4, 1994
- ----------------------------------
William B. Sansom
* Director January 4, 1994
- ----------------------------------
Gordon P. Street
* Director January 4, 1994
- ----------------------------------
Ronald Terry
* Director January 4, 1994
- ----------------------------------
Norfleet R. Turner
By: Clyde A. Billings, Jr. January 4, 1994
-----------------------------
Clyde A. Billings, Jr.
*As Attorney-in-Fact
</TABLE>
[The Power of Attorney is included herein as Exhibit 24.]
II-5
<PAGE> 127
Exhibit Index to Registration Statement on S-4
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
2 Agreement and Plan of Merger (included as Appendix "A"
to the Proxy Statement-Prospectus)
3(i) Restated Charter of FTNC, as amended, incorporated by
reference to Exhibit 3(a) to FTNC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
3(ii) Bylaws of FTNC, as amended.*
-----
4(a) Form of Common Stock Certificate, incorporated by
reference to Exhibit 4(a) to FTNC's registration
statement on Form S-4 (No. 33-51223), filed
November 30, 1990.
4(b) Shareholder Protection Rights Agreement, dated
as of September 7, 1989, between FTNC and FTB
as Rights Agent, incorporated by reference to
FTNC's Registration Statement on Form 8-A,
filed September 8, 1989
4(c) Indenture, dated as of June 1, 1987, between
FTNC and Security Pacific National Trust
Company (New York), Trustee, incorporated by
reference to FTNC's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991
4(d) FTNC and certain of its consolidated subsidiaries
have outstanding certain long-term debt. See
Note 13 on page 34 of FTNC's 1992 Annual Report
to Shareholders. None of such debt exceeds 10%
of the total assets of FTNC and its consolidated
subsidiaries. Thus, copies of constituent
instruments defining the rights of holders of such
debt are not required to be included as exhibits.
FTNC agrees to furnish copies of such instruments
to the SEC upon request.
5 Opinion Regarding Legality
-----
8 Opinion Regarding Tax Matters
-----
23(a) Consent of Arthur Andersen & Co.*
-----
23(b) Consent of Arthur Andersen & Co.*
-----
23(c) Consent of Baylor and Backus*
-----
23(d) Consent of Ernst & Young*
-----
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
Sequential
Page Number
-----------
<S> <C> <C>
23(e) Consent of Alex Sheshunoff & Co.*
-----
23(f) Consent of Heiskell, Donelson, Bearman, Adams,
Williams & Caldwell included in Exhibit 8
23(g) Consent of Clyde A. Billings, Jr. included in Exhibit 5.
24 Powers of Attorney*
-----
99(a) Opinion of Alex Sheshunoff & Co. (included as
Appendix "B" to the Proxy Statement-Prospectus)
99(b) Form of Proxy for Special Meeting of
Shareholders of CBTC
-----
* Previously filed
</TABLE>
<PAGE> 1
EXHIBIT 2
Agreement and Plan of Merger (included as Appendix "A" to the Proxy Statement
Prospectus)
OMITTED ANNEXES
Pursuant to Item 601(b)(2) of Regulation S-K the annexes to Exhibit 2 of
this Registration Statement have been omitted.
Set forth below is a list of such omitted annexes.
Annex 1 - Stock Option Agreement (included as annex to Appendix "A").
Annex 2 - Schedule of FTNC stock reserved for issuance or with respect to
which commitments exist.
Annex 3 - Schedule of CBTC stock reserved for issuance or with respect to
which commitments exist.
Annex 4 - Significant subsidiaries of FTNC.
Annex 5 - Significant subsidiaries of CBTC.
Annex 6 - Unfiled material contracts of FTNC.
Annex 7 - Unfiled material contracts of CBTC.
Annex 8 - Amendments to any CBTC Rights Agreement.
<PAGE> 1
EXHIBIT 5
Clyde A. Billings, Jr.
Vice President and Counsel
FIRST TENNESSEE NATIONAL CORPORATION
P.O. Box 84
Memphis, TN 38101
(901) 523-5679
Cable FIRBANK
January 3, 1994
Board of Directors
First Tennessee National Corporation
165 Madison Avenue
Memphis, TN 38103
Gentlemen:
I have acted as counsel to First Tennessee National Corporation, a
Tennessee corporation (the "Company"), in connection with the registration on
Form S-4, Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), of 1,269,570 shares (the
"Securities") of Common Stock, par value $2.50 per share, of the Company, and
associated stock purchase rights (the "Rights") to be issued pursuant to the
Shareholder Protection Rights Agreement dated as of September 7, 1989 (the
"Rights Agreement") between the Company and First Tennessee Bank National
Association, as Rights Agent (the "Rights Agent"). The Securities are to be
issued to shareholders of the common stock of Cleveland Bank & Trust Company
("CBTC") pursuant to the terms of the Agreement and Plan of Merger dated as of
July 23, 1993, by and between the Company and CBTC (the "Agreement"), in
exchange for shares of CBTC's common stock owned by such shareholders. I have
examined the originals or copies, certified or otherwise identified to my
satisfaction, of such corporate records, certificates and other documents, and
such questions of law, as I have considered necessary or appropriate the
purposes of this opinion.
Upon the basis of such examination, it is my opinion that:
1. When the Securities have been duly issued pursuant to the
terms of the Agreement, the Securities will be validly issued,
fully paid and non-assessable.
<PAGE> 2
Board of Directors
Page 2
January 3, 1994
2. Assuming that the Rights Agreement has been duly authorized,
executed and delivered by the Rights Agent, then when the
Securities have been validly issued, the rights attributable
to the Securities will be validly issued.
In connection with my opinion set forth in paragraph (2) above, I note
that the question whether the Board of Directors of the Company might be
required to redeem the Rights at some future time will depend upon the facts
and circumstances existing at that time and, accordingly, is beyond the scope
of such opinion.
The foregoing opinion is limited to the federal laws of the United
States and the laws of the State of Tennessee, and I am expressing no opinion
as to the effect of the laws of any other jurisdiction.
In rendering the foregoing opinion, I have relied to the extent I deem
such reliance appropriate as to certain matters on statements, representations
and other information obtained from public officials, officers of the Company
and other sources believed by me to be responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to me in the Prospectus that is a
part of the Registration Statement. In giving such consent, I do not thereby
admit that I am in the category of persons whose consent is required under
Section 7 of the Act.
Very truly yours,
Clyde A. Billings, Jr.
Clyde A. Billings, Jr.
<PAGE> 1
EXHIBIT 8
LAW OFFICES
HEISKELL, DONELSON, BEARMAN, ADAMS, WILLIAMS & CALDWELL
A PROFESSIONAL CORPORATION
TWENTIETH FLOOR [bullet] FIRST TENNESSEE BUILDING
165 MADISON AVENUE
MEMPHIS, TENNESSEE 38103
(901) 526-2000
FACSIMILE
(901) 577-2303
January 3, 1994
First Tennessee National Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Re: MERGER WITH CLEVELAND BANK & TRUST COMPANY - FEDERAL INCOME TAX
CONSEQUENCES
Gentlemen:
We have acted as counsel for First Tennessee National Corporation
("FTNC") in connection with the Agreement and Plan of Merger dated as of July
23, 1993 (the "Agreement"), by and between FTNC and Cleveland Bank & Trust
Company ("CBTC"). The Agreement provides that FTNC will form a new
wholly-owned banking subsidiary ("Interim Bank") and that Interim Bank will be
merged with and into CBTC under the Tennessee Business Corporation Act (the
"Merger"). The corporate existence of Interim Bank will cease, and CBTC will
become the surviving corporation. Pursuant to the Agreement, each share of
CBTC common stock issued and outstanding at the Effective Date will be
converted into shares of FTNC common stock based on a Conversion Number set by
reference to the average price of the FTNC common stock for the twenty (20)
business days immediately prior to the date of regulatory approval of the
Merger. No fractional shares of FTNC common stock will be issued in connection
with the Merger. In lieu of fractional shares, FTNC will make a cash payment
equal to the fractional interest which an CBTC shareholder would otherwise
receive multiplied by the Average Price of FTNC common stock as defined in
Section I(C) of the Agreement. This opinion is provided pursuant to the
requirements of Item 4 of Form S-4 and Section V(A)(9) of the Agreement.
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Agreement.
We have been provided with an Officer's Certificate dated
December 3, 1993, in which officers of FTNC make certain
representations on behalf of FTNC regarding the Merger, and we have been
provided with a Certificate dated December 6, 1993, in which
officers of CBTC make certain representations on behalf of CBTC regarding the
Merger (the "Certificates"). We assume those representations to be not only
statements in the signers' best information but also currently true statements
of fact, and we rely thereon in rendering this opinion.
<PAGE> 2
First Tennessee National Corporation
January 3, 1994
Page 2
In rendering the following opinion, we have considered the Agreement,
the Certificates, applicable case law and applicable provisions of the Internal
Revenue Code of 1986, as amended and as presently in effect (the "Code"), and
regulations adopted thereunder, and Revenue Rulings and Revenue Procedures
published thereunder.
Based on the foregoing, and assuming that the representations made in
the Certificates also will be true as of the Effective Date of the Merger as
defined in the Agreement, we are of the opinion that, upon consummation of the
Merger in accordance with the terms and conditions of the Agreement, for
federal income tax purposes:
(a) Provided that the Merger qualifies as a statutory merger under
the Tennessee Business Corporation Act, the Merger will be a
reorganization within the meaning of Section 368(a) of the
Code, and FTNC and CBTC will each be a party to the
reorganization within the meaning of Section 368(b) of the
Code.
(b) No gain or loss will be recognized by CBTC or FTNC by reason
of the Merger.
(c) No gain or loss will be recognized by the shareholders of CBTC
upon receipt of FTNC common stock in exchange for their CBTC
common stock, except as described below with respect to
stockholders who receive cash in lieu of fractional share
interests in FTNC common stock.
(d) The basis of the FTNC common stock received by CBTC
shareholders who exchange CBTC common stock for FTNC common
stock will be the same as the basis of the CBTC common stock
surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is
received).
(e) The holding period of the FTNC common stock received by a CBTC
stockholder will include the period during which the CBTC
common stock surrendered in exchange therefor was held,
provided that such CBTC common stock was held by such CBTC
stockholder as a capital asset on the Effective Date.
(f) A stockholder of CBTC common stock who receives cash in the
Merger in lieu of a fractional share interest in FTNC common
stock will be treated as having received cash in redemption of
such fractional share interest. Provided that such CBTC
common stock was held by such CBTC stockholder as a capital
asset on the Effective Date, the receipt of such cash should
generally result in capital gain or loss equal to the
difference between the amount of cash received and the portion
of such CBTC stockholder's adjusted basis in the shares of
CBTC common stock allocable to the
<PAGE> 3
First Tennessee National Corporation
January 3, 1994
Page 3
fractional share interest. Such capital gain or loss will
be long-term capital gain or loss if the holding period for
the shares of CBTC common stock for which cash is received is
more than one (1) year.
The shares of CBTC common stock referred to herein do not include any
stock rights, rights or options to acquire CBTC common stock.
Based on the foregoing assumptions, we are further of the opinion that
under the corporate income or excise tax laws of the State of Tennessee, no
gain or loss will be recognized by CBTC or FTNC by reason of the merger.
This opinion is limited to the effect of the income tax laws of the
United States of America and the State of Tennessee, and we have expressed no
opinion as to the laws of any jurisdiction other than the United States of
America and this state. We have not considered the effects of the transaction
on the stockholders of CBTC under the income tax laws of the states in which
they reside, and we have not considered the effects on the transaction, if any,
of sales and use taxes or any other state and local taxes except for corporate
income or excise taxes. We express no opinion as to the federal income tax
consequences of the exchange of CBTC shares by any individual who receives such
shares as compensation and holds them at the Effective Date subject to any
restriction related to employment.
Changes to the Code, regulations, rulings thereunder, and changes by
the courts and the interpretation of the authorities relied upon, may be
applied retroactively and may affect the opinion expressed herein.
The foregoing opinion is furnished to you solely in connection with
the above-described transaction and may not be relied upon by any other person
or entity, or used for any other purpose. Unless a prior written consent of
our firm is obtained, this opinion is not to be quoted or otherwise referred to
in any report, proxy statement, or registration statement, and is not to be
filed with or furnished to any governmental agency or other entity or person,
except as otherwise required by law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4, relating to the issuance of shares of FTNC
common stock in the Merger, to be filed
<PAGE> 4
First Tennessee National Corporation
January 3, 1994
Page 4
by FTNC with the Securities and Exchange Commission, and to all references to
this firm in the Prospectus that is a part of the Registration Statement.
Very truly yours,
HEISKELL, DONELSON, BEARMAN,
ADAMS, WILLIAMS & CALDWELL, P.C.
By: William H.D. Fones Jr.
A Member Thereof
WHDF,Jr:brw
<PAGE> 1
EXHIBIT 99(b)
PROXY
Cleveland Bank & Trust Company
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CLEVELAND BANK &
TRUST COMPANY FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
February 23, 1994)
The undersigned hereby appoints Jefferson Davis Morelock and Larry D.
Basham 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 Cleveland Bank & Trust Company ("CBTC") standing in my name on
the books and records of CBTC at the close of business on January 7, 1994 which
the undersigned is entitled to cast at the Special Meeting of Shareholders to
be held at the main office of CBTC, 775 Raider Drive, N.W., Cleveland Tennesse,
on February 23, 1994 at 10:00 a.m. CST and at any and all adjournments as
follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- --------- ---------
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger dated as of
July 23, 1993, (the "Merger Agreement") by and between First
Tennessee National Corporation ("FTNC") and CBTC which
provides that First Tennessee Interim Bank, a newly
chartered and wholly-owned subsidiary of FTNC will merge
with and into CBTC, as a result of which CBTC will become a
wholly-owned subsidiary of FTNC
------------ ------------- -------------
2. At their discretion, on such other business as may
properly come before the Special Meeting or any adjournments
or postponements thereof.
------------ ------------- -------------
</TABLE>
NOTE: The Board of Directors is not aware of any other business that may come
before the meeting.
<PAGE> 2
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS
STATED IF NO CHOICE IS MADE 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 CBTC 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 23rd day of February, 1994; and the Proxy Statement-Prospectus
dated the 10th day of January, 1994 prior to the execution of this Proxy.
-----------------------------------
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.)
